Athersys Inc (ATHX) 2018 Q2 法說會逐字稿

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

I will now turn the conference over to our host, Ms. Laura Campbell. Madam, the floor is yours.

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's available on the Athersys' website at athersys.com, or you may call Matt Celesnik at (216) 431-9900 to receive it via e-mail.

B.J. Lehmann, President and Chief Operating Officer, and I 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 the forward-looking statement 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 August 7, 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 will now provide the second quarter 2018 financial results and then turn the call over to B.J. for corporate update followed by a question-and-answer period.

During the second quarter of 2018, revenues increased to $19.4 million from approximately $700,000 during the second quarter of 2017. Of that increase, $18.5 million related to our collaboration with Healios that was expanded in June 2018 to include several additional licensed indications. Our other revenues were slightly higher in the second quarter of 2018 compared to the comparable period last year.

Research and development expenses increased to $10.1 million in the second quarter of 2018 compared to $4.6 million in the prior year 3-month period. The $5.5 million increase relates primarily to: an increase in clinical development cost of $4.4 million; an increase in license fees of $600,000; and an increase in internal research supplies and other research cost of approximately $300,000; and lastly, an increase in personnel cost of $200,000.

Our clinical development costs during the 2018 period reflected increased clinical product manufacturing costs; technology transfer costs for manufacturing in Japan; start-up contractual costs related to our MASTERS-2 stroke trial; and process development activities to support large-scale manufacturing.

Healios reimburses us for a portion of the clinical product manufacturing cost for their TREASURE trial, and reimburses us for all of our technology transfer cost in Japan.

General and administrative expenses increased to $2.4 million for the 3 months ended June 30, 2018, compared to $2.2 million for the same period in 2017. The increase was due primarily to an increase in professional fees, consulting services, personnel costs and other administrative costs compared to the same period last year.

We had net income of $6.9 million for the 3 months ended June 30, 2018, compared to a net loss of $6.3 million for the same period of 2017. The difference of $13.2 million reflects the above variance or the variances I've already discussed as well as an increase of $200,000 in other income items.

Net income per share was $0.05 in the 2018 quarter compared to a net loss of $0.06 per share in the second quarter of 2017. During the 3 months ended June 30, 2018, net cash provided by operating activities was $4.4 million compared to $5.7 million of net cash used in the second quarter of 2017. And note that included in our cash proceeds for this quarter were $12.5 million of license fees from our expansion with Healios.

As of June 30, 2018, we had $53.4 million in cash and cash equivalents compared to $29.3 million at December 31, 2017. With that, I'd like to turn the call over to B.J. for our corporate update. B.J.?

Thank you, Laura, and thanks, everyone, for joining the call today. Gil is unavailable today, so I will provide the corporate update.

I'd like to start with a couple of important updates. First, as we communicated in June, we have continued to expand our collaborative development relationship with Healios. We announced an expansion of the existing license agreement with Healios' exercise of its option to include acute respiratory distress syndrome or ARDS into the scope of its Japan license as well as to include additional applications of its organ bud technology utilizing our MAPC technology into its global license.

We also granted Healios rights to use our technology in the ophthalmology area globally, and in combination with iPSC-derived cells for certain organ transplantation applications in Japan. This expansion of license rights falls on top of the substantial investment in our stock made by Healios in the first quarter. These arrangements further align our interests and actions, but they also provide Athersys with $41.1 million of additional capital in a form of equity investment in completed and committed license fee payments.

We continue to discuss with Healios the possibility of a further expansion of the collaboration, including, among other things, an exclusive option to a license for rights to develop and commercialize MultiStem therapy for certain indications in China. We believe that there is substantial opportunity for stem cell therapies in China as our analysis and recent partnering activity in the cardiovascular area illustrates.

I do not plan on further discussing these negotiations in this call other than to say that though our discussions with Healios have been constructive, it's important to remind everyone there is no guarantee that we will enter into a Chinese option agreement or license with Healios or otherwise further expand our collaboration. That said, our day-to-day activities with Healios have been collaborative and productive as we work to meet the shared goal of achieving approval for MultiStem therapies in important disease areas and geographies.

Second, as we noted in our press release, we recently initiated the MASTERS-2 study, a registration study of MultiStem therapy for treatment of ischemic stroke. Shortly after opening patient recruitment, we enrolled our first several patients in the study. This study initiation represents an important milestone for our lead MultiStem program and for the company as it represents our first Phase III study.

We plan to employ a phased ramp up of the study initiating with a small number of sites in the U.S. this year, adding a larger number of U.S. sites early next year followed by European sites. This approach reflects a number of factors, including our ongoing support of Healios' TREASURE study; management of the operational requirements associated with initiating large number of sites; and regulatory considerations in Europe.

