ThermoGenesis Holdings, Inc.
Q4 2015 Earnings Call Transcript

Published: 18 Sep 2015

[Operator:]

Good day and welcome to the Cesca Therapeutics Fourth Quarter and full Fiscal Year 2015 Financial Results Conference Call and Webcast. Please refer to the press release about this conference call on the company's website, cescatherapeutics.com for further details. The company has asked that I read the following statement. Management will make comments today that contain forward-looking statements. Forward-looking statements are any statements that are made that are not historical facts. These forward-looking statements are based on current expectations of the management team and there could be no assurance that such expectations will come to fruition. Because forward-looking statements involve risks and uncertainties, Cesca’s actual results could differ materially from management’s current expectations. Please refer to the press release, the company’s Forms 10-K, 10-Q, and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time-sensitive and is accurate only at this time. If any portion of this call is rebroadcast, retransmitted, or redistributed at a later date, Cesca will not be reviewing nor updating this material. As a reminder, all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. [Operator Instructions] For your information this conference call is being recorded. I will now like to turn the conference call over to Mr. Robin Stracey, Chief Executive Officer of Cesca Therapeutics. Please proceed sir.

[Robin Stracey:]

Thank you, operator and thanks to each of our listeners for joining the call. It's a pleasure to be with you this afternoon. As usual, I’m joined today by our President today, Ken Harris, who as you know oversees our clinical programs both in India and in United States and by our Interim Chief Financial Officer, Mike Bruch. Also here with me today is Mitchel Sivilotti who co-founded TotipotentRx with Ken 10 or so years ago and who today runs Cesca's cord blood banking business. I plan to make a few introductory remarks highlighting significant accomplishments over this first full year of operation for Cesca Therapeutics as a fully integrated regenerative medicine company. Ken will then give you a detailed update on how things are progressing with our clinical programs before Mike gets into a discussion of our financial results for the fourth quarter of our financial year and for the years as a whole. I'll be back for a few wrap-up comments after Mike and then we'll open up the call for questions. Those of you that follow the company closely will appreciate that the last year has been challenging on a number of fronts. We changed CEO, we changed CFO, we changed auditors. We tidied up a number of housekeeping items, including an identified material weakness in our governance procedures that for a period of time put us out of compliance with SEC reporting and NASDAQ listing requirements. Nevertheless, in spite of the turbulence, much of which can be attributed to the trials and tribulations of putting two very complementary but fundamentally different companies together at the time of the merger, we made significant progress in our quest to become the market leading, fully integrated regenerative medicine company with unique and highly differentiated offerings that address significant unmet medical needs. In November 2014, we submitted an investigational device exemption application to the U.S. Food and Drug Administration for a pivotal, multi-center study of our SurgWerks, CLI and VXP system for the treatment of late stage, no option, lower limb, critical limb ischemia. That IDE application was the result of two prior positive pilot and feasibility studies conducted in Italy and India. Following feedback from the agency and submission of an amended IDE application thereafter in June, we were granted approval by the FDA without limitation to move forward with a 60 site, 224 patients Phase III pivotal clinical trial for CLI. In May of this year, we received Institutional Ethics Committee or IEC approval to initiate a SurgWerks-AMI and VXP System, 40 patient Phase II clinical trial in India. We are now waiting formal approval from the Drugs Controller General in India, with which we will be able to commence the trial. AMI as you know is our second major cell therapy protocol in development. And in February of this year, we receive approval from the India Drug Controller General for the import and commercialization of our MarrowXpress System in India. This approval specifically for the preparation of intraoperative or clinical laboratory preparation of bone marrow concentrate is fundamental to the bone marrow transplantation initiative we have underway in India in conjunction with our partner Fortis Healthcare. Ken will elaborate on the CLI, AMI, and bone marrow transplantation accomplishments shortly. As for our cord blood business, it’s performing more or less in line with expectations over the course of the year. As I’ve mentioned before, it’s limited in terms of growth potential, but there are pockets of opportunity that we continue to seek to exploit. In the last couple of months since receipt of FDA approval for initiation of our Phase III pivotal clinical trial for CLI and being back in compliance with SEC reporting requirements with current financials on file, a major focus for us has been securing the financing commitments necessary to enable us to implement the CLI trial going forward. To that end, we were delighted to announce just a couple of weeks ago the signing and initial closing of a definitive agreement to raise $15 million in senior secured convertible debentures and warrants from one institutional life science investor. On the same day, we also submitted an application to the California Institute of Regenerative Medicine which we hope will result in non-dilutive [ph] funding for up to half the total cost of the trial. The significance of these developments is that to the extent we receive sound funding in the amount we expect, we anticipate having the financial wherewithal to execute the CLI trial going forward. In line with this goal, we’re also keeping a very tight rein on expenses. Just this last week, we announced a series of structural changes geared towards reducing costs associated with our cord blood banking business to further enhance our ability to align available resource behind our high impact clinical initiatives. In parallel, we continue to monitor the capital markets and we’ll seek the further strengthen our balance sheet as circumstances and opportunities warrant. At this point, I’d like to turn the call over to Ken for a more detailed update on progress against our clinical milestones.

