Athersys Inc (ATHX) 2014 Q4 法說會逐字稿

Good afternoon. My name is Kyle and I will be your conference operator today. At this time, I'd like to welcome everyone to the Athersys fourth-quarter 2014 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Ms. Campbell, you may begin your conference.

Thank you. And good afternoon, everyone. I'm Laura Campbell, Vice President of Finance for Athersys. Thank you for joining today's call. If you do not have a copy of the press release issued at the close of market, it is available on the Athersys website at Athersys.com, or you may call Matt Pluznick at 216-431-9900 to receive it via email.

Gil Van Bokkelen, Chairman and Chief Executive Officer, and I will host today's call. The call is expected to last approximately 30 to 45 minutes, and may also be accessed at Athersys.com. A replay will be available two hours after the call's conclusion, and access information for the replay is included in today's press release.

Any remarks that we may make about future expectations, plans, or 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 forward-looking statements as a result of various important factors, including those disclosed in our Forms 10-Q, 10-K, and other public SEC filings.

We anticipate that subsequent events and developments may cause our outlook to change. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. For the benefit of those who may be listening to the replay, this call was held in the quarter on March 12 of 2015. Since then we may have made announcements related to the topics discussed, so please reference our most recent press releases and SEC filings.

For those who are wondering why B.J. Lehmann, our President, is not participating today, his son is playing in the state hockey championships in Columbus, and today is the semi finals. So we told him that he shouldn't miss that opportunity, and we wish his son's team good luck.

With that, I would like to briefly review our financial results, and then turn the call over to Gil for a corporate update, followed by a question-and-answer period.

For the fourth quarter of 2014, our contract revenues were $131,000 compared to $390,000 for the same period of 2013, with the decrease resulting from a milestone payment from our collaborative arrangement with Bristol-Myers Squibb in the prior period. This was partially offset by royalty payments from our collaboration with RTI Surgical. Absent any new business collaborations, we expect our contract revenues to be comprised of revenues associated with our recent Chugai Pharmaceutical collaboration, royalty payments from RTI, and potential milestone payments from BMS.

Our grant revenue decreased to $104,000 in the fourth quarter of 2014 from $530,000 in the fourth quarter of 2013, with the difference due to completed grants and the timing of grant-funded projects. Grant revenues may fluctuate from period to period with the timing of grant-related activities, and with the award and expiration of grants.

Research and development expenses increased to $5.6 million in the fourth quarter of 2014 compared to $5.1 million in the previous period. The increase was primarily due to increases in personnel cost, clinical and preclinical development costs, free-agent costs and stock-based compensation, partially offset by lower sponsored research costs.

General and administrative expenses remain flat at $1.6 million for both periods, reflecting increases in personnel cost, outside services and stock-based compensation, offset by decreases in other administrative costs. Net loss for the fourth quarter of 2014 was $6.6 million compared to $9.8 million for the prior-year period. The difference reflects the impact of a $4.2 million positive variance in the fair value of our warrant liability, with the remaining change being related to the reduced revenues and higher R&D expenses for the quarter, and partially offset by income tax benefits related to our Belgian subsidiary.

Turning to the results for the full year, contract revenues were $286,000 in 2014 and $755,000 in 2013, with the decrease related to the milestone payment from BMS in the prior period, and reduced payments from Pfizer for clinical manufacturing costs, which were partially offset by royalty payments from RTI received in 2014. Our grant revenues decreased to $1.3 million in 2014 from $1.7 million in 2013, primarily due to expiring grants and the timing of grant-funded projects.

Research and development expenses increased to $23.4 million in 2014 from $20.5 million in 2013, due to increased personnel costs, research supplies, clinical and preclinical development costs, patent legal fees and stock-based compensation. We expect our research and development expenses to be somewhat higher in 2015, reflecting increases in clinical development costs associated with the initiation of new studies, and increases in planned process development activities.

General and administrative expenses increased to $6.9 million in 2014 from $6.1 million in 2013, due primarily to increased stock-based compensation and personnel cost, partially offset by decreased other administrative costs. We reported non-cash income from the change in the fair value of our warrant liabilities of $6.6 million in 2014 compared to non-cash expense of $6.3 million in 2013.

Cash used in operating activities was $25.8 million in 2014 and $22.8 million in 2013. Cash provided by financing activities was $20.3 million in 2014, driven by the registered direct offering in the first quarter of that year, compared to $29.6 million in 2013.

Our net loss for 2014 was $22.1 million compared to $30.7 million in 2013. The difference reflects the $12.9 million non-cash increase in the fair value of our warrant liability, the decrease in revenue, the increase in R&D and G&A expenses, and the increase in our foreign tax benefit compared to the prior year. At December 31, 2014, we had $26.1 million in cash and cash equivalents, which was $31.9 million at the prior year-end.

With that, I'd like to turn the call over to Gil for a corporate update. Gil?

Thanks, Laura, and good afternoon, everyone. As we have conveyed on previous calls, Athersys is committed to developing innovative therapies that are capable of addressing serious areas of unmet medical need. By focusing on helping patients, we believe that we will be able to change medical care in a positive and meaningful way, and that we will also be able to create substantial value for our shareholders.

