Athersys Inc (ATHX) 2010 Q4 法說會逐字稿

Good afternoon. My name is Adrian, and I will be your conference operator today. At this time, I would like to welcome everyone to the Athersys Q4 financial results conference call.

(Operator Instructions).

Lisa Wilson, from In-Site Communications, you may begin your conference.

Thank you, and good afternoon, everyone. I'm Lisa Wilson of Insight Communications, Investor Relations for Athersys. Thank you for joining today's call. You should have received a copy of the press release issued at the close of market. If you have not received it, the release is available on the Athersys website at athersys.com, or please call Libby Abelt at 212-759-5665, and it'll be sent to you immediately. 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's expected to last approximately 45 minutes, and may also be accessed through the Company's website at athersys.com. A replay will be available after this call's completion by dialing 800-642-1687 in the US and Canada, and 706-645-9291 from abroad, and entering access code 45530421.

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 these 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 it's outlook to change. 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 March 14, 2011. 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'd like to turn the call over to B.J. Lehmann. B.J.?

Thanks, Lisa. Good afternoon, and welcome to our fourth quarter 2010 earnings call. I'm B.J. Lehmann, President and Chief Operating Officer of Athersys. I will briefly review our financial results for the fourth quarter and year ended December 31, 2010, and will then turn the call over to Gil Van Bokkelen, our Chairman and CEO, for a corporate update.

In the fourth quarter of 2010, we recorded revenues of approximately $3.3 million, compared to $869,000 for the same period in 2009. Our revenues are comprised of contract revenue from our collaborations and grant proceeds. The increase in revenue is primarily a result of our collaborations with Pfizer and RTI Biologics, and reflects the amortization of revenue from the collaborations. Also, included in the fourth quarter 2010 revenue, is $733,000 received from the IRS, from three Therapeutic Discovery Project grants under the Patient Protection and Affordable Care Act of 2010.

Our research and development expenses for the fourth quarter increased slightly to $4.2 million, compared to $4.1 million for the same period last year, due principally to increases in clinical and preclinical development cost, sponsor research, and patent and legal cost, partially offset by decreases in stock-based compensation and other expenses. General and administrative expenses for the fourth quarter of 2010 were $1.1 million, compared to $1.7 million in the fourth quarter of 2009. The decrease was due principally to a decrease in stock-based compensation expense. Our net loss decreased to $2.1 million in the fourth quarter of 2010, compared to $5 million in the fourth quarter of 2009, primarily due to the higher revenues in the 2010 period.

Turning to the annual results for the year ended December 31, 2010, revenues were approximately $8.9 million, compared to $2.2 million in the same period in 2009. The increase in revenue is due to our collaborations with Pfizer and RTI, and the receipt of the three Therapeutic Discovery Project grants. We expect our contract revenue in 2011 and part of 2012 related to the Pfizer collaboration, to include the amortization of the up front license fee, as well as research and development funding, and manufacturing revenue. Similarly, we expect our contract revenue in 2011 related to the RTI collaboration, to include the amortization of the $3 million license fee, over the estimated performance period.

Our research and development expenses were $14.8 million in 2010, compared to $11.9 million in 2009. The increase was due primarily to increases in clinical, preclinical development costs of approximately $2.5 million, personnel costs of $500,000, sponsor research of $300,000, and supply costs of $300,000, partially offset by decreases in stock-based compensation of $750,000. We expect our research and development expenses to increase in 2011, due to increased clinical trial costs and clinical manufacturing costs, with a corresponding increase in contract revenues, associated with manufacturing revenue from the Pfizer collaboration.

General and administrative expenses were $5.4 million in 2010, compared to $5.6 million in the prior year. The decrease was due to a decrease in stock-based compensation expense, that was partially offset by increases in other administrative costs. We expect our general and administrative expenses to continue at similar levels in 2011. Our net loss decreased to $11.4 million or $0.60 per basic and diluted share for 2010, compared to $15.4 million or $0.81 per basic and diluted share for 2009, primarily due to the increase in revenues, offset in part by the increase in research and development expenses.

