Athersys, Inc.
Q2 2013 Earnings Call Transcript

Published: 14 Aug 2013

[Operator:]

Good afternoon. My name is Candace and I will be your conference operator today. At this time, I would like to welcome everyone to the Athersys Second Quarter 2013 Financial Results Conference Call. [Operator Instructions] Thank you. Ms. Lisa Wilson, Investor Relations for Athersys, you may begin your conference.

[Lisa Wilson:]

Thank you, and good afternoon, everyone. I'm Lisa Wilson of In-Site Communications, Investor Relations 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 Libby Abelt in my office at [phone] to receive it via e-mail. Gil Van Bokkelen, Chairman and Chief Executive Officer; and B.J. Lehmann, President and Chief Operating Officer of Athersys, will host today's call. The call is expected to last approximately 30 to 45 minutes and may also be accessed at athersys.com. A replay will be available 2 hours after the call's completion and access information for the replay is in today's press release. Any remarks that Athersys 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 the company's Form 10-Q, 10-K and other public SEC filings. Athersys anticipates that subsequent events and developments may cause its outlook to change. And while the company may elect to update these forward-looking statements at some point in the future, the company specifically disclaims 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 13, 2013. Since then, Athersys may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings. With that, I would like to turn the call over to B.J. Lehmann. B.J.?

[William Lehmann:]

Thanks, Lisa. Good afternoon, and welcome, everyone. I'm B.J. Lehmann, President and Chief Operating Officer at Athersys. I'll briefly review our financial results for the period ended June 30, 2013, and then I'll turn the call over to Gil Van Bokkelen for a corporate update, followed by a question-and-answer period. In the second quarter of 2013, we reported total revenues of $571,000, compared to $2.7 million for the same period in 2012, reflecting a $2 million decrease in our Pfizer contract revenues. The Pfizer-related revenues, including license fees, research funding and certain manufacturing services were recognized over a 2.5-year performance period that ended in June 2012, which is responsible for the year-over-year decline. We continue to generate some contract revenues from our collaborations, including from Pfizer and RTI Biologics, but at reduced levels from the prior year. We also continue to generate grant revenues from multiple awards, such as the SBIR Fast Track grant award that we announced last week. This new grant is expected to provide up to $2.8 million of support of a Phase II clinical study evaluating the administration of MultiStem patients who have suffered a heart attack. Research and development expenses were $5.1 million in the second quarter of 2013 compared to $5 million in the prior year period. Clinical and preclinical development cost, which are the largest R&D expense item and represent a large proportion of the cost of our development programs, decreased $145,000 in 2013 second quarter compared to the prior-year period. Personnel costs increased $160,000 during the period compared to the prior-year period. Patent legal fees increased $193,000 and sponsored research decreased $154,000 during the period compared to the prior-year period. General and administrative expenses increased to $1.6 million in the second quarter of 2013 compared to $1.2 million in the prior year period due to increases in advisory and other external service provider costs, legal and professional fees and personnel costs. Income of $216,000 was recognized during the quarter ended June 30, 2013, from the change in the market value of warrant liabilities, compared to an expense of $96,000 during the prior-year period. Net loss for the 3 months ended June 30, 2013, was $5.9 million, compared to a net loss of $3.7 million for the 3 months ended June 30, 2012, with the difference largely attributable to the decrease in Pfizer contract revenues. As of June 30, 2013, the company had cash and cash equivalents of $18.9 million compared to $25.5 million at December 31, 2012. During the first half of 2013, we used the company's equity purchase agreement to support our operating cash and capital investment needs and to offset the decline in Pfizer revenues. In the first half of the year, we generated $5.8 million in proceeds from equity sales under the purchase agreement. We believe that the continued prudent use of the facility from time to time could support the achievement of our clinical development milestones, such as the generation of clinical data from Phase II clinical trials and of our business development objectives. With that, I'd like to turn the call over to Gil for a corporate update. Gil?