One of the ways in which we tend to achieve that goal is through the continued development of our regenerative medicine technology platform, which is focused on the development of MultiStem cell therapy for indications in the neurological, cardiovascular, inflammatory and immune, and other areas. Bone marrow transplantation and some other forms of cell therapy have been successfully practiced for years. The technology that can enable cell therapy to be utilized clinically on a truly widespread basis has not yet been fully developed or validated.

And while there are already examples of cell therapy products that are approved from a regulatory perspective and in clinical use, and that have helped many patients, significant challenges in terms of scalability, validating safety, and demonstrating meaningful effectiveness, have remained for the vast majority of therapeutic indications where these types of therapies may be relevant. In a very real sense, the field of cell therapy is just beginning to have an impact.

Our vision is to develop MultiStem as a truly scalable, safe, and highly effective new treatment approach that overcomes the limitations of current standards of care in defined areas of serious unmet medical needs. We believe more than ever that this is a realistic and achievable goal. Despite encountering some of the inevitable challenges and obstacles that any company faces during the drug development process, in the past few months, we have made some substantial progress towards the achievement of our key goals.

Athersys is heavily focused on accomplishing four things. One, developing therapeutics to address high unmet medical needs, with a particular emphasis on conditions and areas of growing need in light of a rapidly expanding aging global population. Two, advancing our portfolio of clinical and preclinical programs in a financially and operationally efficient manner, while also rigorously adhering to the highest possible standards.

Three, leveraging emerging regulatory trends that might help us accelerate development efforts in key areas, while also focusing on ensuring patient safety. And four, establishing value-enhancing partnerships to help us accelerate development and broaden our impact and reach. We believe that by focusing on each of these objectives, it will help us achieve our primary goal of becoming a leading biopharmaceutical company.

With regard to the first objective, over the past decade, we have diligently established a portfolio of clinical and preclinical programs in which each and every indication we are focused on represents a significant area of high unmet medical need. These programs cover a range of critical challenges and clinical challenges across the neurological, cardiovascular, and inflammatory and immune disease areas, as well as others. And while it would be unrealistic to think that we could be successful in every area we pursue, we are very optimistic that achieving success in even one area -- such as treating stroke patients, for example -- will create substantial value for our shareholders.

In the neurological area, we have active programs evaluating how MultiStem may be used as a novel treatment approach for acute clinical indications such as stroke, traumatic brain injury, spinal cord injury, and neonatal hypoxic ischemia. In addition, we have been actively evaluating potential relevance for treating chronic indications such as chronic progressive multiple sclerosis, which, in contrast to relapsing remitting multiple sclerosis, has no currently available therapeutic options.

Our most important near-term objective is completing our ongoing Phase II study of MultiStem for ischemic stroke. As we have described previously, ischemic stroke is caused by a blockage of blood flow in the brain, and accounts for more than 85% of all strokes in the United States, according to the American Heart Association estimates.

Currently, there are more than 2 million people that suffer a first-time ischemic stroke each year in the US, European Union, and Japan combined, and more than 15 million people globally. Due to an aging global population, and the projected increase in individuals over the age of 80 in countries like Japan, the incidence of stroke is projected to increase substantially in the next 20 to 30 years.

Stroke often results in serious neurological injury and represents a leading cause of death globally, and is typically the leading cause of serious disability in most of the developed countries in the world. The human, social and economic consequences of this are devastating.

The current biopharmaceutical standard of care for ischemic stroke patients is the drug tPA, also known as Alteplase or Activase. Originally developed by Genentech, and first approved approximately 20 years ago, this drug has been shown to help many patients that have suffered a stroke. However, tPA is also limited, in that it may only be administered if it is given within several hours after the stroke has occurred.

Since many stroke victims do not reach the hospital in time to be definitively diagnosed or treated in that window, the vast majority of stroke patients do not receive tPA. And many patients are left with substantial long-term or permanent disabilities, that exacts an enormous toll in terms of healthcare resources, patient and family quality of life, and long-term care and assistance.

As a consequence, we believe this indication represents perhaps the greatest area of unmet need in medicine today, and is a clear priority for healthcare systems around the world. We estimate the potential market for a new therapy to treat stroke patients to be a $15 billion to $20 billion annual market opportunity, possibly higher.

During the fourth quarter, we made good progress in our Phase II trial, and successfully completed enrollment of the last patient a few days before Christmas. As we have described previously, in the Phase II clinical study we are currently conducting, we are evaluating administration of MultiStem to patients 24 to 48 hours or one to two days after the stroke has occurred. We've taken this approach based on extensive preclinical studies that we have conducted with leading independent labs.

Medical experts in the stroke area from around the world have told us this represents a clinically practical timeframe, and if the therapy is proven to be safe and effective, could potentially be a treatment option for the vast majority of stroke patients. Recall that in this trial, patients are being treated with a single intravenous administration of MultiStem cell therapy, which we believe can provide a meaningful therapeutic benefit and promote recovery.

After enrollment in the trial, patients are then followed by periodic clinical assessments that take place over the subsequent 90 days with longer-term follow-up that extends to one year. It's fair to say there's a lot of focus on, and interest in, this study in the stroke clinical community and elsewhere.