For the full-year ended December 31, 2010, our net cash used in operating activities was $10.6 million. We expect this to increase in 2011 with the initiation of Phase II clinical studies involving MultiStem, our lead cell therapy product candidate. Our cash, cash equivalents, and available for sale securities were $15.2 million at December 31, 2010, compared to $17.8 million September 30, 2010, and $26.4 million a year ago. In February 2011, we received $11.8 million in net proceeds from the sale of 4,366,667 shares of common stock, and warrants to purchase up to an additional 1.3 million shares of common stock in a registered direct offering. With that, I'd like to turn it over to Gil for a corporate update.

Thanks, B.J. Good afternoon, everyone, and thank you for joining our call today. I'd like to begin with a brief review of recent progress in our key development programs, in several other areas. We are committed to developing a portfolio of therapeutic programs, where we believe our technologies have the potential to deliver best-in-class therapies that can advance clinical care in meaningful ways, by providing safer, and more effective treatments than currently available approaches can provide. We are developing these programs, both internally and through strategic partnerships with other organizations, including commercial partners, and leading research and clinical centers. Through these activities, we intend to advance our portfolio, develop therapies to address significant unmet medical needs, and create substantial value for our shareholders.

A key focus of our efforts is the advancement of MultiStem, our proprietary stem cell therapy, which is in development for indications in several areas, including the treatment of cardiovascular disease, neurological indications, and disorders involving the immune system. We believe that MultiStem could have broad application across these areas. In late 2009, we entered a partnership with Pfizer, focused on developing MultiStem to treat inflammatory bowel disease or IBD, a debilitating set of conditions that affect more than two million people across the United States, Europe, and Japan. We and Pfizer believe that MultiStem has great potential for the treatment of IBD, and could address significant unmet medical needs, by overcoming the limitations of currently available therapies for conditions like ulcerative colitis and Crohn's disease. We also believe that, by working together, we can unlock this potential in an efficient manner.

Throughout 2010, our close collaboration with our colleagues at Pfizer regenerative medicine, has lead to rapid progress in advancement of the program. In November, approximately ten months after the initiation of the partnership, the FDA authorized commencement of the Phase II clinical trial to evaluate the safety and efficacy of administration of MultiStem for the treatment of ulcerative colitis. This rapid advancement into a Phase II study, reflects the consistent safety profile exhibited by MultiStem, and extensive preclinical and initial clinical studies conducted to date, and represents an important aspect of our development process.

Specifically, by establishing a foundation of safety data in certain initial indications, we are now well-positioned to advance other programs into mid stage clinical development, where we can further assess safety, as well as evaluate biological activity and efficacy. This randomized, double-blind, placebo-controlled multi-center Phase II study is designed to enroll approximately 126 patients with moderate to severe ulcerative colitis. Subjects will receive multiple doses of either MultiStem or placebo, administered over a several week period. Endoscopic evaluation will occur at baseline and eight weeks, with a subsequent clinical assessment at 16 weeks, and follow-up of patients for 12 months. The study will be conducted at multiple clinical centers, in both North America and Europe.

Since obtaining FDA authorization for the study last November, together with Pfizer, we have been engaged in a range of activities that would enable us to launch the trial in a timely manner. As we have described previously, Pfizer is acting as the primary sponsor of this study, and will bear all costs associated with conducting the clinical trial. We are responsible for providing clinical grade MultiStem for this study, which will be produced through our manufacturing partnership with Lonza.

Over the past weeks, we have worked to support Pfizer's efforts to prepare the clinical sites, initiate enrollment, and commence patient dosing. Earlier today, we announced that enrollment for the trial has now begun, and the first patient was dosed several days ago without complication. This is an important milestone in the clinical development of MultiStem, as it represents the first entry into Phase II clinical development.

We believe the initiation of this trial also validates another important element of our strategy, the ability to leverage information and data obtained from earlier programs, to support the accelerated development of MultiStem across multiple areas. This exciting news of moving directly into a Phase II trial, clearly validates our strategy of undertaking extensive pre-clinical and clinical work in our development programs, in order to lay a solid foundation of scientific evidence to move programs rapidly and efficiently into more advanced clinical trials.