[Gil Van Bokkelen:]

Thanks, B.J., and good afternoon, everyone. Athersys is committed to developing novel and proprietary treatments that have the potential to address significant areas of unmet medical needs. One of the key ways we intend to achieve this goal is by developing by our off-the-shelf stem cell product, MultiStem, which we believe represents an important advancement in the field of cell therapy-based medicine. Our current regenerative medicine program have a core focus on treating specific inflammatory and immune disorders, neurological conditions and cardiovascular disease, each of which are conditions of significant unmet medical needs and represent large markets that are likely to grow substantially over time, given current population dynamics. MultiStem is a biological product that is manufactured from human stem cells obtained from adult bone marrow or other non-embryonic tissue sources. Unlike other cell types, after isolation from a qualified donor, MultiStem may be expanded on a large-scale for future clinical use and stored in frozen form until needed. Cells contained from a single donor require no genetic modification and may be used to produce to banks, yielding hundreds of thousands and millions of doses of MultiStem, an amount far greater than other stem cell types can achieve. Each bank is extensively characterized to ensure product consistency and safety. MultiStem consists of a special class of human stem cells that have the ability to express a range of therapeutically relevant proteins and other factors, as well as for multiple cell types. A growing body of evidence generated by Athersys scientists and independent collaborators shows that MultiStem promotes healing and tissue repair through multiple mechanisms of action. The product conveys repairing effects in multiple ways, such as through the expression of factors that reduce inflammatory damage, enhance the formation of new blood vessels in the region of ischemic injury, and protect or damaged injured tissues in the areas where otherwise healthy tissue may be at risk. Furthermore, our research has shown that MultiStem regulates other cell types in key organ systems in the body to promote tissue repair and healing. Like a drug or conventional biologic, the cells are cleared from the body over time, although their effects on promoting healing and tissue repair appear to be quite durable and long-lasting. Five of our MultiStem programs are now in clinical development, including 3 programs in the inflammatory and immune disease space. Our partner, Pfizer, is conducting a Phase II clinical study involving administration of MultiStem cells for patients suffering from treatment-resistant or refractory ulcerative colitis. These are very sick patients with active disease for whom the current standard of care has previously failed. Ulcerative colitis is the most common form of inflammatory bowel disease, or IBD, which includes other disorders such as Crohn's disease. Collectively, these conditions are estimated to affect 4 million people or more in the U.S., Europe and Japan a represent areas of significant unmet clinical needs. In the ongoing study being conducted by Pfizer, patients received either a single dose of MultiStem or placebo on Day 1 and are then evaluated periodically up through Week 16 post-treatment. The study requires patients to undergo an endoscopic evaluation at Phase I prior to treatment and again at Week 8, post-treatment, in addition to other clinical assessments that occur during the study. The primary endpoints for the trial were focused on the clinical evaluation at Week 8, including the endoscopic and rectal bleeding scores. Following the Week 8 assessment, patients receive additional treatment with either intravenous MultiStem or placebo and are subsequently assessed through Week 16. As a result, the 16-week assessment, which does not include endoscopic evaluation, includes analysis of 4 subgroups

[Operator:]

[Operator Instructions] Your first question comes from Ted Tenthoff with Piper Jaffray.

[Edward A. Tenthoff:]

The Phase II study, when do you think that should be up and rolling?

[William Lehmann:]

Ted, I think we're going to have that up and rolling in the early part of next year. There's a limited amount of additional planning and we have to finalize the protocol, have the FDA take a look at that, review it and give us the blessing. Some manufacturing work we have to do. But we're targeting early next year to get that launched.

[Edward A. Tenthoff:]

Great. And then with respect to the Pfizer data, again, another rollout here due to recruitment challenges, as it was described. Can you give us a little bit more color what that means? Is this a factor of just finding patients who aren't controlled via biologics? Remind us what the enrollment criteria are that may be making recruitment so challenging here?