[Ken Harris:]

Thanks, Robin and good afternoon everyone. I’m going to focus the clinical update comments today on three programs; the CLIRST III pivotal trial, the AMIRST II feasibility trial, and the bone marrow transplant initiatives. As mentioned by Robin, 2015 was a year of significant achievement for the company’s clinical programs. The preparation and ultimate approval on June 12 of the U.S. CLI pivotal trial application consumed considerable bandwidth and is now the template for follow-on indications using our SurgWerks platform. We successfully demonstrated that human clinical data obtained from our world class, yet lower cost India based CRO does meet the U.S. FDA’s criteria. We proved that a point-of-care cell therapy can be implemented in the surgical suite with all of the quality and dosing rigor that our competitors’ cells in a bottle approach considered to be our Achilles heel, and we can deliver this therapeutic approach in an economically viable and highly competitive manner. The clinical affairs, regulatory affairs, manufacturing group, and clinical operations teams in the company are now in full execution mode for initiating the trial. We have announced the funding plans for the trial including the announced debenture and an application to the California Institute of Regenerative Medicine, where we hope to receive a royalty grant for up to 50% of the trial cost in exchange for modest commercial royalties that will be paid if we are granted marketing approval. Additional co-funding sources that will further reduce our overall costs will come from the centers for Medicare and Medicaid services. As all of the funding aligns, we are proceeding to enroll clinical trial sites, execute IRB applications, and establish our method for rotating the necessary clinical equipment among the up to 60 perspective sites using a hub and spoke setup. The quick snapshot of where we stand is as follows. We have 41 prospective U.S. sites and three Indian sites to-date. The potential sites thus far breakout geographically with 7 in the Southeast, 7 in the South, 12 in the Mid-West, 8 in the North East, 3 in the Mid-Atlantic, and 4 in the West. 28 of the sites have been inspected by our team in a process called the pre-study visit, where we assess the site’s indication specific patient load, clinical research competencies, facilities capabilities, and potential conflicts of interest including competitive studies. The 28 sites have been assessed and will provide approximately 100 subjects. We’ve issued out of the 28, 22 site approval letters. We will then use six hubs across the U.S. for servicing the 22 sites for housing, shipping, picking up and repacking the clinical trial equipment to and from each hospital. The hubs are managed by an experienced medical logistics organization and will be in the following cities Atlanta, Orlando, Philadelphia, Dallas, Chicago and Los Angeles. The company completed the audit of a logistics provider last month and we are now ready to start deploying across the U.S. Turning to the AMIRST II trial update which as you recall is the trial focused on patients who experienced an acute myocardial infarction and do not adequately respond to reperfusion therapy. AMIRST II is a 40 patient study, one-to-one randomized trial which means 50% of the subjects will receive the SurgWerks-AMI and VXP system intervention and 50% will receive an active control otherwise known as standard of care. The primary end point in the AMIRST II study is six month safety. This study will be conducted in India and under the new Indian clinical trials rules we must follow a three step approval process; first, institutional review board or IEC is required and we already have two approvals completed. Second the technical application must be presented to the Drugs Controller General for review by an external technical panel and we’re preparing that part of the dossier now. And then ultimately the third step will be the Drugs Controller General reviewing the reviews of the expert panel and the IRBs for a final decision. We do expect the final decision in the first calendar quarter of 2016. Finally, specific to our hematology and oncology programs and specifically the bone marrow and stem cell transplant initiatives you will recall that our goals are to have a global initiative for commercializing laboratory cell processing equipment and for running a potentially high revenue generating technology and services business in India. I will start with the Indian technology development which is ideally suited to support a meaningful revenue services business. Cesca’s HEM/ONC transplant program is well under way in India. As you know from previous updates we have a fully licensed GMP facility located within the Fortis Memorial Research institute located