In addition to the IBD trial being conducted with Pfizer, we continue to make progress in other areas. Last July, we released a summary of the interim top line data from our ongoing Phase I clinical trial involving administration of MultiStem to patients that have suffered an acute myocardial infarction or AMI, more commonly referred to as a heart attack. This was followed by a more detailed presentation of the data at the annual TCT Conference in Washington, D.C. These data showed a consistent safety profile, and also provided some encouraging signs of improvement in cardiovascular function, among patients with significantly compromised heart function at the time of treatment.

In accordance with the study design, we have continued to conduct follow-up evaluations of the patients enrolled in the trial, and expect to present the one-year results from the study some time this summer. In addition, working in coordination with Dr. Penn, Dr. Sherman, other study investigators, our partner Angiotech, and the FDA, we plan to initiate a Phase II program in AMI this summer, while we continue our broader development efforts in the cardiovascular area. Currently, we are in the process of finalizing elements of the study design and selecting a CRO, and remain on track to achieve our goals in this area.

We also continue to advance our ongoing clinical trial in oncology treatment support, which is a Phase I study evaluating MultiStem for hematopoetic stem cell transplant support in leukemia and other blood-borne cancer patients. This study has two treatment arms. The first arm is dose escalation study, which involves administering a single dose of MultiStem, shortly after the initial hematopoetic stem cell transplant.

Patients receive a single dose of MultiStem, at either a low, medium, or high dose, and are then evaluated at 30 and 100 days post treatment. As announced previously, we achieved our goal of completing enrollment for this arm of the study in 2010, and the last patient was dosed in late December. We remain on track to complete the last patient follow-up visit in mid April 2011, and we expect to have top line results from the study shortly thereafter.

The second arm of the study involves administration of multiple doses of MultiStem that are given at weekly intervals, for up to one month, following the initial hematopoetic stem cell transplant. As with a single ascending dose portion of the study, the primary end point for this Phase I trial is safety. However, for both studies, we are evaluating multiple secondary endpoints, including engraftment, cellular recovery such as neutrophil engraftment, incidence and severity of graft-versus-host-disease or GVHD, infection, and survival.

GVHD is a common condition associated with the bone marrow transplant, in which immune cells from the transplanted marrow, recognize the transplant recipient as foreign, and mount an immunological attack, the effects of which can be debilitating or lethal. We received Orphan Drug designation by the US Food and Drug Administration for MultiStem, in the prevention of GVHD in 2010. We are on track to complete the enrollment for the multi-dose arm of the study this year, and will present top line results from the trial, after completing the corresponding follow-up visits.

We are also engaged in active planning for the initiation of a clinical trial evaluating the administration of MultiStem to patients for the treatment of ischemic stroke, which represents a leading cause of death and disability. We received FDA authorization to begin the study, as we have described previously. And, while we've continued our preparations for the initiation of this clinical trial, we've also continued to conduct research, both internally and with a team of independent experts.

As I'll describe in a moment, this work has broadened and deepened our understanding of the multiple ways in which MultiStem can have a profound effect on promoting tissue repair and healing, in a range of neurological indications, including stroke, traumatic brain injury, spinal cord injury and other areas. Rather than conduct a study that is focused exclusively on evaluating safety, we intend to increase the size of the trial in a manner, that will allow us to conduct an initial evaluation of efficacy, as well.

We're now in the process of making certain revisions to the clinical protocol, and, once these are finalized, we will submit the revised study design to the clinical institutional review boards, at the centers that have committed to participate in the trial for their review. Our goal is to complete this process in the next several months, so that we can begin -- then begin to enroll patients in the second half of the year.

As I mentioned, we remain very busy evaluating the potential for MultiStem, in a range of potential indications across the cardiovascular, neurological, and immunological areas. Over the past few years, we have established collaborations with investigators from over 30 leading research institutions across the United States and Europe. These collaborations have provided us with a highly efficient way to explore the potential relevance of MultiStem, across a range of disease areas, and helped deepen our understanding of how these cells can dynamically interact with other cell types and organs in the body, to promote healing and tissue repair.