Overall, as we have summarized previously, the study will include 300 subjects and will be conducted in approximately 50 clinical sites in North America and Europe. It is difficult at this point to project the precision when we expect to complete the study, but our target is to complete enrollment some time in 2020. Though we are just at the beginning of the trial, the early enrollment activity and the investigator enthusiasm for the study is very promising.

Healios' TREASURE study continues to enroll subjects as Healios adds more sites to its program. We cannot comment more on Healios' enrollment and further updates will come as Healios comments publicly about the study. However, in Healios' quarterly earnings call held earlier today, Healios management reiterated their goal of completing enrollment in 2019 and having both the 3-month primary results and 1-year final results in 2020.

We are nearing completion of enrollment of our ARDS study and expect to complete enrollment within the next several months. As a reminder, this study is a small exploratory trial to evaluate the safety and feasibility of MultiStem treatment to patients who are affected by ARDS. ARDS is a serious inflammatory condition that severely affects lung function. It typically occurs in patients, who are critically ill and may result from a number of underlying causes, including severe pneumonia, major trauma, aspiration or near drowning and organ failure, among other things. ARDS can vary in intensely among patients and can result in lasting damage to the lungs, and for more severe cases or among older patients, there is typically a high mortality rate. Our study is intended to provide information about the patient population in MultiStem treatment that can help inform our subsequent clinical development, including about which of the patients are most likely to benefit from treatment and about the nature of MultiStem administration.

Though the study is small with just 36 subjects, we are also collecting some data intended to help us understand the potential for biological and clinical effect. However, the study is neither designed nor powered to demonstrate efficacy, meaning that we are looking only for information or signals that would be relevant to future development.

As I noted above, Healios recently exercised its option to expand its scope of its Japan license to include MultiStem therapy for the treatment of ARDS. We believe there is a meaningful opportunity to help patients in Japan suffering from ARDS, and we look forward to supporting Healios' efforts to develop MultiStem product to address this area of significant clinical need in Japan.

Though these are the highest-priority programs of the company for the moment, we have other clinical development activities as well. For instance, we continue to enroll subjects into our acute myocardial infarction study. Enrollment has been well below expectations for some time due to a number of operational considerations, including some changes to treatment practice for heart attacks. We continue to explore avenues for improving our study performance while remaining true to our objective of demonstrating that MultiStem treatment following AMI improves blood flow and is likely to be associated with improvement in clinical outcomes, such as cardiac function and the so-called MACE or major adverse cardiac events.

Additionally, as we have previously described, we are preparing to undertake a trauma study in collaboration with the University of Texas at Houston and the Memorial Hermann-Texas Medical Center, one of the busiest Level 1 trauma centers in the United States. Trauma is generally associated with systemic inflammatory dysfunction, including acute kidney injury, ARDS, vascular compromise, multiple organ failure and may involve traumatic brain injury as well. The study is intended to evaluate the safety and efficacy of MultiStem treatment with the objective of reducing the severe inflammatory complications of trauma that increase patient susceptibility to severe adverse events and impede recovery. As such, the study builds on a central theme for MultiStem treatment: the cell therapy's potential to modulate acute, severe, immune system dysfunction and reduce the severe complications associated with ischemic and traumatic events. Our objective is to start the study early in 2019, and we plan to provide further information as our ongoing preparations advance.

With an eye towards planning for eventual success and generating substantial value for our shareholders, we have continued to invest in building the capabilities and laying the groundwork to enable us to apply for, gain approval for, successfully launch MultiStem therapy for stroke and, potentially, other treatments.

In addition to favorable clinical results, success will require a productive and efficient regulatory effort; favorable positioning of the therapy and its value proposition with reimbursement agencies and payers; sufficient manufacturing capacity and product quality; and ultimately, strong commercial outreach in management. We are already engaged in most of these areas and are focused on achieving success in each of them.

Where it makes sense, we work with outside experts to help us refine and execute our strategy. For example, we are working with leading consulting firms to assist us with development, planning and execution of our reimbursement and payer strategy. Even with the therapy to potentially provide substantial value to patients and payers, thoughtful and well-executed efficacy and navigation of the complicated utilization payer environment can ensure optimal product positioning, reimbursement and value creation.