just outside of Delhi. Our team operates seven days a week, providing advanced clinical services to Fortis as well as other hospital groups across the Indian continent. This year we have spoken of the progress of the most sophisticated program specifically the haploidentical transplant initiative and I'm happy to announce we've made significant progress on several fronts. Firstly, we recently hired a transport business manager joining the company with the Phd in the field and over 10 years of experience in servicing the HEM/ONC programs across the country and has lead business development for products and Grifols, Haemonetics and Miltenyi Biotec. Dr. Naidu brings a wealth of experience including ex-vivo T-cell protocols as well as key contacts in the Indian market. Secondly, in terms of revenue for clinical activities, in the fourth quarter alone we completed 18 BMT procedures two, an acute myeloid leukemia, one acute lymphocytic leukemia, six non-Hodgkin lymphoma cases, one relapsed Hodgkin Lymphoma, three neuroblastoma cases, three multiple myeloma and one major thalassemia and one aplastic anemia case for a total growth of six cases over the prior quarter. Year-over-year we grew our small but important revenue by 65% and are projecting similar growth again for FY16. Included in the 2016 projections will be 17 haploidentical bone marrow transplant procedures. We are already on track towards this goal, having completed four haplo procedures this quarter alone. This new growth is in the direct result of our strategic sales focused in the haplo market. To further support this initiative we are currently preparing for an inaugural haploidentical symposium to be held in January 2016 and co-sponsored with the leading T-cell technology company. Specific to the fellowship program I've spoken of in the past and new clinical partnerships, we are making progress and before the end of the calendar year you will hear more announcements. We started yesterday with the announcement of the first clinical collaboration with Memorial Sloan Kettering. This research partnership focuses on the clinical cell preparations, and a new applications within the HEM/ONC program specifically with immune oncology, an area of intense development over the recent past. We expect our learning's to translate into new cell recoveries software algorithms as well as advancements to usability associated with the clinical environment. Stay tuned as we have several other collaborations in development and will update the market as these mature. In the U.S. and Europe were actively pursuing collaborations with the purpose of, one, establishing strong relationships with key institutions and clinicians in the HEM/ONC field. Two, development and commercialization of our cell works intra-clinical laboratory devices and protocols and three, the generation of the data necessary to expand applications for new 510-K approvals. The first of which we are expecting at the end of next summer. Our major collaboration announce yesterday was specifically in the Center for Immune Cell Therapies within Memorial Sloan Kettering cancer center. And finally, in other commercial, cord blood and tissue banking initiative we closed quarter four FY15 on a high note as a result of fundamental building activities implemented throughout the year including the installation of a new highly effective management team completing the licensure of our Goregaon [ph] based GMP facility within Fortis and three increased support from Fortis corporate in response to the robust signs they are seeing for revenue growth. Speaking directly to unit sales, our NovaCord banking and services business grew to 55 units in the fourth quarter alone which is a 100% increase over the same period last year. We see this growth continuing and are on track for continuing the growth trend in the first quarter of this year. The newly restructured management has accomplished this in an intensively competitive market and within the small number of Fortis hospitals in North India. As a result we are commencing a more aggressive growth plan now by doubling the Fortis hospitals this quarter followed by the opening in the South India, specifically in the Bangalore region and in West India specifically in the Mumbai region. As well we will be investing in various marketing programs focused on capitalizing on our sustainable differentiation in the Indian market, namely our strategic decision to maintain exclusive access to our AXP technology, meaning that no other bank will gain access to this technology in India and we will continue to leverage our position with Fortis and the AXP platform as a premium provider of clinical transplant services. I will now hand the call over to Mike for discussion on our fourth quarter and full year financial results.