Due to the importance of this trial, and what it could eventually mean for stroke care, the principal clinical investigator of the trial has been invited to present the topline results at a leading stroke conference in Europe in mid-April, which will take place April 17 to 19. We expect this to be the first presentation of the interim study results. And based on current plans, we expect to concurrently distribute a release that summarizes the key results at that time. Both we and the principal investigator of the trial will remain blinded until shortly before the announcement of the results.

This study is being conducted to critically evaluate several key things. The primary objective of the trial is to examine the efficacy of MultiStem when administered to patients that have suffered a debilitating ischemic stroke, in a well-designed, randomized, double-blind, placebo-controlled study. We are also extensively evaluating safety, assessing a range of parameters, including acute infusional toxicity, frequency of adverse events over time, and mortality.

In terms of the precise analytical approach being used to evaluate efficacy, on the guidance and advice of a team of clinical experts and key opinion leaders, we are using a framework that is based on the approach used by Genentech to assess the efficacy of tPA almost 20 years ago. Specifically, we are using a global stroke recovery approach that combines the power of three well-accepted clinical rating scales for stroke patients -- the NIH stroke scale, or NIHSS; the modified Rankin scale; and the Bartel Index.

Each of these scales has a slightly different emphasis, with the NIHSS focusing on neurological deficit; the modified Rankin scale on gross disability; and the Bartel Index on activities of daily living. Taken together, these scales provide a fairly comprehensive assessment of patient disability, and provide a quantifiable approach to evaluating patient recovery over time. They are complemented by other techniques we are employing, including imaging of the brain and biomarker analysis.

Patients considered as potentially eligible for this study are first assessed in screening by establishing their initial functional deficit using the NIHSS. The NIHSS is a 42-point scale that emphasizes neurological deficit, and assesses a range of measures, including level of consciousness, responsiveness to questions or commands, visual acuity, facial paresis, motor skills, and other parameters. On the NIHSS scale, patients must have a score of 8 to 20 to be eligible for this study, reflecting a moderate to severe stroke.

Each patient in the study is also evaluated using the modified Rankin scale and the Bartel Index. If the patient meets the study eligibility requirements, and the stroke is stable, and baseline readings are established for the patient, provided at least 24 hours have passed following the time of occurrence of the stroke. Patients may receive various treatment approaches in the first several hours after the stroke, including tPA or thrombectomy, but would only be considered eligible for our study if they did not respond, or exhibit meaningful recovery following any form of treatment, or exhibit spontaneous recovery without treatment.

Any patient that improves by 4 points or more on the NIHSS scale from screening to baseline assessment would be excluded from participating in our trial. In addition, any patient that becomes unstable during the assessment period, as evidenced by significant worsening during this period -- for example, due to hemorrhagic transformation -- would also be excluded from our study.

Following treatment with either placebo or MultiStem -- which are administered in a randomized, double-blinded manner -- patients are evaluated clinically at approximately 7, 30, 90, and 365 days post-treatment. Blood biomarkers are evaluated at day 2, 7, and 30.

The primary endpoint for the trial, taken at day 90, is measuring global stroke recovery, assessing gross disability, neurological deficit, and activities of daily living -- in other words, overall disease improvement across the three binary response variables, which include achieving a modified Rankin scale of less than or equal to 2; NIHSS improvement from baseline to day 90 of greater than or equal to 75%; and achieving a Bartel Index of greater than or equal to 95 out of 100. If we see a meaningful and statistically significant improvement in the primary endpoint for patients that are treated with MultiStem in comparison with patients treated with placebo, as indicated by a P value of 0.05 or less, the trial should be considered a success.

In addition to the primary endpoint, the study will be used to evaluate a number of important secondary endpoints at day 90, including the distribution of MRS scores among both groups of patients, those receiving MultiStem and those receiving placebo, using a shift analysis, as well as the proportion of subjects with MRS of less than or equal to 2; proportioned with NIHSS improvement of greater than or equal to 75%; proportioned with a Bartel Index of greater than or equal to 95; proportioned with an NIHSS of less than or equal to 1, or a greater than or equal to 11 point improvement in NIHSS; proportioned with excellent outcome, as indicated by an MRS value of less than or equal to 1, and an NIHSS value of less than or equal to 1; or a Bartel Index value greater than or equal to 95.

If we see a tPA-like effect reflecting improvement among individual components that comprise the global stroke recovery score, specifically a roughly 10% to 13% increase among patients achieving a positive outcome when treated with MultiStem versus placebo or better, we would consider that to be a strong indication of clinical effectiveness and a great result. We will also evaluate exploratory endpoints that will include evaluating changes in cortical infarct volume at day 30 and day 365; changes in blood markers through day two, seven and day 30; changes in neurological outcomes; and evaluation outcomes by severity subgroups.

Among these exploratory endpoints, we are particularly interested in this latter point, assessing outcomes by prespecified severity subgroups. Specifically, we wish to examine whether there are meaningful differences in outcomes among more severely disabled patients receiving treatment with MultiStem or placebo. This information could inform future development efforts, and provide us with a clear indicator of the ability to improve clinical outcomes and quality of life for more severely disabled patients, which is a very important goal for stroke patients and their families, and healthcare systems around the world.