[Gil Van Bokkelen:]

Well, that is a constraint. I mean, the patients had to have failed prior forms of therapy, so that's a clear limitation. I think Ruth, who was kind enough to actually offer some perspective in the press release. She's indicated that that certainly is a serious consideration but it's also the fact that the recruiting landscape is pretty complex at the moment. So we're in competition with several other studies. And again, there a number of different, more traditional pharmaceutical or even some biologic approaches that are being developed that we're competing with enrollment for. But I think that part of it reflects the fact that during certain parts of the year, enrollment rates tend to drop down. The summer tends to be a pretty tough time in Europe, for example. [indiscernible] Yes, I think that's a big part of it. I mean they were shooting to try and actually get enrollment done sometime by mid- to late summer. They're a little bit behind that. But I think that they anticipate that they can still meet the goal and I think it's posted on clinicaltrials.gov, that they're shooting for some time for October is being their target, which would clearly put us on a path to actually have data sometime around the end of the year, but probably early in 2014. We're being a little bit more cautious about it just because things have gotten shifted back several times here. So we're kind of projecting it's probably going to happen sometime between October and Thanksgiving. But in any event, I think both we and Pfizer are very confident that it's going to happen before the end of the year, which would still put us on a path to have data sometime in Q1.

[Edward A. Tenthoff:]

That's helpful. And if I may, just one last one. With respect to the GvHD prevention study, I know we've been talking about potential registrational plans there. What is -- when should we be expecting a Phase III study or a Phase II/III study, however you want to term it? And what would be any holdups for beginning that trial?

[Gil Van Bokkelen:]

Well, I think largely initiation of that study is going to be -- let me take a step back. So we have lots of investigator interest and a lot of leading transplant sites are excited about participating in the trial. And so we -- internationally. So we're seeing good levels of excitement around that. Logistically, we still have some things that we need to get final clarity on regarding some of the parameters suggested by the FDA around study design and how we need to power certain types of things. The FDA gave us some very good guidance. I mean, they've been very helpful, I would say, and are supportive in terms of how they're viewing the study and what the potential impact of the study might be, which is a great place to be. We expect to have the logistical and the planning aspects for the study done by the end of the year, give or take. And it's really then being in a position sometime in 2014 to be ready to actually initiate the study. We're not ready to give specific guidance yet on when we think that we would be ready to do that, but we expect it to be sometime in 2014, not in the too far off future, if you will. I think the primary indication is going to be the completion of some of the other things that we're focused on. So we're busy on the partnering front. This is one of the things that we're discussing, potential partnering activities around, as well as broader opportunities in the transplantation space. So we're excited about where that could go. And as you might imagine, advancing our clinical prep plans in concert with advancing our business development discussions requires multitasking on a couple of different levels, if you will. So I think that achieving goals on the partnering front and/or potentially being influenced by other things that could happen will really drive our ability to initiate that study.

[Operator:]

Your next question comes from the Steve Brozak with the WBB Securities.

[Stephen G. Brozak:]

I'm just going to ask one question, because obviously it's on the top of everyone's mind today that covers the regenerative medicine space. Another company basically came out and sort of just saw some interesting results on wound treatment. But candidly, I'm interested on how your product works in terms of what the advantages are in the regenerative medicine space, specifically in the clinical setting, that you guys offer in terms of standardization. And you can expound as much as you like in terms of the clinical benefits, the manufacturing benefits and everything around what a clinical product advantages are for Athersys. And I got one follow-up on that.

[Gil Van Bokkelen:]

