Athersys Inc (ATHX) 2018 Q1 法說會逐字稿

Good afternoon. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to the Athersys' First Quarter 2018 Earnings Call. (Operator Instructions)

Laura Campbell, you may begin your conference.

Thank you, and good afternoon, everyone. I'm Laura Campbell, Senior 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 Celesnik at (216) 431-9900 to receive it via e-mail.

Dr. Gil Van Bokkelen, Chairman and Chief Executive Officer; and B.J. Lehmann, President and Chief Operating Officer, will host today's call. The call is expected to last approximately 30 minutes and may also be accessed at athersys.com. A replay will be available 2 hours after the call's conclusion, and access information for the replay is in today's press release.

Any remarks that we may make about future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by our forward-looking statements as a result of various important factors, including those discussed in our Forms 10-Q, 10-K and other public SEC filings.

We anticipate that subsequent events and developments may cause our outlook to change. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. For the benefit of those who may be listening to the replay, this call was held and recorded on May 10, 2018. Since then, we may have made announcements related to the topics discussed, so please reference our most recent press releases and SEC filings.

With that, I'd like to turn the call over to B.J. Lehman. B.J.?

Thank you, Laura. Good afternoon, and welcome, everyone. I'm B.J. Lehman, President and Chief Operating Officer at Athersys. I'll briefly review our first quarter 2018 financial results and then turn the call over to Gil for a corporate update followed by a question-and-answer period.

During the first quarter of 2018, we recorded revenues of $1.1 million compared to $1.5 million during the first quarter of 2017. Our revenues are comprised of revenues from manufacturing-related activities for Healios, royalty and related contract revenue from our collaboration with RTI Surgical Inc. and grant revenue. Our revenue from Healios increased during the first quarter of 2018 compared to the prior year first quarter by approximately $300,000 as we continue to supply clinical product to Healios and provide other manufacturing-related services and we expect these revenues will be higher for the 2018 annual period as compared to the 2017 year.

Excluding a $1 million milestone payment from RTI in the 2017 first quarter, our royalty revenues increased by approximately $200,000 in the first quarter of 2018 as a result of the increase in the royalty rate that became effective late 2017 associated with our technology license to RTI.

Our grant revenue increased slightly to $317,000 in the first quarter of 2018 from $210,000 in the first quarter of 2017. Grant revenues relate to clinical and nonclinical research activities and vary based on the award of new grants, the completion of grant-funded projects and the timing of grant reimbursable expenditures.

Research and development expenses increased to $8.9 million in the first quarter of 2018 compared to $5.6 million in the prior year 3-month period. Among other things, this reflects a $2.7 million increase in clinical and preclinical development costs such as manufacturing and process development activities as well as increases in research supplies and personnel cost.

General and administrative expenses increased to $2.7 million for the 3 months ended March 31, 2018, compared to $2.1 million for the same period in 2017.

The increase was due primarily to an increase in professional fees, personnel cost, stock-based compensation cost and other administrative cost as compared to the same period last year.

We incurred a net loss for the 3 months ended March 31, 2018, of $10.2 million compared to a net loss of $5.6 million for the same period of 2017. The difference of $4.6 million reflects the variances mentioned previously as well as approximately $400,000 in insurance proceed that we received this quarter, which were offset by approximately $700,000 noncash increase in the gain related to the fair value of our warrant liabilities for the quarter ended March 31, 2017.

Net loss per share was $0.08 in 2018 first quarter compared to a net loss of $0.06 per share in the first quarter of 2017. During the 3 months ended March 31, 2018, we used $5.7 million of cash in operating activities compared to $5.4 million of cash being used in the first quarter of 2017, reflecting primarily increased preclinical and clinical development activities as offset in part by increased payables, accruals and advances.

As of March 31, 2018, we had $49.7 million in cash and cash equivalents compared to $29.3 million at December 31, 2017, which includes among other things the investment made by Healios in March 2018. This amount excludes the $10 million funded by Healios into an escrow account, which we expect to be released to us by June.