In January, a landmark study conducted by leading researchers from the Department of Neurosciences at the Case Western Reserve University School of Medicine and scientists at Athersys, was published in the Journal of Neuroscience. This preclinical study demonstrated the regenerative benefit of MultiStem therapy after spinal cord injury. Administration of multipotent adult progenitor cells, or MAPC, following spinal cord injury in rodent models, prevented the retraction of neurons, a process referred to as axonal dieback, reduced inflammation in the region of injury, and also promoted the regrowth of neurons into, and beyond the lesion of injury.

Administration of MAPC, potently effects immune cells responding to the initial injury in a number of ways. First, treatment significantly decreased the release of a harmful protein called MMP9, or matrix metalloproteinase-9, made by certain cells of the immune system known as macrophages, that is known to induce axonal dieback. Treatment also induced a shift in macrophages from an M1, or classical activated pro-inflammatory state, to an M2, or, alternatively, activated anti-inflammatory state.

In addition to these effects on macrophages, treatment promoted sensory neurite outgrowth beyond the site of the injury, induced sprouting, and further enabled axons to overcome the negative effects of macrophages, as well as inhibitory molecules in their environment, by increasing their intrinsic growth capacity. This study demonstrated for the first time, that an adult stem cell is capable of modifying multiple aspects of the wound response following a spinal cord injury, while at the same time altering the inflammatory response to mitigate secondary injury in the central nervous system, and increasing the regenerative potential of the damaged neurons themselves. These results further validate MultiStem, as emerging stem cell therapy, with a broad potential to treat a variety of conditions. We look forward to further exploring the clinical utility of MultiStem across a range of neurological indications, and to eventually applying these methods in human therapy.

At the American Heart Association International Stroke Conference in February, medical researchers from the Department of Neurology of the University of Texas Health Science Center at Houston, presented new research results that demonstrated how MultiStem provided multiple benefits, when administered in preclinical models of ischemic stroke. Researchers observed that intravenous administration of MultiStem one day after a stroke, reduced inflammatory damage in the brain, and resulted in a significant improvement in motor skills. In this study, rats treated with MultiStem showed statistically significant improvement in motor skills, relative to animals that received placebo, and also showed reduced cell death, reduction of inflammatory cytokines, and increase in anti-inflammatory cytokines.

Interestingly, animals treated with placebo showed a reduction in spleen size and an increase in inflammatory cytokines in the blood, whereas animals that were treated with MultiStem, showed normal spleen size and increased level of anti-inflammatory cytokines in the blood. The spleen is believed to play a significant role in promoting and sustaining, the inflammation that can result in substantial long-term damage following brain injuries. These and other studies provide relevant insights as to how MultiStem could have broad relevance across a range of areas. By establishing clinical proof of concept, in carefully selected indications in the cardiovascular, immunological, and neurological areas, we believe we're establishing a broad foundation of data, that will lead to development opportunities across a range of high value areas.

Next, I would like to make a few comments regarding our drug development program for obesity and related metabolic conditions. Recent events involving drug development programs in other organizations, underscore and reinforce the need to develop new therapies, that are both safe and effective. Appropriately, the FDA has set a high bar with respect to patient safety, and we are committed to developing candidate therapies that are both highly effective, and safe for extended use in an obese patient population. Our focus is on the development of potent, selective 5-HT2C agonists, which can have a profound impact on the regulation of appetite.

The evidence in this area clearly demonstrates that potent activity of the 5-HT2C receptor offers the potential to achieve meaningful weight loss. However, compound selectivity, at both the 5-HT2B and the 5-HT2A receptors, is also necessary to achieve safety and tolerability, as well as maximize efficacy. We have successfully achieved a major technical objective, and have developed a high quality portfolio of compounds that are highly potent to the 5-HT2C receptor, yet exhibit no physiologically relevant agonist activity, at either the 5-HT2B or 5-HT2A receptors.