We are optimistic that this trial will be successful, and we look forward to seeing the results in the next few weeks. Once we receive the data and thoroughly analyzed it, we will be able to use that information to map out what comes next, both in Japan and with respect to our global development strategy.

In the meantime, we continue to prepare for clinical development in Japan. Last week, the team of senior management from Athersys and our advisors held another successful regulatory meeting with the PMDA in Japan, addressing various points and questions. The stage is now set for subsequent discussions this summer that will be focused on defining the clinical path there.

In summary, if the current study provides evidence that MultiStem is a safe and effective treatment approach for stroke patients, we believe it will be an important event on many levels. It will be consistent with our vision of focusing on development of technologies that address serious unmet needs, and that help the patient in a meaningful way. In doing so, we believe we will also be creating substantial value for our shareholders.

One of the ways that we believe it will create value is through our recently announced partnership with Chugai to develop and commercialize MultiStem for stroke in Japan. We selected Chugai as a development partner in Japan for the stroke program for multiple reasons. There are several in particular that I would like to note.

First, we believe that Chugai is an outstanding partner, one that shares our commitment to development of best-in-class and first-in-class therapies. Consistent with our philosophy, Chugai is focused on helping the patient, first and foremost.

Second, Chugai has an impressive track record with regard to successful development of novel treatments in Japan, particularly novel biologics. Third, Chugai has established a leading hospital product sales force in Japan, with a well-established and highly respected marketing and distribution capability that extends throughout the entire country. Each of these points are key to development success and long-term commercial success.

But another important point is that the deal structure itself is consistent with the objectives and requirements we defined as we entered into the partnering process with companies in Japan. Chugai will cover all development costs in Japan, and will be responsible for marketing and distributional of an approved product; whereas we will be responsible for manufacturing of the product, and key activities will be managed by a joint steering committee, reflecting the collaborative nature of the partnership and the approach we will take.

From an economic perspective, the $10 million license fee, additional $45 million in development milestones, and additional approximately $150 million in sales-related milestones, provide, in aggregate, potential license fees and milestone payments of more than $200 million. In addition, we believe that shareholders should view the royalty structure as very attractive, with rates that escalate from the low-double digits to the high-teens, with very reasonable thresholds tied to sales levels.

In addition, we will receive a transfer fee on manufactured product. So, in total, we believe that there is excellent strategic and cultural fit, a relationship structure that leverages the strength of each company, and an economic structure that could lead to outstanding value creation both for us and Chugai.

Outside of Japan we retain all development rights for stroke in a broad array of other areas. This provides us with a substantial portfolio for our own development and additional partnering programs -- additional partnering opportunities. In the neuroscience area alone, we have established a very strong set of programs, and have completed essential work that will enable us to advance other programs into clinical development in a highly efficient manner when the time is right.

In the meantime, we also continue to advance key regenerative medicine programs in other areas, including in the cardiovascular, and inflammatory and immune areas. Cardiovascular disease remains a leading cause of death and disability in the United States and around the world. We have conducted extensive work exploring the potential impact of MultiStem cell therapy for both acute and chronic cardiovascular disease. Our current clinical efforts are focused on treating patients that have suffered an acute myocardial infarction or heart attack.

Myocardial infarction is caused by the blockage of one or more arteries that supply blood to the heart. This can result in a major injury to the heart muscle, which can severely affect the patient's overall health and quality of life or cause significant damage that can ultimately lead to heart failure and/or death.

Our prior clinical work, a 26-patient Phase I study, evaluated untreated patients against patients that received either a low, medium or high dose of MultiStem delivered directly into the heart several days after a heart attack. The results of this study, which have been presented at leading cardiovascular conferences and have also been published, have been described by independent experts as very promising. The results demonstrate a consistent safety profile, and also suggest a very robust therapeutic effect among patients that exhibited substantially impaired heart function following the heart attack.

The data from the trial led to a grant award from the National Heart, Lung and Blood Institute, part of the National Institutes of Health, that provides approximately $2.8 million in funding for the trial we are now starting. We are now in the process of preparing, qualifying and training clinical sites to begin enrolling patients for our Phase II clinical trial, evaluating the administration of MultiStem to subjects that have suffered a non-ST elevated myocardial infarction, which now represents the most common type of heart attack.

The study will allow us to evaluate therapeutic efficacy as well as safety from a larger, well-controlled trial that will enroll approximately 90 patients, with half in the control group and half receiving treatment with a single dose of MultiStem. We are targeting to have the initial results from the study sometime in the second half of 2016.

The primary objective of this study is to compare the difference in the incidence and severity of adverse events between patients treated with MultiStem versus the control group at the 30-day follow-up. Our secondary objective is the assessment of the effects of MultiStem therapy using established parameters, cardiac function, comparing the changes assessed by MRI-based analysis of heart function between patients treated with MultiStem versus the control group at four months and one year. We look forward to informing you of the further progress of this important trial as things continue to progress.

In addition to the stroke and AMI trials, we recently announced that we were awarded a GBP2 million or roughly $3 million grant from Innovate UK that we received in collaboration with Cell Therapy Catapult based in London. Cell Therapy Catapult is a leading organization focused on fostering the growth and development of the regenerative medicine industry in the UK, and they will help us conduct the trial.