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

Thanks, B.J. Good afternoon, everyone, and thanks for joining the call today. In the first quarter, and during the past few weeks, we've made continued progress toward some key objectives. In particular, since our last earnings call, just a few weeks ago, we've made headway on the following priorities: working with Healios to complete the envisioned expansion of our collaboration; supporting Healios in their conduct of the TREASURE trial in Japan; advancing our clinical programs, including our preparations for the initiation of the MASTERS-2 trial; strengthening our financial position; and continuing to strengthen our capabilities and build awareness of our programs.

Since we recently provided a detailed overview of the focus of the specific elements of the pending expansion of the partnership with Healios, I'm not going to resummarize all of that information in the call today, other than to reiterate a few key points and highlights. For a more detailed description, we invite people to review our recent press releases, SEC filings and other disclosures that summarize the goals and objectives related to the expansion of the alliance.

To reiterate, we and Healios are focused on expanding the partnership to provide them with a broader platform of development programs, leveraging the extensive work we have conducted in multiple areas. This is designed to provide Healios with a very efficient portfolio of clinical stage opportunities that could be pursued under the accelerated regenerative medicine regulatory framework that has been implemented in Japan. It focuses on multiple areas where we both feel that we are well positioned to advance the MultiStem platform and other opportunities in a highly efficient manner and where we can establish a new standard of clinical care to benefit patients that suffer from serious diseases and conditions that are not adequately addressed by current standards of care. It also provides other dimensions of value creation where Healios is already well positioned, where our technology can add value to their current programs and capabilities.

As part of the intended collaboration expansion, Healios would obtain rights to several therapeutic indications of key interest, including ARDS, trauma and in the ophthalmological and transplantation areas, and would also obtain an exclusive option to develop and commercialize MultiStem in China for ischemic stroke, trauma and ARDS. We and Healios believe that they are ideally positioned to become the leading regenerative medicine company in Asia, and our visions are highly aligned.

Accordingly, as we recently disclosed, we are both committed to completing the collaboration expansion and intend to achieve that goal by the end of this month. Currently, we are working together to finalize the agreements that detail the precise elements of the broader collaboration, which entails multiple documents and dimensions. Since that process is very much ongoing, however, I will not comment further on the precise details today but instead will simply ask for a bit of additional patience while we collaboratively work through the process with our colleagues at Healios. We will make a further announcement when we have successfully concluded our work, sometime in the next several weeks.

In the meantime, we have already completed some key objectives related to this initiative, including the recent $21.1 million equity investment in the company that made Healios our largest shareholder. As B.J. mentioned in his comments a few moments ago, we finished the first quarter in a strong financial position, with approximately $50 million in cash. Furthermore, another $10 million will be released to us from the escrow account in early June, aside from the impact of the other economic elements of the collaboration expansion we are actively working on. As a result, we are in a very solid financial position.

Our other programs also continue to advance, as evidenced by the recent announcement we made in conjunction with UT Health, the Memorial Hermann Trauma Center, part of the Texas Medical Center, which is regarded as the largest medical center in the world. This project leverages the extensive preclinical work we've conducted in models of serious trauma and multiple corresponding publications as well as the clinical observations from other programs, including our work in ischemic stroke. It lays out a framework for the conduct of an approximately 150-patient, randomized, double-blind, placebo-controlled trial, with funding for this study provided by MTEC, the Medical Technology Enterprise Consortium, which is supported by the U.S. Army Medical and Materiel Command through the Department of Defense and UTHealth.

The support for this program from MTEC is significant since, as most people are aware, trauma represents the major source of death and disability for the men and women in our armed forces. However, as I described on our last earnings call just a few weeks ago, trauma is also a major cause of death and disability among the civilian population and now represents the leading cause of death and serious disability among individuals aged 45 and under in the United States. Importantly, recent epidemiological studies have shown the impact of trauma among the elderly segment of the population has risen substantially in recent years. Among the civilian population, falls represent the leading cause of trauma and are especially relevant among the elderly, with motor vehicle accidents the next most common cause overall. Among the young, trauma due to falls, motor vehicle accidents, slips, biking and playground accidents represent the major causes. And among young adults, trauma due to some form of violence is another significant contributor.