[Mike Bruch:]

Thank you, Ken and good afternoon everybody. First I’d like to briefly discuss our recent 15 million financing and then I will turn to our financial results for the fourth quarter and the full year. On August 31st the company sold senior secured convertible debentures for $15 million. This financing represents a significant vote of confidence in our clinical programs from a sophisticated life science investor that stronger believe in Cesca’s story. This investment improves our cash position and allowed us to file an application with the California Institute of Regenerative Medicine and if approved would fund up to one-half of the cost of our CLIRST III pivotal clinical trials. The financing will be funded in two closings. The initial closing happened on August 31st and the company received gross proceeds of $5.5 million on that date. The remaining $9.5 million of gross proceeds will get deposited into a control account and release at a second closing date which is based upon achieving certain milestones including stockholder approval of certain of the term to the agreement and notification of Stern [ph] on the approval of our CLI application in the amount of $10 million. Now turning to our financial results. In the fourth quarter of 2015 net revenues were $3.7 million compared to $3.8 million for the same period in 2014. The decrease in revenues of 136,000 was primarily due to selling one fewer BioArchive device in the current year period. Gross profits for the quarter ended June 30, 2015 was $900,000 compared to 1.2 million for the same period in the prior year. The decrease in gross profit of $292,000 was primarily due to an increase in manufacturing overhead cost which contributed to a higher burden on the volume of product sold. Operating expenses for the quarter ended June 30, 2015 were $3.3 million compared to $4.4 million for the same period in 2014 resulting in a reduction of $1.1 million. Contributing to the decrease where legal fees incurred in the prior year associated with pattern litigation related to our rescue systems of $450,000 reduced audit fees of $400,000 and $100,000 related to open physicians. The reductions were partially offset by increases in our clinical programs as we continue to prepare to initiate our pivotal clinical trial to treat CLI. Net losses for the quarter ended June 30, 2015 were $2.4 million compared to $2.9 million for the same prior year period. The net loss decreased by $493,000 as a result of lowered legal fees and audit fees partially offset by a decrease in our gross profit, increased cost in our clinical programs and prior year deferred income tax benefit associated with intangible assets acquired during prior year’s with TotipotentRx. Adjusted EBITDA loss was $1.8 million for the quarter ended June 30, compared to 2.7 million for the same period in prior year. The adjusted EBITDA loss decrease by 891,000 principally as the result of our lower net loss as previously described. Now turning to the full year, net revenues for the full year ended June 30 were $16 million which is comparable to $16 million for the same period in the prior year. Revenues for AXP disposables increased primarily due to an increase in direct shipment to one of our end user customers who historically purchased from GE Healthcare. This increase was offset by a decrease in revenues of our BioArchive devices as we shipped fewer units in fiscal 2015 and we deferred revenue until completion of installation services on four devices made from the payment terms for a particular customer. Gross profit for the year ended June 30, 2015 was $4.8 million compared to $5.9 million for the same period in the prior year. The decrease in gross profit was approximately $1.1 million, was primarily due to an increase in manufacturing overhead cost which contributed to a higher burden on volume of products sold. Operating expenses for the year ended June 30, 2015 were $19.6 million compared to $14.9 million for the same period in 2014 representing a year-over-year increase of $4.7 million. The increase is primarily due to costs associated with developing our clinical therapies program of $2.5 million, increases of legal fees of $2 million mainly associated with patent litigation and increase in professional and legal fees of 450,000 to analyze and begin remediation of our material weakness in governance practices and an increase in employee’s severance cost of $448,000. These increases were offset by a decline in cost associated with the merger with TotipotentRx at $1.7 million in the prior year. Net loss for the year ended June 30, 2015 was 14.9 million compared to a net loss of 8.6 for the same prior year period. The increase in net loss of $6.3 million is a result of cost associated with developing our clinical therapy programs increased patent litigation, legal fees to address our material weakness in governance practices at employees severance cost. Additionally, our net loss increased due to a prior year deferred income tax benefit associated with intangible assets acquired during prior year’s merger with TotipotentRx. These were offset by declines in costs associated with prior year’s merger with TotipotentRx. Adjusted EBITDA loss for the year was 12.1 million compared to 7.4 million for the same period in the prior year. The increase in adjusted EBITDA loss of 4.7 million is the result of an increase in the net loss previously described. This was offset by increased amortization of certain intangible assets acquired during the merger with TotipotentRx and increase in stock based compensation and the decline in the cost associated with prior year’s merger with TotipotentRx. Cash at the end of the fourth quarter was 3.4 million compared to 14.8 million at the end of fiscal 2014. As I already mentioned in August 2015 we sold senior secured convertible debentures of $15 million. At the initial closing date on August 31st the company received gross proceeds of $5.5 million. The remaining 9.5 million in gross proceeds will be deposited into a deposit control account and released after achieving certain milestones. As a reminder, in addition to the results reported in accordance with U.S. GAAP Cesca also uses the non-GAAP measure of adjusted EBITDA to evaluate operational performance and to facilitate comparisons with historic results and trends. This financial measure is not a measure of financial performance under U.S. GAAP and should not be considered in isolation or the substitute for loss as measure of performance. The calculation of this non-GAAP measure may not be comparable to similarly titled measures used by other companies. With that I’ll turn the conversation back to Robin.