This grant supports our efforts to conduct a clinical trial evaluating the administration of MultiStem to patients that have been diagnosed with Acute Respiratory Distress Syndrome, or ARDS. This condition, which is estimated to affect more than 450,000 people annually in the US, European Union and Japan, is a devastating and deadly disease, particularly among the elderly.

ARDS results in inadequate oxygenation, and patients must typically be placed on a ventilator and kept in the Intensive Care Unit in order to survive. Many patients experience organ failure, limb ischemia, and other complications, resulting in significant disability and mortality, and very high cost of care. Unfortunately, there is no current treatment protocol that provides consistently effective relief for ARDS patients.

Working with independent key opinion leaders at leading translational and clinical research centers, over the past several years, we have explored the potential relevance of MultiStem in the pulmonary disease area, with a particular emphasis on models of acute inflammation in the lungs. As a result of that work, we believe that administration of MultiStem might be able to provide meaningful and effective relief for many patients suffering from ARDS.

Clinically, our objectives are to evaluate safety, and also explore whether administration of MultiStem can help address some of the key clinical challenges, including reducing time on ventilator, mortality, organ failure, and other clinically relevant parameters. We intend to initiate the study this summer and have initial results from the trial sometime in 2016.

These programs that I've discussed represent just a portion of the exciting work ongoing at Athersys. There is a natural focus on the upcoming results from our stroke clinical trial, which we recognize and appreciate, and frankly, are quite excited about. However, we think it's also important to remind everyone that we have successfully established a robust portfolio of clinical and preclinical programs, and we continue to explore partnering opportunities in other areas.

In summary, we remain very optimistic about the upcoming trial results, and other events. And we continue to execute against our strategic plan to develop our portfolio and establish Athersys as a leading biopharmaceutical company.

With that, we would be happy to take a few questions.

(Operator Instructions). Jason Kolbert.

Really exciting times. Can you share with us a little bit of insight into just how the deal came together with Chugai? Were there other bidders in Japan? What are the attributes of Chugai that made them so attractive?

And what I'd really like to focus on is, after we have this stroke data, what might the process be in order to get MultiStem approved in Japan? And what role will Chugai play in that approval in any of the clinical trial process, the integration with Kosaka and the Ministry of Health and Welfare? Help me understand kind of their position in terms of what they do with the stroke data and how they move you forward in Japan.

And by the way, B.J., I hope -- I'm pulling for the championship tonight.

(laughter) I'm sure he's hoping for the same thing, as is his son. They have a lot to be proud of, so I hope it goes well for them.

So with regards to Chugai and our activities in Japan, I mean, as I'm sure you recall, Jason, we've been making a lot of trips over to Japan actually now, going back almost two years. When Japan first announced in late spring of 2013 that they were envisioning the possibility of putting in place a new regulatory framework over there, specifically designed for regenerative medicine, it caused a lot of people to actually start focusing on that activity and then things around that.

In terms of our discussions with Chugai and other companies, we'd actually -- I'd say things became really active after the legislation passed in late 2013, in November of 2013, when this new regulatory framework was endorsed by the diet in Japan, both the lower and the upper House, and passed with overwhelming support.

We had already been engaged in, I'd say, preliminary discussions with several companies, but I think things really began to get more meaningful after that. With Chugai in particular, we've had discussions now that have gone on with them for over a year. They did a tremendous amount of due diligence during that period. Obviously, we were engaged in discussions with other companies.

And ultimately, we really picked Chugai for the reasons that I laid out. We thought -- we believe that the fit is just outstanding on a lot of different levels, both in terms of their vision for what they want to accomplish, in terms of the types of therapies that they're really focusing on developing, and how they want to do that.

In terms of defining the regulatory path going forward, obviously, there's a lot of interest in how might we use the new framework to advance our regenerative medicine programs in Japan? In terms of the stroke program specifically, we are going to sit down with Chugai as soon as we have the data and review it with them carefully, and then have subsequent conversations with the PMDA to determine what comes next.

One of the things that I've touched on in prior calls is that my expectations, before I made that first trip out to Japan to meet with the leadership at PMDA and at Ministry of Health, Labor and Welfare was, I was a bit -- well, cautious, number one, but also a bit skeptical. Because I'd heard that it could be very bureaucratic, that it was difficult for non-Japanese companies to actually interact with or work with the PMDA and MHLW.

And I can honestly say that since the very beginning, since we talked to them -- and I think part of this we have to give credit to our outstanding advisory team in Japan that has tremendous expertise in the areas that really count the most -- that our discussions with them have been nothing but positive, productive, and extraordinarily helpful. And we've seen that throughout the process.

I think there are a lot of people in Japan that really want this new framework to be successful. And candidly, I think they are looking at examples -- not just us, but others -- of companies that are well-positioned to take advantage of these types of regulatory pathways, to really make a difference in the healthcare system in Japan. So I can't really give you a lot of specificity and color about what comes next, because I think it's going to depend in large measure on the clinical trial results.