More than a quarter of all trauma patients experience a severe injury, and this proportion has risen over time. Like stroke and some of the other critical care conditions we are pursuing, the economic consequences of trauma are truly staggering. Data from the National Trauma Institute indicates an annual economic cost of trauma of $671 billion, including health care costs and work loss for those suffering fatal or nonfatal traumatic injuries. Trauma represents the leading cause of lost productive years of life and the leading cause of life years lost. Furthermore, clinical evidence suggests that much of the trauma-related morbidity and complications are due to the hyper-inflammatory response that occurs following the initial trauma and the subsequent weakening of the immune system that occurs in the aftermath.

Our data illustrate that MultiStem may have a profound impact improving outcomes following trauma, both by mitigating the systemic inflammatory response that occurs in the vast majority of trauma victims, which is related to multiple types of serious postinjury complications, including acute kidney injury and other events, and by reducing the incidence and severity of immunological complications that occur in the aftermath, such as secondary infections, severe pulmonary complications and other serious and life-threatening events as well as promoting recovery.

We are proud and honored to have been selected by MTEC to be part of this important project, working alongside our colleagues and friends at UTHealth. Working together, we believe we can meaningfully improve medical care and outcomes for trauma patients, both young and old alike. And although the trial will focus on the civilian population, we believe it will establish a strong foundation for new treatment options for trauma victims in the armed services.

With the funding agreement to conduct the study now in place, our regulatory team is actively preparing for discussions with the FDA so that we can work towards finalizing the design of the trial. It's worth noting that the Memorial Hermann Texas Medical Center is one of the busiest level 1 trauma centers in the United States and has an impressive record in the conduct of clinical trials. We appreciate their commitment to this important program and look forward to working with them in this study.

While trauma represents an important opportunity for the future, our current clinical focus is heavily oriented towards our ischemic stroke trials. Accordingly, we continue to move forward with the anticipated commencement of the MASTERS-2 Phase III clinical trial, with the initiation of the first sites here in the U.S. targeted for later this quarter.

As we have described previously, our plan is to ramp up first in the U.S. and then add European sites to the study over time. We have established the study infrastructure, advanced preparations with the first of the trial sites and manufactured initial material for the trial. We look forward to the initiation of this important clinical study and once we have completed that objective to making an announcement and further describing our plans and expectations as the trial progresses.

We also continue to support the TREASURE study in Japan, while Healios continues to enroll subjects and build its network of sites. Additionally, we are working with Healios and Nikon to establish manufacturing capabilities to support commercialization of MultiStem in Japan, subsequent to obtaining approval there. We also continue to advance our other active programs, including our ongoing exploratory ARDS clinical trial, which is advancing toward completion. Although enrollment has tapered off in recent weeks, likely due to a lessening of the frequency of severe flu cases that can sometimes result in ARDS, we continue to make progress on the study and are committed to completing enrollment of the study as soon as possible, with the announcement of initial results to follow within a couple of months of the successful enrollment of the last subject. This reflects the completion of the initial 30-day clinical evaluation of the last patient enrolled and the subsequent completion of data acquisition, verification and analysis.

I'd now like to turn to some of the recent questions that we have received from shareholders over the past few weeks. Again, I'm not going to mention individuals by name as in certain instances multiple people submitted essentially the same question. The first question relates to the completion of the ARDS trial. Some people have speculated that we will have results from the trial any day. However, as I mentioned earlier, while our goal has been to complete enrollment of the trial this spring, the pace of enrollment has tapered off in recent weeks. It's impossible to predict with certainty what the next few weeks will be like, although we note that summer has historically been a less active period for ARDS given the seasonal drop-off in serious flu cases that typically occurs, which correlate with the incidence of ARDS. In any event, our goal is to complete enrollment of the remaining subjects as soon as possible and announce the result soon thereafter, as I conveyed a few moments ago.