Additionally, we have made some important hires into Athersys in the regulatory quality, process development and manufacturing areas. For instance, last week, we announced that Greg Liposky has joined our team to help lead our manufacturing activities. Greg brings more than 35 years of experience in successfully leading biopharmaceutical manufacturing operations and process development efforts on an international basis. Importantly, he's both worked with contract manufacturers and established in-house manufacturing facilities to meet clinical and commercial product needs. And he's overseeing all aspects of the manufacturing supply chain. We are excited to have him and other new members on the Athersys team. We will continue to add to our team, experienced leaders, managers and employees, especially in these important areas.

With respect to manufacturing, more generally, we are making progress. We continue to build redundancy into our manufacturing network. We have multiple contract manufacturers with several facilities represented in United States, Europe and Asia. For example, recently, we established a manufacturing presence in Japan through a relationship with Nikon CeLL innovation. Our intention is to work with Nikon to manufacture clinical and commercial product for the Japanese market in support of our collaboration with Healios.

Additionally, we are working with other contract manufacturers to establish manufacturing capacity to support our development efforts and potential commercial launch. Ultimately, we may also consider having our own manufacturing plant to support commercial activity.

Cell therapy manufacturing is a field that's still maturing with ongoing investment in capacity and active development efforts, including by us, to optimize approaches for commercial scale-up. Fortunately, there have been some challenges along the way, as we have noted in the past, with operational issues at our contract manufacturers costing us time and money.

With respect to our own process development work, we have focused on: One, the transition of large-scale manufacturing approaches, including bioreactors; two, the unique requirements in cell manufacturing of processing large volumes in short periods of time; and three, enabling rapid, simple and efficient product utilization in any hospital environment, among other things. Based on this work and the robust characteristics of our cell product, we believe that we have distinctive platform that will be a source of substantial competitive advantage.

We are in an important transition point in the company's history. We have pivotal studies underway in stroke and an exciting pipeline of other opportunities in ARDS, trauma and AMI among others. We are assembling the team and building out the capabilities to ensure successful navigation of the late-stage development; the regulatory and pricing and reimbursement issues and challenges; and a successful commercial launch of a product platform with the potential to affect millions of patients across the globe.

As we have done recently, before we take questions from today's participants, we would like to address several questions that have been submitted to us from shareholders and others interested in our technologies.

So with that, I'll start with question 1, which was submitted by [Joel]. Can you please discuss more about the animal health opportunity and its progress?

As you recall, we entered into a collaborative agreement a little over a year ago. And I can update, to some extent, on that activity. So we've conducted research in multiple areas and species, targeting the treatment of conditions, where there is unmet need in horses, dogs and cats. We have developed product candidates with the desired biological activity and have promising results from in vivo studies that have been conducted. We have active research collaborations including with the leading company in the animal healthcare space as I mentioned, but I'm not at liberty to discuss this research at the moment or the overall status of this collaboration. However, based on the results of the studies that have been completed and the apparent size of the market, we remain excited by the potential of our cell therapy to treat certain conditions in these animals. And we will update the future as is appropriate.

The second question has been asked by several people. Would you comment on the company's financial position following the license expansion and investment by Healios?

As Laura and I have already discussed, following the Healios collaboration activity, we are in a strong financial position with $53.4 million in cash on the balance sheet at the end of the second quarter and an additional $7.5 million of committed license fee payments due over the next several quarters. As we advance through our planned clinical trials and continue to build the capabilities essential for us to gain approval for, successfully launch and commercially supply MultiStem therapy for stroke and potentially other treatments in multiple geographies, we expect to continue to invest. Adding more capital to the balance sheet along the way through business partnerships or the capital markets will allow us to accelerate and expand these investments with the purpose of optimizing the healthcare impact and value creation of our MultiStem therapies.

Our third question comes from [Fred]. Can you discuss the market potential for ARDS?

As I noted above, we believe there's a meaningful opportunity to help patients suffering from ARDS around the world. ARDS patients generally are critically ill and may spend weeks to months on a ventilator and in the ICU, or the intensive care unit, of a hospital. From a healthcare policy perspective, these are highly -- they're high-intensity, high-cost patients who face substantial side effects, loss of function, additional post-discharge healthcare cost and decline in quality of life to the extent that they even recover. For example, one study estimated average hospital cost of more than $125,000 post-discharge outpatient rehospitalization and medication cost of approximately $50,000. And about 50% 1 year return-to-work rates for ARDS survivors. We believe that a successful therapy has the potential to substantially reduce intensive care, hospital time and improve long-term outcomes, providing a strong foundation for favorable reimbursement. Furthermore, there are as many as 500,000 patients annually in the United States, Japan and Europe. These factors drive a substantial market opportunity for successful therapy, which we hope MultiStem treatment will be. So in short, it's a large opportunity where we believe we can have meaningful impact with patients.