Yes. Well, first, the comments for those people that may not be aware of it. So Osiris actually announced some data this morning that I think were pretty compelling data actually, reflecting results from a study that they've done in the wound healing area. And obviously, we haven't had a chance to do anything more than just kind of look at the data that was -- the data summary that was in the press release. But clearly, the market liked it, and it had a very, very positive impact on their stock, which more than doubled today. I think from a global perspective, this reflects the glowing awareness and adds more data to substantiate the notion that regenerative medicine therapies can be broadly applicable across a lot of areas where traditional approaches have failed or had only limited impact. And I think the more examples of that we see, whether it's from the data we generate or from the data that others generate in the field, the better it's going to be for people that are well-positioned to be leaders in the field of regenerative medicine. And that brings me to the other aspect of your question, which is where do we stand relative to other therapies or other products that are out there, or approaches that people are taking? And as we talked about on prior conference calls, we've actually, and in fact, we even published some of this work and presented in conferences, we've gone to the trouble of doing head-to-head comparisons of our cells relative to other cell types like class 1 of these, which is what Osiris is working with, or other cell types that people are working with. And we see meaningful benefits and advantages in terms of the biological activity of the cells that we work with in terms of their immunomodulatory effects and the way they promote healing and tissue repair in other ways, such as their angiogenic and vasculogenic effects. Let me just be clear about something. I'm really thrilled for Osiris and the positive data and the impact that this has for them. I think this is a step forward for them, and I think it's a step forward for the field. I also feel very confident, and I know I speak for the entire team here, when I say this, as well as for various collaborators that have had the opportunity to work with our technology and run comparative studies against other cell types or other platforms that they have access to, that we feel very, very strong about the strengths of our approach and our product platform. And from a competitive competition, we think that we have a clear path to establishing best-in-class product opportunities in multiple different areas. And that's really where we're focused on. We talked primarily about the things that we've been doing in cardiovascular, inflammatory and immuno-neurological, but we've done studies in other areas that we've never talked about publicly. And I think it's not -- it shouldn't be terribly surprising to people that we're interested in things like wound healing or other areas, and we'll talk more about that over time as the circumstances warrant. And I think that leads us to some other very interesting opportunities for us in the business development front.

[Stephen G. Brozak:]

And that leads me to the follow-up. Are large pharmaceutical companies, large biotech companies showing more of an interest, the same interest? What is their -- now that you have this partnership with Pfizer going for a number of years, what is the level -- not just interest, but level of understanding of your technology and how would you compare and contrast that? And I'll check back in the queue.

[Gil Van Bokkelen:]

Yes. Well, I think the level of understanding about cell therapy and regenerative medicine is getting better generally. I think we have a clear set of things that we've been part -- that we've been focused on and hard at work at in terms of trying to illustrate to people the advantages we have in terms of scalability, biological mechanisms of action and various other aspects that are central to the overall product profile, if you will. And I think that big pharma generally still, in some cases, needs to be educated a little bit in terms where the real opportunities are and how best to attack them. But I can't say that we see more and more evidence that more and more companies get more and more big pharma companies but also other companies that have been following the space and are looking at this and they see that those companies that actually are positioned to deliver a product in a scalable way, that can actually be used to effectively address areas of unmet medical need are going to be well-positioned to capture multibillion market opportunities. And I can say that there's more and more companies that recognize that and are positioning themselves to take advantage of it. And I think that that's very good news for us, because I think we're going to be in a prime position to be able to capitalize on that.

[Operator:]

And your next question comes from Jason Kolbert with Maxim Group.

[Jason Kolbert:]

Can you just slow down with me for a second and walk me through the timeline on stroke? When do we complete the enrollment in that trial? And once the trial is completed, when can we expect the first data points?

[Gil Van Bokkelen:]

Yes. So the primary readout for that trial is 90 days after the subjects have been treated with -- after the patients have been treated with MultiStem. Remember, they've received a single infusion. That infusion is administered 1 to 2 days after the stroke has occurred. And what we've been shooting for is completion of enrollment sometime in Q1, which would put us on a path to actually have data sometime in Q2. So if you -- and again, since the follow-up period, the primary follow-up period is 90 days post-treatment, you can expect that roughly a month of change -- or not a month, a quarter in change after we treat the last subject in the study, that we would be in position to have top line results from the trial. Obviously, it's not exactly at the moment that you treat that last subject. There's a few days of data analysis that have to take place, and as soon as we that done with our CRO, then we'd be in a position to announce the top line results. So we're still shooting for having that data sometime in Q2, probably around the end of the quarter. And we're not just taking it for granted that enrollment through the rest of the study is going to proceed as smoothly as we'd like it to. We've been taking proactive steps, including adding a couple of extra sites here in the U.S. but also working towards getting the sites in the U.K. up and running. So that we expected that will have a great beneficial impact on meeting our goal. And we're looking at other possibilities as well.

[Jason Kolbert:]

What do you mean other possibilities as well?