I can say that our experience with PMDA has been very, very positive, and productive and helpful throughout that entire process. We think Chugai is an outstanding partner on many different levels. And they have an extraordinary record of success in terms of developing innovative biological therapies across a range of different areas. And for those reasons, we think they are going to be a great partner for us.

I think one of the nice things about the relationship is that we are each going to take advantage of the respective strengths that we have. We're going to focus on the things we do best, they are going to focus on the things they do best.

But clearly, as we get deeper and deeper into this, they are going to have more ownership and responsibility for things both on the development front, but more particularly on the commercialization front. But we will use a relatively standardly-employed Joint Steering Committee collaborative approach to identify the things that need to be done, and then work together to make sure that we get them done very efficiently and very effectively.

Does that make sense?

Yes, it does. It makes perfect sense. But based on my understanding of the regulations, if the Phase II data is reasonably compelling, is it possible that with a modest bridging study, you would qualify under the new regulations and be in a position, post that bridging study, to commercialize MultiStem in Japan?

And I realize you're speculating, and that's just one possible pathway. But my understanding of the new regulations is that that becomes a possibility.

Yes. And that's exactly right. And that's our understanding as well. And one of the nice things about the new regulations, that I think have become clear over the past few months, is that reimbursement is possible under this -- under the use of this conditional approval system in Japan.

Now that being said, there are alternative ways to think about it. So, one of the requirements of getting approval under the conditional approval system is you're then committing to multiple years of follow-up studies that have to be conducted as a way to just kind of reaffirm and reconfirm safety and efficacy. So, an alternative approach would be to run a somewhat larger study, and then just go for full approval based on that.

So we are not irrevocably committed to either of those approaches. I think we want to explore them with Chugai, figure out exactly what the right approach is. And it may be even some combination of a couple of different things that we want to do together over time. But it's really going to depend on the data. It's going to depend on the feedback that we get from PMDA over the next several months, and NHLW.

But I think it's fair to say that there's a lot of excitement no matter how you look at it. And the reason for that is pretty obvious. If you've got a safe and effective therapy under the system and the mentality that is being employed in Japan now, the approach for getting approval has become much more streamlined than what people thought it might be. And I think that it's a testament to the vision of the leadership in Japan that first sat down and said, hey, we need to do something kind of bold and extraordinary to convince people that this is a good place to develop regenerative medicine therapies, that this is now happening.

I mean, a lot of people questioned it -- even before the legislation passed in 2013, Jason, you may recall, there was a lot of people that were openly questioning whether or not this was going to happen. Many people were saying it wasn't going to happen. And then (multiple speakers) --

Well, I mean, Japan has been so politically bound-up, it's amazing that this legislation happened to sail through, when it seems like nothing else has. And so it is a testament to the political will in Japan to show something good and get something done. So I think that's exactly right.

Yes. (multiple speakers) Sorry, go ahead.

Well, I just want to just focus on two last questions, so -- and then give some other people time to ask questions. I just want to clarify that you ended the year with $26 million in cash, but that excludes the milestone payment from Chugai, correct?

That is correct.

Well, that actually includes the -- that excludes the license fee from Chugai as well, [in] the $26 million.

Okay, great. Thank you. And the last thing is, I just want to make sure that I am clear on this. That when I look at the combination of product royalties and manufacturing at transfer pricing, I am almost looking at that as a manufacturing royalty. So I almost see essentially two royalty streams, which really adds up to a very significant partnership. Is that kind of how you look at it too?

Yes, it is. Exactly. And we want to -- the control of the manufacturing process is important not just from an economic standpoint, but it's also important from an overall development perspective. And -- but I think you're thinking about it exactly the right way. This is a very good partnership structure for us. And I think it provides a real opportunity for substantial value creation for the Company.

Hey, congratulations. Thank you so much. We look forward to the data -- and seeing you in New York at the ARM meeting in March.

I'm not sure I'm going to be at that meeting, but I'm sure you will be seeing me soon.

Okay, good. Thank you.

Ted Tenthoff.

Just picking up on Jason's question. What about the opportunity in Europe to potentially file on Phase II data? I know there's also some new accelerated legislation there, so how could that play to your benefits?

Well, you know the interesting -- that's a great question, Ted. The interesting thing is that the regulatory environment around the world, particularly in North America and in Europe, seems to be improving. And for those people that have been paying attention to some of the things going on in Washington, there's actually a pretty significant move underway right now, through a piece of a draft legislation that's being discussed and debated in Congress, that I know has a lot of bipartisan support.

It could actually further improve the regulatory environment here. And one example is, in the last round of PDUFA, there was something called the Breakthrough Therapies Designations that was created. And that is a very important designation. And in Europe -- well, I'll come back to Europe in just a minute. But one of the things that could happen is that we could actually see the creation of a regulatory pathway that links specifically to that designation, which I think would be a very important step forward.

And in Europe, they've done something very similar to what was done in Japan, where they have implemented an adaptive approval or conditional approval type of approach, which was adopted in March of last year. And it has many of the similar features to, I guess, what they've done in Japan. It's not specifically limited to regenerative medicine. But when they were describing it -- they put out a working paper, actually, when they announced the implementation of this, and one of the specific examples that they pointed to was regenerative medicine or cell therapy-based products that could be developed under this framework.