[Robin Stracey:]

Thanks Mike. So in summary then before turning the call over for questions, we continue to make good progress in transforming our company into a fully integrated regenerative medicine company and moving beyond the historical base in the cord blood business into larger addressable markets. This includes adjusting the cost structure of our base business in order to further enhance our ability to differentially invest and accelerating our high end at clinical programs. We’ve addressed most, if not all of the integration related issues with the concerned management capacity over much of the last 12 months and have done so without jeopardizing our ability to advance our leading clinical programs. We’ve made substantial progress with our top three indications CLI, AMI and bone marrow transplantation as Ken has described and with that application to CIRM [ph] and the commitment to the company of $15 million in senior secured convertible debentures and warrants announced two weeks ago we’ve developed a realistic financial roadmap that has the potential to see the CLI Phase III pivotal clinical trial through to a conclusion. With that I’d like to turn the call back over to the operator for questions.

[Operator:]

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] The first question we have comes from Jason Kolbert of Maxim. Please go ahead.

[Jason Kolbert:]

Congratulations on the financing, I wonder if you could take a couple of minutes and just walk me through the details of the CIRM brand and your confidence level that you’re actually going to get that brand. It’s a little bit unusual to tie a financing to a CIRM grant, so I wondered if you could walk me through those details and then we’ll talk a little bit about the timing of the CLI trial, I’d like to understand when that trial can execute and then I’d also like to understand the timing to data on the AMI trial in India, but let’s start first with the financing.

[Ken Harris:]

Yes, so the financing is tied to the CIRM grant. So let’s talk about the CIRM grant a little bit, the CIRM grant is from the California Institute of Regenerative Medicine. This is a tax based, not for profit organization whose goal is to accelerate the development of stem cell based therapies for unmet medical needs. It is obviously in California as the name implies, and we think that our company is uniquely positioned to take advantage of this. We are in California. We are the only company in California right now that has CLI trial in the Phase III composition. When you start taking a look at what CIRM is trying to accomplish, we check all the boxes. We are a California company, we’re using stem cells to advance an unmet medical need, we have a lot of our employees here in the U.S., and we have the Phase III clinical trials, we have some of those sites here in California as well. So, as far as our confidence to have CIRM approved in our favor, I think we are as confident as we can be. However, that said CIRM is a government agency or a quasigovernment agency and as within a government agency there is never a 100% guarantee. So while we remain cautious and confident, there is always the chance that there could be a negative result.

[Jason Kolbert:]

And just talk with me a little bit about what's the timing because I understand that you know absolutely when you are going to have a definitive answer that you've got the grant or not?

[Ken Harris:]

Mitch, why don't you take that question?