So now we may have time to answer a few more questions.

And we do have a question from Chad Messer with Needham & Company.

You did go through a lot of details, but just want to make sure I understand what's been received and what still is outstanding to you from Healios. So you recognized $18.5 million in the quarter. If you can just take a second and break down what that would comprise of. And then remind us, I think you still have some more payments coming from Healios in the relatively near term.

Right. No, thanks, Chad. I'll take a cut at it and Laura can contribute as we get along. So first off, let me say that the revenue accounting around a collaboration like this is actually quite complicated. So I actually like to focus on the cash flows related to the collaboration. And in that case, it's relatively simple. So from Healios this year, they made a $21.1 million investment in equity in the company, which was disclosed in the last quarterly call. And with this expansion, essentially, they paid or committed to pay $20 million of additional license fee payments. $12.5 million of that has been received already, and then $7.5 million will be received over the next several quarters. So from a cash flow perspective, that's what it looks like. From a revenue perspective, as I kind of indicated, it can be fairly complicated. But essentially, you take the overall collaboration and you break it down into parts, and then you assign revenue associated with the value received or transferred in this particular collaboration expansion. And so the $18 million reflects essentially the lion's share of those license fee payments that I just talked about from a cash flow perspective, reflecting the allocation of the different portions of value associated with the collaboration. And that includes the license fees, but it also includes provision of services we're committed to provide to Healios over time. And just one example of that would be we're obligated to provide product to them over the time with respect to these license arrangements. Now we get reimbursed for that product, but it gets calculated into the overall value contribution with respect to the collaboration and represents a proportion, if you will, of the $20 million that we brought in. And it really drives, kind of, the revenue recognition this quarter.

That's right.

You want to add anything else, Laura?

No, you did a really good job. That's right.

Yes, it's a little complicated. Is that a little more clear, Chad?

Yes, very helpful.

Our next question is from Katherine Xu with William Blair.

I was just wondering whether you could give us some more granularity on the Chinese rights. That negotiation with Healios, it's been taking quite some time. What are the major issues that are -- I mean sort of the highest level of debate? Just some color will be very helpful and then whether there are any other partners that you were considering for China rights as well?

Right. Thanks, Katherine. Yes, I can comment on that. First off, with respect to the Healios collaboration, the discussions we've had, as you know, we've had a collaboration with Healios for several years now. It's been a very productive collaboration. We work well together. The focus has been, for the most part, on the Asian opportunities, in particular in Japan. The expansion extends that in a couple of different areas. The number of things we're talking about, kind of, building into that collaboration are several things, some of which are relatively complicated from a, I guess, a negotiation perspective and operational perspective. And so it has taken some time to work through each of the elements of potential collaboration. So it's clear, as we disclosed today and June, what is now included in the collaboration. And without going into great detail, but it includes stroke in Japan, ARDS in Japan, ophthalmology globally, what's called the organ bud technology opportunities and so forth. And these are substantial opportunities. With respect to the ongoing negotiations, one of the key areas for additional negotiations, discussion with Healios relates to rights to develop and commercialize certain indications in China. It's not the only thing we're talking about. It's one of the more important components. And that is -- that's -- it's, I would say, a complicated negotiation we've done, a fair bit of negotiation already. But in terms of completing the execution of the expansion in June and giving appropriate time and thoughtfulness to, kind of, the nature of what a collaboration in China can look like and how it fits best with both companies, it's taken some additional time. So we gave ourselves, Healios and Athersys, the necessary time to kind of work through some of those open issues. And the idea is to, kind of, reach a perspective on whether it makes sense to conclude -- an expansion to include the China option rights over the next little bit of time, right. So we gave ourselves several months to get that done. So we are moving forward. We're having productive discussions. And I think there's some work to be done, but we're working on that with Healios as best as we can. We believe, and we've talked about this in the past, that there's substantial opportunity in China for cell therapeutics. The markets are still developing. I think this creates a little bit of lack of clarity with respect to the market opportunity, in particular, what the, kind of, reimbursement is going to look like, how one is actually going to commercialize, et cetera. That's at the core of some of the ongoing discussions with Healios, as an example. But we see this as a substantial opportunity. We have talked with many companies in China. We've engaged in more advanced discussions with several. Whether we elect to do something in China with Healios or with another party that will be played out over time. At the end of the day, we want to get the right partnership, the right collaboration in place for the company, one that's got the potential to drive long-term value creation. So it's got to be the right deal with the right partner. And in China, in particular, there are some other factors to consider that are unique but reflect the nature of this developing marketplace. And that includes things like: how do you ensure protection of the intellectual property, that's improved greatly over the past years; what's our manufacturing strategy with respect to China in particular, given some of this intellectual property challenges; and then as I said, how do you think about reimbursement commercialization in a market that's still developing. So that's kind of where we stand. We'll have more updates with respect to Healios, I think, in the relative short term, so over the next month or 2, with respect to China and some of the other discussions we're having with them.