Another question relates to whether we are or will continue to explore other partnering opportunities aside from the expansion with Healios. As we've conveyed in the past, we are and will continue to evaluate additional partnering opportunities where we think it makes sense to do so. However, one of the benefits of completing the recent strategic equity investment and planned collaboration expansion with Healios is that having a strong and committed partner and a solid financial position puts us in a better position to negotiate the kinds of high-value partnerships we are seeking while we conduct the clinical trials that are designed to validate our key programs and create significant value for our shareholders.

Finally, other shareholders have asked whether we are currently planning an institutional financing, whether we have engaged an investment banker to conduct such a financing or whether we are actively using the Aspire facility. The answer to each of these is no. We have no immediate term plans to conduct a financing and have not used the Aspire vehicle since we announced the establishment of that facility.

As always, however, the Board reserves the right to do whatever it feels is prudent and appropriate to serve the interests of our shareholders.

I will note further that we did use the previous Aspire facility early in the year, which helped us maintain a stable balance sheet through the first quarter and as we had done periodically last year.

Furthermore, our financial position was meaningfully strengthened by the subsequent equity investment from Healios and will be further strengthened by the receipt of the $10 million from the escrow account by June 1 as well as other payments that would occur under the collaboration expansion once it is completed as we anticipate.

In the meantime, we remain focused on completing our collaboration expansion with Healios and our specific operational priorities, as I have described. And with that, we'd be happy to take a few additional questions.

(Operator Instructions) And our first question comes from the line of Katherine Xu from William Blair.

This is Audrey on for Katherine. So I just had a question about the recent-ish data about the opportunity window to perform a thrombectomy. It's basically now been extended to 24 hours. And I was wondering if you had any thoughts about how that might impact study enrollment and further market opportunities?

Yes, great question. So first off, I think there's a little bit of a misconception around the extension. The guidelines actually -- there were 2 different studies that were conducted, one of which actually provided a basis for extending out the window for thrombectomy out to 16 hours. But again, it only relates to specific types of patients that are eligible for treatment with the device in question, so primarily things like large-vessel occlusions that occur in a specific region of the brain. First off, we see this as a real positive for stroke patients, by the way. The other study, which extended that window out a little bit further, but the wording around the recent AHA guidelines is actually a bit more restrictive around that. And that had highly, highly restrictive criteria according to the study that was -- that you're referring to.

I think the long and the short of it is this is going to open up thrombectomy for more patients. But I think that -- we don't believe that it's going to have a significant impact on the conduct of our study. And I think it's important for people to remember that we can layer administration of MultiStem on top of the currently available approaches, and our study is designed to accommodate that. So for patients -- and it's also important to note that a significant percentage of patients that are treated with thrombolytic-type approaches actually don't meaningfully benefit from that. And there's a variety of reasons for that, ranging from unsuccessful reperfusion to inadequate reperfusion to other things that can actually happen.

So from our perspective, I think it's important for our shareholders and others to realize we can layer MultiStem right on top of current standard of care. We anticipate that the vast majority of patients will still not have received some sort of thrombolytic intervention. And we believe that based on the data we've already generated as well as the data that we've generated that illustrates that we can layer right on top of standard of care are going to be beneficial to a broad, broad range of different types of patients.

Our next question comes from the line of Chad Messer from Needham & Company.

Great. I've been wondering if we could talk a little bit more about -- can you hear me okay?

Yes, we can.

I apologize. I'm getting some strange background on my end. If we could talk a little bit more about the trauma study. I know you're still finalizing the protocol, but it seems there would be some challenges in this indication that's a bit of a heterogeneous population. What are some end points that you can go after in a Phase II? And are there precedent trials you could point us to?

Yes, it's a great question. And there's actually a relatively recent, just out in the past couple of years, publication that I think illustrates a couple of important things. There was a study that was conducted by UTH and the same trauma center that we're going to be working with in this trial as well as a number of other participating trauma centers that I think provided a lot of great, relevant information about what happens in trauma victims, and in particular the types of trauma victims that we would expect to see in our trial.