[Mitchel Sivilotti:]

Sure, hi Jason, this is Mitch Sivilotti. The process CIRM outlines, this is public information. It is an 81-day process. They actually indicate that within 90 days of that initial submission that you will receive a response. We submitted on the last day of August and that's a rolling submission process, so CIRM does take applications every 30 days, so we are expecting to get a response sometime by the end of November.

[Jason Kolbert:]

Okay. So help me understand, let's assume that there is a positive outcome from CIRM, certainly the balance sheet changes dramatically on that kind of news, very dramatically. Help me understand how you're putting in place plans to execute the CLI trial and I know Ken you talked about that at some length. But I'm just trying to get a handle on when we might -- could we see the trial actually begin by the end of this year?

[Ken Harris:]

Right Jason, so this is Ken. Couple of things, first of all just to address you balance sheet point, the CIRM will fund on milestone, so we'll get a notice of -- assuming we are given a grant, we will get a notice of award for the entire amount, but they will transfer funds to us as we achieve milestones. So, I don’t think anyone should anticipate the entire award coming over on the balance sheet on day one, just so you know. But it will populate into the balance sheet at the pace that we can execute. Critical milestones to those makes sense to be and we’ll negotiate these [multiple speakers]--.

[Jason Kolbert:]

And there is also financing tied towards the CIRM grant, that’s really where my comment arrives.

[Ken Harris:]

Yes that’s correct. And that will come over immediately on the notice of award, that will unlock the control account of 9.5 million.

[Jason Kolbert:]

Right and that’s a substantial amount of money given where you are today.

[Ken Harris:]

Correct, that’s correct.

[Jason Kolbert:]

Thanks, sorry to interrupt.

[Ken Harris:]

No it's okay, then specific to you're asking about the first patient, so I would anticipate that we are moving into the holidays in December and we have about a 20- to 30-day screening period that is in our protocol. So even if we went all out immediately on notice of the award, which we would be allowed to do, I don’t think we would see a first patient really realistically being ready to be treated until around the holiday period, and so it’s potential, it could come at the end of December, it’s a potential it could come very early in January. I will comment though to Mitch's point on the CIRM notice of allowance, there is also a possibility that CIRM will come back and ask us for some follow-up information, which will put us in a reset of resubmitting information to them, for them to re-review and come back to us. So CIRM's options are notice of award, a request for further information, or a rejection in the 90-day period. But best case scenario, Jason is, I would say really the first week in January.

[Jason Kolbert:]

Great thank you. And just now let's, Ken if you don’t mind, can we just touch on the AMI file because it occurs to me that you could emerge from that trial at some point in 2016, with what might look like real proof of concept data. So help me understand kind of the timing on that one too. Thanks.

[Ken Harris:]

Yes, so I think depending upon the drug controller's response period and when in the calendar quarter of 2016 -- first calendar quarter 2016, they give us an answer. I anticipate it takes five to six quarters to get to an announcable data read out. And here is my logic behind that, so from the announcement of the green light from them, we're ready to go in India. I think it will take us two to three quarters to enroll and two quarters -- it’s a six month follow up, so two quarters for follow up and then no more than a quarter for data analysis and announcement. So to my math that’s five to six quarters from the day of the announcement.

[Jason Kolbert:]

Perfect, thanks Ken, and I can see you guys are really-really pushing hard to make some incremental progress. I really hope we see some good news on CIRM grant, it would be nice to kind of have the financing in place to move the company forward. I'm sure, I'm not telling you anything that you guys don’t think about every day.

[Ken Harris:]

Correct. Thanks Jason.

[Operator:]

Thank you. [Operator instruction] At this time we are showing no further questions. We'll go ahead and conclude our question and answer session. I will now like to turn the conference back over to Mr. Robin Stracey and the management team for any closure remarks. Gentlemen?

[Robin Stracey:]

Thank you operator, and thank you all once again for joining us today and for your continued interest and support of the company. I look forward to talking to you further and keeping you posted on our progress as we build hopefully a great and valuable company together. I wish you all a very good evening.

[Operator:]

And we thank you sir, and to the rest of the management team for your time today. The conference call is now concluded. At this time you may disconnect your lines. Thank you and have a great day everyone.