Great. And with regards to the finances, do you think you have enough resources to fund through the end of the top line readout of MASTERS-2? And what is the plan of getting through to that time line?

Well, I mean, we have several milestones along the way. I mean, obviously, there's MASTERS-2, there's TREASURE as well, which will read out probably earlier than MASTERS-2, is our expectation. We have some other things in the clinical hopper and we have potential business development activity as well. So as we've just talked about with respect to Healios, but other discussions as well, that ultimately have some impact on how we think about kind of the capital position and where we stand and kind of run -- running room and all that sort of thing. I think that, kind of, the high level is we feel like we're in a strong position now with respect to the balance sheet. Obviously, we've got some mechanisms, kind of, in our back pocket if we needed to use them, as an example, an equity line. By the way, we haven't used that at all since the first quarter but it's there. So we feel like we're in a strong capital position as we stand with respect to moving things forward. And as a result of that, we launched our MASTERS-2 study. We wouldn't have done that if we didn't feel like we have the financial strength to support that launch and execution of that study. So that's kind of where we stand. We've got some business development, things that we're working through and we're going to go from there.

Our final question will be from Jason McCarthy with Maxim Group.

I just want to shift gears, if I could. If you can give us some more clarity on the potential next sets of catalyst while TREASURE and MASTERS-2, in my view, are kind of on autopilot. Those are late 2019 events. Can you give us some more color around the upcoming trauma trial, the ARDS study and when we may see data that we could view as potential catalyst for the company?

Thanks, Jason. And I'm happy to provide a little bit more color there. So as I mentioned, there are a number of clinical items. And as you pointed out, I think, the stroke trials are launched and they're on their way. They'll readout when we complete and I've given you some perspective on that today, but that's both the TREASURE trial in Japan and then the MASTERS-2 in the U.S. and Europe. We have -- we're going to have an ARDS readout, clinical trial readout relatively soon. So remember as I mentioned, it's an exploratory study. We are gathering data that, ultimately, will, kind of, read on or provide perspective about the biological activity, the product in these patients, and provided us some sense of potential for clinical effect. But it's not an efficacy -- or study powered for efficacy. In terms of timing for that, we have a handful of patients remaining. And once we complete that, it'll be several months before we have data to report out to the market. That's driven by the time line of the endpoints, obviously, as well by the analytical time required as well. So again, a handful of patients, we complete that several months, and then a readout with respect to ARDS. As I mentioned with respect to the trauma study, our objective is to get that started early next year. The good news is that's a study that's going to take place at essentially the leading, kind of, trauma center in the United States if not that, one of the top tier. And so we expect, based on that and some experience they've had working in the area before, that that could be a relatively efficient study. But I can't give you any guidance on the timing. Right now, the design is built around 150 patients. We still have a little bit of work left to do to get that launched. We've got to finalize the regulatory dialogue and so forth. We've got to prepare and do some manufacturing of product with respect to the study and so forth. But we're excited by that study. It's something that it's kind of right in the strike zone, with respect to the kind of effects we're seeing in some of the other areas in which we work: acute inflammation, trauma, kind of, the side effects associated with that systemic inflammatory response. So we have great enthusiasm about that study, and we're really eager to get it started as are the folks down in Texas. So those are the near-term, kind of, clinical, kind of, milestones I see.

On the business side, again, we've got a couple of things that we're working on. Obviously, the one that's been disclosed is the Healios collaboration, but we have other activities as well. So those could turn out to be important things along the way. Aside from that, we're going to have operational, kind of, metrics and milestones that we'll report out on. I think, importantly, related to the building out our capabilities to ensure that we're successful as we launch and get into the commercial activity. Those are not as exciting to The Street, the market, but the reality is they're key to driving success over time. So we'll report out on those as well. And hopefully, the markets will understand that we're putting in place the, kind of, the key foundation stones to really give us the best chance to maximize our impact for patients and also value creation. So I, kind of, leave it at that for now.

And at this time, there are no further questions. I will now turn it back over to you, B.J. Lehmann, for final remarks.

Okay. Well, I'd like to thank all of you for participating today. I know it's the summer months and folks are on a holiday, but there are many of you that came in. So we appreciate that, and we want to thank you for your continued support for the company and our efforts. Have a good day.

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