Now they've implemented this as kind of a pilot study, but I know that there is a lot of conceptual support for it. And people think that it could actually have a meaningful impact.

The interesting thing is that the regulatory authorities in the US and in Europe and in Japan have all come to the same conclusion, which is, they need to be doing more to increasing the efficiency of the development of innovative new therapies that are addressing serious significant areas of high unmet medical need. And they've got to be part of the solution, in other words.

And so what we've seen over the past couple of years are tangible steps that are being taken that could really increase the efficiency and accelerate the development of innovative new therapies like MultiStem, in areas like stroke and others that are recognized as urgently important areas. So, I think your question is exactly right on the money.

And as we see all of these things improving, the regulatory environment improving internationally, from an investor perspective, that obviously has very, very important ramifications. Because what that means is, is that for companies like Athersys, we may be able to invest substantially less capital, and have to take a lot less time in terms of getting safe and effective therapies through the regulatory process, and actually into hospitals and into patients where they can do the greatest amount of good.

It accelerates our value proposition, if you will, or our opportunity to commercialize products. And that's something that every investor should be excited about, particularly when you're talking about high-impact areas like stroke.

Great. Thank you very much, Gil. Looking forward to the data.

Thanks, Ted.

Tracy Marshbanks.

And the Blackhawks need some players, so I just want to put my dibs in early.

(laughter) Well, I don't know if you're talking about my son or B.J.'s son, but either way, it's -- I'd love to have that conversation.

Either way, they need some players. (laughter) A quick follow-up on the whole Japanese discussion. I mean, it's very exciting. What is your insight or thoughts on if you were able to get the accelerated pathway and commercial, how is -- the reimbursement environment and framework --- is that established or yet to be figured out what that might look like?

Well, I think they are still trying to figure some things out. And they will probably get resolved over time. But I think that the vision, and from the discussions that we've had and the information that we've gotten, is that the existing framework can be deployed from a reimbursement perspective.

And one of the very interesting things about the reimbursement process in Japan is just how efficient it is. So, for those people that are not really aware of the healthcare system in Japan, they have a truly national healthcare system that they are rightly proud of.

And essentially, there are eight different payer groups. But under the reimbursement system in Japan, there is one entity, if you will, that establishes the reimbursement point for therapy in Japan, and then it's accepted by all eight payer groups simultaneously. So there's two governmental payer groups, and then there's six different employer-based payer groups.

So when you go through that process, which typically takes about 60 to 90 days, at the end of that -- so, you submit your dossier, you make your arguments and terms, and provide your rationale for what you think the right reimbursement level is, and then they review it. There's some back and forth. And then at the end of that, they actually render their decision. And it's meant to be a very efficient and, frankly, a fairly transparent process. And it's also meant to serve the needs of the healthcare system and the patients as a whole.

So that's unlike the system we have here in the United States. And I am certainly not lobbying for or arguing for a national healthcare system here, but I think the point is, is that here, it's a much more fragmented approach, where you're dealing with different entities and it takes quite a bit longer, in terms of the timeframe. And the same thing is true in Europe, where you're dealing with different countries, different jurisdictions, as you're making your reimbursement arguments and taking your approach there.

So, in many ways, Japan, I think, is successfully positioning itself to be a major, major hub of innovation over the course of the next few years. And that's specifically why they designed the system and implemented it. I mean, their Prime Minister, Shinzo Abe, has talked about this publicly. Right? He thinks that this is going to be an important element, an important plank, of their national economic revitalization program, and with an emphasis on biotechnology generally, and regenerative medicine specifically.

And I think that's very, very exciting. Because obviously, we're -- you know, we are, I think, should be considered an early mover in this regard. And we've been working very hard over the past couple of years since this vision was first laid out. And I've got to give thanks to Jason Kolbert once again, because he is the person that first called me and alerted me to this, and said you really ought to be paying attention to that.

But the point is, is that I think it creates a lot of opportunity, and it's an opportunity for really transformational change. And we think we are very well-positioned to take advantage of it, not just because we've been working so hard, but because of the new partnership with Chugai.

Now taking a step back, you mentioned something about -- based on the results from your upcoming trial data, that you will be making decisions about next steps. And I think we've spent quite a bit of time on what the next steps in Japan might look like. And I know without the data, it's hard to be definitive, but what are the elements, the angles, the pathways, that will be up for consideration, assuming positive to modestly positive to strongly positive results in your Phase II trial, in the rest of the world, if you will?

Yes, I mean -- I'm sorry, in the rest of the world?

Yes. We've talked a lot about Japan. I'm just saying you have a lot of other options still.

Right. Well, I mean, again, I think a lot of it -- it's a little bit premature at this point in time to -- there's some logical things that we could do and would intend to do. So, for example, if we saw a very robust response and we felt that it was the right thing to do, then we could go forward and apply for a Breakthrough Therapy Designation, for example, with the FDA, or there might be other things that we could do.

These are all possibilities. Right? And I think people should be thinking about those things.

But, really, Tracy, it's all going to come down to the data. What are we seeing from the data? And at this point, I could describe many different shades of things, but I think it's really probably best for all of us to sit back and wait for a few more weeks. And then we'll have the results; we'll be able to talk about it in a thoughtful and rational way, and plan for what comes next.