We believe this represents a substantial achievement, and that these compounds have the potential to be best-in-class clinical candidates. We are actively evaluating which compounds we want to advance into further development, while also continuing to explore potential partnering opportunities in this, and other areas.

In summary, we continue to make progress on multiple fronts, and are excited about the road ahead. The recent completion of a registered direct financing provides us with additional funding, to continue moving our development programs forward. With that, we'd be happy to take a few questions. Adrian, you still there?

(Operator Instructions).

Your first question comes from the line of Ted Jaffrey. Your line is open.

Hi. It's Ted Tenthoff from Piper Jaffrey. Hope all is well with you.

Hi, Ted, how are you?

Very well, thanks. Thanks for the very thorough update. Lots going on. If I may, just a couple quick questions. Firstly, and I may have missed this, with the current pro forma cash somewhere on the order of $27 million, how long should that last you, with the milestones that you outlined?

Well, we haven't actually given any formal guidance on exactly how long the cash would last us, but as you could see from the financial results that we reported for last year, our net cash burn actually over the course of 2010 was less than a $1 million a month. In the near term, we're going to be operating at roughly the same rate, although obviously, as we get the additional clinical studies online, in the second half of the year, that burn is going to increase. Now the reason why, one of the reasons why we are not giving formal guidance with respect to cash, cash usage, is we're still in the process of actually defining some of the clinical trial parameters. So that process is very much ongoing.

You mentioned the acute myocardial infarction starting this summer. What endpoints would you be considering for the Phase II program there?

Well, I think it's -- in some respect, it's going to be very similar to what we did in the Phase I study, so looking at things like ejection fraction, looking at other parameters of heart muscle function, which there's a variety of techniques that you can use to actually image and quantitatively assess how well the heart is performing. So we looked at things like left ventricular and systolic volume, for example, and certain other parameters which I won't go into detail here, that actually allow clinicians to examine how efficiently the muscle is actually beating. But I think left ventricular ejection fraction is obviously going to be a key parameter, that we're going to be looking at. But there will be a range of secondary parameters, that we're going to be looking at as well. I think the important distinction between the Phase I study that we have reported top line results, for in this next study, is this will actually be powered, it will be a larger study. And it will be powered, so that we can statistically, in a statistically rigorous way, actually evaluate efficacy. And it will be a double-blinded placebo-controlled study.

Perfect, and I think that will be helpful. And then lastly if I may, again not to be too cute here, but obviously with the challenges that we've seen the obesity field space -- face in the last year, help us a little bit more about, what you think will be required longer term, to get obesity drugs approved? And how do you go about doing that, or is a partnership the most likely way?

Well, so just to answer the first part of that question, obviously there's been a lot of attention focused on this over the past few months of, as things have progressed with several of the companies in late stage clinical development. I think the clear message that has come through from the FDA is, is that they are placing a very strong focus on safety. And I think if you're developing compounds, that either have cardiovascular side effects, or teratogenic potential, or other liabilities that I think the FDA would be concerned about, given the nature of the patient population, and the fact that people would likely be using these therapies for an extended period of time, they are going to be very cautious, and very conservative about those types of approaches.

In our view, we think we have the potential to develop a therapy that has an extremely clean safety profile. Now ultimately, I fully expect, and we organizationally fully expect, that we will be doing this in partnership with someone. However, when the exact time is, to actually implement a partnership like that, depends on a number of different factors. I do believe that there is a path forward to get obesity drugs approved through the FDA regulatory process, and on to the market. And I think it's really a question of, frankly, just being prepared to meet a very high standard, with respect to the overall safety profile. And then, of course, also meeting the efficacy requirements that the FDA has defined.

One of the nice things, actually about this 5-HT2C program is, if you think about it historically, the most significant elements of risk here, have really already been defined, based on years of work by other companies that have gone before us. So we really know kind of what the standards are, and where to focus our attention and our efforts. And I think that's one of the reasons why we set very strict criteria, in terms of developing compounds, that have a very clean selectivity profile, against the receptors that I mentioned. And, of course, there is a whole broad range of other things, which I didn't go into, which are also criteria, that we're holding the program against as well.