And as I talked about on several occasions, one of the key observations for trauma patients is they tend to experience something called systemic inflammatory response syndrome. And the data from the [PROPER] study illustrates pretty clearly that it's approaching 70% actually the patients that experience trauma experience SIRS, or systemic inflammatory response syndrome. That systemic inflammatory response syndrome actually is integrally linked to a lot of the complications that ensue in these types of patients. And there are a lot of things that can actually happen in these patients, ranging from kidney failure or acute kidney injury to multiorgan failure to pulmonary distress and a whole bunch of other things.

It's also very interesting that there's actually a fair amount of data that shows that patients that suffer from trauma experience the same type of immunological deficit that we see in stroke patients, where once the peripheral immune system kind of launches this massive hyper-inflammatory response that in the wake of that the patient becomes immunodepleted or immunodepressed for an extended period of time. So there's a few key things that we believe we can focus on ranging from kidney function to tangible markers of inflammatory damage or inflammatory overreaction, if you will, to a few other things that are kind of built into the design of the study. Until we actually finalize things with the FDA, we're not really going to provide a lot of additional detail on that, other than to say that, I think, the data from the PROPER study, which again by far and away the UTH Trauma Center down there really drove the successful completion of that trial, which actually finished ahead of time and under budget using some funding that was provided by the NIH.

So I think it's -- we think they are the ideal partner for this. It's also, I think, not an accident that a lot of the leadership at that trauma center are people that have served in field trauma or led field trauma units in the military. And that forged a lot of trust and a strong foundation, if you will, with MTEC and the folks in the DoD that were responsible for providing funding. So I think that we're going to be able to look at multiple different parameters that I think are very relevant and that would promote better outcomes. But to get back to your question, I mean, you're right. There's not one simple thing that we could look at. It's basically going to be a series of things that I think contribute to the recovery and the progression and the types of complications that these trauma patients experience. Is that helpful?

Yes. Very helpful.

Our last question comes from the line of Jason McCarthy from Maxim.

I want to piggyback a little bit on all the discussion around trauma. I understand it's a heterogeneous population, but my view is that if it's blunting the immune response and preventing hyper-inflammation or hypo-inflammation, I think you'd see a relatively universal effect. So my question is if you successfully complete the Phase II, given the high rate of mortality in this patient population, could you essentially have a small pivotal Phase III trial to get to approval, given that the cells have already been proven to be safe?

Yes, it's a great question. And it's interesting because there are several different pathways we could consider. There are actually some unique regulatory pathways that relate to the military and the Department of Defense specifically. And that's something that we're going to talk further, I think, with the FDA about. But I think the real moment in time for us to have that conversation is once we get to the other side of the completion of the trial to talk -- not to talk with the FDA about it. We'll be talking to the FDA about it, I think, along the way, but when we talk about it publicly.

So I do think that there are some innovative regulatory pathways which could expedite the efficiency of this or at least for certain types of population, including members of the military. We're not taking that for granted. I'm not conveying formal guidance or perspective on that just yet. All I'm saying is that we recognize and acknowledge that those types of pathways that have been implemented in recent years have gotten a lot of support and I think create some interesting possibilities for us. Our immediate focus or our near-term focus, is just on making sure that we design the right study and that we reach agreement with the FDA and we do that in a very collaborative and collegial way, which has always been our mindset with how we approach the FDA and other regulators around the world, and I think that's paid tangible dividend for us. And of course, we want to actively involve our colleagues, whether it's from MTEC or other people that are involved in the process just to make sure that we're all on the same page about how we do this.

There are no further questions at this time. I will turn the call back over to Gil Van Bokkelen for closing remarks.

Thanks, Emily. And I'd just like to close by thanking everyone again for joining the call today. And we look forward to providing an additional update in a few weeks. And for those of you that can attend, we look forward to seeing you at our Annual Shareholder Meeting in June here in Cleveland. Thanks very much.

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