But look, we are very excited. And a few weeks from now, I think it's going to be an important time for us and a lot of other people.

I know questions, because I want to hit on one of the other applications. ARDS, could you just take a little bit deeper dive into patient population? And, if you will, maybe the challenges and the planning of trials for that patient population with MultiStem?

Yes. So, ARDS can really strike under a range of different circumstances. Sometimes ARDS is trauma-induced; sometimes it's pulmonary infection-induced in a situation where the patient is particularly susceptible to kind of an overreaction or consequences of that initial infection event.

But the bottom line is, is that when -- it's a type of indication, when things go bad, they can go bad very quickly and there's not much that doctors can really do for most of these patients, other than to put them on -- other than to incubate them. And essentially, they are in the ICU, and they are on mechanical ventilation help.

And for a lot of the patients, they're in the ICU for an extended period of time, the mortality rate, particularly among older patients, is pretty high. I mean, you see estimates anywhere from 25% to 45% of 28-day mortality for patients that are suffering from ARDS. Among young healthy individuals, the mortality rate tends to be much, much lower. And in some groups, it's essentially not a factor.

But for patients that are suffering from severe pulmonary distress and pulmonary dysfunction, where they're just literally not taking in enough oxygen and getting enough oxygen to their organs and their extremities, it can be manifest in a whole range of different ways, which are really, really bad. I mean, you can see necrotic tissue damage in limbs and extremities that leads to amputation. You can see organ failure. You can see just a lot of things that can go bad.

And now, really the best that the clinicians can do is try and manage things to get the patient stabilized and up to a level where you might eventually wean them off of the ventilator, and then, hopefully, get them on a path to recovery. But, unfortunately, for a lot of patients, it just doesn't work out that way.

So, we've done work, going back again several years ago, working with some of the leading clinical translational research centers in the area, and we've done work in various large animal models, for example, and actually doing some other things that I think are very interesting, that we'll talk about in due course, that have given us a lot of confidence that administration of MultiStem might be able to address this problem. And of course, we put in the effort to take a lot of that data, package it up and apply for this grant award that we were subsequently awarded, which provides about $3 million to support the program.

And we've actually gotten some other things that are supporting the program as well. So it's -- I think the point is it's another acute indication where we think early intervention might be to really turn the tide and provide a meaningful benefit for patients that, in many cases, are looking at just devastating effects of the disease, and for which standard of care is completely lacking or ineffective for the vast majority of patients.

Yes. It's a very destructive disease and usually a spiral down, not up. So anything would be very, very (technical difficulty) helpful.

Our endpoint -- you're right. I think when it goes bad, it goes bad in a hurry. And our primary endpoint is really going to be looking at what's happening to patients in the first few weeks after they've been diagnosed with ARDS, and after they've been treated. So -- and then we're looking and we'll get more definition over time to the specific clinical assessment that we will employ. But we are obviously looking at the critically important things that I alluded to in my prepared comments.

All right. Thanks a lot and congratulations.

Thanks, Tracy.

Your last question comes from the line of Steve Brozak. Your line is open.

Hey, good afternoon, Gil. Hey, since most of the questions have been asked, but there's one that you've been going around tangentially, and I want to ask it, and also ask an extension of it. You've mentioned why you picked Chugai. But why did Chugai pick you? And why have a number of larger pharmaceutical biotechnology companies picked you in partnering?

And I'll just hop off because -- unless there's something else, I think pretty much everything else has been asked and answered.

Yes, well, that's a great question, Steve. And I can honestly say that, as Chugai has explained it us, it's because we share their values and they believe we have best-in-class technology. They are absolutely committed.

So when we were in Japan, when we were doing the signing ceremony before we announced the deal, obviously, it gave us an opportunity to spend a fair amount of time with the executive leadership at Chugai. And they made it very clear that they think our technology is phenomenal; they think that our approach is the right approach in terms of developing the technology for the areas that we're focused on. And they really like, from their vantage point, the fact that, like Chugai, we are very focused on addressing serious unmet medical needs, and we've got a heavily patient-centric focus.

I mean, their philosophy and our philosophy is, if we really focus on helping the patient, we are going to create value as a consequence of that. And that's really how they think about it. And that's how we think about it as well. I mean, there's a lot of other things that go into it, in terms of making sure you've got a rational and effective development and commercialization plan, but it's a very patient-centric focus first.

But I think the major thing was they really believe we have the strongest technology in the space. And from our perspective, we looked at them -- and I touched on this earlier, but -- you look at the range of things that they've been able to accomplish over the last few years, in terms of their sales and commercialization success and their growth rate, it's really outstanding. And their track record with innovative biologics is very outstanding. And so there was a natural fit, if you will, between what they wanted to accomplish and what we wanted to accomplish, specifically in Japan.

Great. Well, I'm obviously looking forward to more news on it. Thanks again.

Thanks, Steve.

There are no further questions at this time.

Well, since there are no further questions, I'd like to thank everyone for their time and attention today, as well as your continued support of the Company. We look forward to updating you regarding the announcement of the results of the stroke trial in mid-April, and other important events as they occur. Good night, everyone. Thanks.

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