Great. That is super, super helpful, Gil. Thanks so much.

Thanks, Ted.

Your next question comes from the line of Jonathan Aschoff from Brean Murray. Your line is open.

Hi, thanks a lot. Hello, Gil.

Hi, Jonathan, how are you?

I'm doing all right. I was wondering, with several months since the RTI announcement, I remember part of that announcement, talking about revenue potential in 2012. Is that something that you might not want to emphasize, or actually has it been going along at a click, that would make that a reality maybe?

Hi, Jonathan, BJ, here. The RTI collaboration is moving along as planned. I do think there is potential, that we could have some revenue impact in 2012 from that collaboration. There's still some development work to be done, but if we accomplish what is set ahead of us as planned, I think that's a real possibility.

Okay, I was wondering, one smaller one. Could you explain the four months, since the dosing, from the announcement of the Pfizer trial, to the dosing in the Pfizer trial?

I'm -- oh, you're saying since we actually got FDA authorization?

That's right.

Yes, there was just some logistical things that we needed to take care of, that basically we're preparing some of the sites to get up and running, so we could launch multiple sites in parallel, dealing with -- really, there wasn't anything specific. It was just several different factors, where we wanted to make sure that we had all of our ducks in a row, before we actually started enrolling the patients. But we're actually very pleased with the progress that we've made over the course of the past 14 months or so, since we got the collaboration off the ground, and are excited to be dosing patients now.

Great. Thank you.

(Operator Instructions).

The next question comes from the line of Steve Brozak from WBB Securities. Your line is open.

Hi, good afternoon, gentlemen. I'll make it real quick. This is -- a series of collaborations with Pfizer. They obviously have bought into your technology, and it's -- I'm well aware, and they've made it clear, that this is one of the areas of science they truly believe in.

Is it a fair assumption to say that, frankly, you might be a rate limiting step, in terms, of how many other collaborations or different types of collaborations they might want to go forward with? Because, frankly, now -- you see one, you see two. They obviously, have bought into it. And you see one, you see two, with the same partner, they have obviously bought into your expertise, and the size difference between the two companies is so striking. Would you care to give us a little bit of color on that?

Sure. Well, I think it was significant, from our perspective, that when we announced this partnership with Pfizer, that they referred to it, as the potential cornerstone of what they want to do in the area of regenerative medicine. Now, Pfizer Regenerative Medicine is obviously the business unit that was established, and is led by Dr. Ruth McKernan, and her team at Pfizer.

Clearly, there -- this isn't the only thing they're currently doing, or intending to do in the area of regenerative medicine. But I think that, the way they've talked about the relationship publicly, and the way that I think we collectively think about the relationship, they understand that there is broad potential relevance, in other therapeutic areas for this technology. And I think, as is the case with really many relationships, in fact, I could even point to some other instances in the area of regenerative medicine, where companies engaged in a partnership that started off in a very, kind of narrowly defined focused way, that ultimately grew into much more substantial partnerships.

And I think that is certainly a possibility. I mean, there's no guarantee that would happen, but I think that Pfizer is excited about the work that we're doing together. I think the relationship is working extremely well. And frankly, I think that's a big part of the challenge, at any strategic collaboration that involves a major international pharmaceutical company and a smaller company, is how are they going to work together. And I think it's fair to say, that as Ruth stated in her comments, that the teams are working very well together, and we're happy about that. So I think we're excited to have this trial under way. We're certainly excited about advancing the trial, and ultimately getting the clinical data, and then generating additional clinical data from other things that we're doing. And I think that we're pretty optimistic about where we can go in the future, as a result of the activities that we're engaged in.

Well, good. And I look forward to hearing both -- good news, from both Company fronts. Thank you.

Thank you.

There are no further questions at this time. I turn the call back over to the presenters.

Well, with that, we would like to thank everyone for participating in today's call. We're excited about the momentum that we have here on a number of different fronts, as we described. We thank you for continuing to follow us. And we look forward to keeping you informed of our progress, as we continue to move ahead. Thanks very much.

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