[Gil Van Bokkelen:]

Well, I think we've always been open-minded about the possibility of looking at other sites x U.S., or whether or not there's an opportunity to add sites outside the United States that may actually assist us on our recruitment goals and actually make a more international study. I mean some very interesting things, as you well know, because I think you were actually the first analyst in the industry to point this out that there's very interesting things going on in other countries, and particularly places like Japan. It's way too early for us to say right now whether or not any of those things are going to have an impact on this study or whether it's going to have an impact on subsequent studies that we might elect to run. But I think some of the possibilities are pretty exciting.

[Jason Kolbert:]

Yes. That's what I'm seeing too, Gil. I mean what I see is 2014 is just transformational because it looks like you're going to have data from stroke and from Crohn's, and we're going to have a really good idea on hand. With that said, can you go back also and just walk me through the partnership with RTI and help me understand what the next step is for them, and remind me how you win on their success?

[William Lehmann:]

Happy to address that, Jason. So let me just talk first about the way the relationship is structured. We provided technology license to our technology that can be incorporated into their combination products, the bone allograft, plus stem cells. They are ultimately going to launch and commercialize this. They're taking a lead there. We're not providing any additional kind of support at this point. We provided some support early on with respect to the technology. And as we announced a couple of years ago when we entered into the relationship, our economic interest on a going-forward basis is going to be in the form of commercialization milestones, plus royalties. We haven't disclosed specifically the royalty levels but it will be a tiered royalty basis. And we have some pretty meaningful economic and financial potential if RTI is successful in further developing and marketing the product opportunity. So we're excited with this milestone. It's important for them. It could be important for us if they're able to be successful. And Obviously, they're going to kind of dictate the development pathway with respect to launch and commercialization. If we need to be supportive, we will to the extent we can. I would look to them for guidance and expectation about impact with respect to sales and so forth. And then once that's out there publicly, we can provide a better sense of impact for us. I think the expectation in the next several months, couple of quarters, is that the impact will probably be low as they initiate in the market space, as they kind of build this out, more and more and more opportunity for meaningful impact on the financial side.

[Jason Kolbert:]

Okay, that's helpful. Can you -- I don't want to sound silly, but how close are they to an approved product? I'm a little bit confused.

[William Lehmann:]

Well, like Osiris, they're relying on 361 this is intended to be a minimally manipulated product. And as a result, while they plan to do clinical work, clinical trials, as my understanding is, they're also going to be in the market with implants in the relatively near term. So this would be essentially regulated under the 361 regulation that applies to things like graphics and other products out there [indiscernible] space. NuVasive has got a product [indiscernible] that are kind of relevant comparators. They've done relatively successfully, I think, in marketplace and they've built out a nice market segment north of $100 million to $150 million already.

[Jason Kolbert:]

Okay, I got it. So in other words, it isn't necessarily requiring a formalized clinical trial. They can actually be out there selling, generating revenues under 361, and they can have a trickle effect to you but it's not the same type of clinical milestone that we're looking at in the other programs.

[William Lehmann:]

Yet, I think that's right. I mean there'll be a buildup. So as opposed to perspective clinical trial, you have the endpoints and approval and super rapid launch. This will be more of a buildup.

[Gil Van Bokkelen:]

Yes. I mean the bone allograft market, I know you know the numbers there, Jason. It's a pretty meaningful market opportunity, right? And RTI is already pretty well-entrenched in terms of servicing that, both through their strategic relationships and other things that they're doing. So I think this could become meaningful over time. But as B.J. was indicating, we think it's going to be kind of a rolling buildup, if you will...

[Jason Kolbert:]

It's a beautiful option, and in the meantime, you're going to buildup tremendous amount of anecdotal proof-of-concept data that maybe will move people to understanding -- getting comfortable with the utility in MultiStem in that indication.

[Gil Van Bokkelen:]

Yes, exactly, exactly.

[Jason Kolbert:]

Okay. So last question, and it's kind of switching back to the small molecule program. And how would we understand how active is that space now and how hopeful are you to still come up with a BD [ph] partnership over the next year for the 5HT2c?

[Gil Van Bokkelen:]

Well, I can say that the area is actually very active. It's interesting that a lot of people right now are paying close attention to what's going on with both Venus and Arena in terms of their product launches. And I think both of those companies have gone out a little bit slow from the gate, if you will, in terms of what they were shooting for, in terms of the initial launches of the product. But I think part of that is for understandable logistical reasons, but I think part of it also is because it illustrates in my mind that there's a compelling opportunity for a company that develops a truly safe and effective approach to treating obesity. I think if either one of those companies develop the ideal solution, then the product will be flying off the shelves. And I think they're both getting traction, but I think it's just happening a lot slower than what they expected. I think that the momentum is probably going to increase over time and it's going to happen in fits and starts. But I think both we and, I believe, prospective partners recognize that there's ample room for improvement there. And as we talked about in prior calls, there's a whole other dimension of what we're doing that has relevance to neurological indications like schizophrenia and others, where companies -- for example, Pfizer, ran a study with a 5HT2c agonist that was a highly select compound but nonetheless actually showed some pretty interesting and persuasive data in terms of treating schizophrenic with active disease. And again, I think the challenge is making sure that you got something that you can really convince people is truly safe and effective, and there's a number of things that you need to do to be able to do that, but we believe we have the goods there. And I think that people who have gotten to know us really well are pretty optimistic that we've done that as well. We're not going to rush the completion of a partnership around this particular franchise. We're going to do it very systematically and methodically. I'm very confident that we'll establish a valuable partnership around this program. I can't guarantee the timing. Frankly, I would like it if it already happened by now, but we're more committed to getting it right than we are to doing it super fast. And so I think people just need to be a little bit patient. The good news is, is that that's not our only partnering opportunity. We have other dimensions of partnering options and opportunities as well. And we're moving these things in forward in concert so that we can pick the right opportunities for us and the right partners and then leverage that to the best interest of our shareholders. Does that help?

[Jason Kolbert:]

Yes, that helps a lot. I really appreciate it. And congratulations on the NHBLI (sic) [NHLBI] grant. I know that -- I chased that very aggressively in another life, and they don't give those grants away very easily. So it points to the significance of the AMI program, which is kind of my first love in the regen space. So I'm really excited to see that take off. Congratulations.

[Gil Van Bokkelen:]

Thank you. Well, we're excited about that and it's a testament to the hard work of the leadership team here that really worked hard, particularly our head of cardiovascular and cardiopulmonary who really drove that process, and other members of the team as well. And I think that hard work and relentless determination paid off.

[Operator:]

[Operator Instructions] And your next question comes from Ted Tenthoff with Piper Jaffray.

[Edward A. Tenthoff:]

I just have a q issue, and saw that there's about 57 million shares outstanding. So I was wondering if you could tell us how much -- how many shares you've issued to generate that $5.8 million to date. And have you issued anything subsequent to the end of the second quarter?

[William Lehmann:]

I don't have the share count in front of me. I know in the second quarter we did take advantage of the equity line and we raised around $3.8 million. And we did that at a pretty reasonably high price point, closer to $2 per share. So you can kind of do the math there. So it's several million shares that have been issued with respect to the equity line. as we said, I think we see this as a useful tool in a going-forward basis. We use it from time to time really to kind of supplement what we're doing on the operating side. So I think there should be some expectation that we'll make some use of it over the next couple of quarters. We're not really projecting what that might be. It might be a little bit more than that, but we'll be opportunistic, we'll be very prudent. We really want to be in the best position to kind of work through and push our operations through all the important clinical milestones we have. And we feel like we're in very good shape right now, but we want to have the flexibility to continue to be that way.

[Operator:]

And we have no further questions at this time. We'll turn the call back to Mr. Van Bokkelen for closing remarks.

[Gil Van Bokkelen:]

Once again, I just like to thank everybody for your time and attention today. And again, I encourage you to check out the new website. We're excited about it, and we'll continue to add things to it over time. But we think it provides a very user-friendly way to get access to relevant information about the company and our programs as they continue to move forward. Thanks again for tuning in, and we look forward to updating you again in the future.

[Operator:]

And that concludes today's conference call. You may now disconnect.