Microbot Medical Inc (MBOT) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2013 StemCells, Inc., earnings conference call. My name is Sue and I will be your operator for today.

At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Mr. Martin McGlynn, President and CEO. Please go ahead, sir.

Thanks, Sue. Welcome, everybody, and thank you for joining us today. On our call today Rodney Young, our Chief Financial Officer, and I will deliver some prepared remarks.

Rodney's remarks will include a discussion on the financial results for the first quarter of this year and then I will follow with a discussion of the very exciting activities that are going on at the Company. Then, of course, we will open the lines for a question-and-answer period.

Okay. Thank you, Martin, and as usual, before we proceed I would like to remind everyone that during the call today we will be making some forward-looking statements, which reflect our current views and are based upon certain assumptions that may or may not prove valid.

We assume no obligation to update these forward-looking statements anytime in the future and our actual results may differ materially from anything projected during today's call due to risks and uncertainties to which we are subject. These risks and uncertainties are described in our public filings with the SEC and also at the end of today's earnings release, and we encourage you to consult those.

So we just issued our Q1 2013 press release about half an hour ago and I would like to just give you the highlights for the quarter.

So we reported -- this quarter we continued to report data and continued to make progress in our trials, clinical trials. Financially we remained focused on prioritizing and controlling our expenses and we strengthened our balance sheet.

So to the numbers, starting with the top line. Total revenue in the quarter was $284,000 compared to $644,000 in Q1 of 2012. This roughly $360,000 decline was primarily the result of a licensing fee that we received in Q1 2012. Product sales, SC Proven sales, totaled $208,000, which was down 23% compared to the $271,000 we reported in Q1 of 2012.

Unit volumes were down in Q1 of 2013, but as you know, SC Proven sales can be a bit lumpy. For example, there were some large orders last year in Q1 2012 that were not repeated. Our order backlog, however, was strong in April, so the second quarter looks to be off to a positive start.

So on the expense side, operating expenses increased by about $600,000, or 10%, in Q1 of 2013 totaling $6.5 million compared to $5.9 million in Q1 of 2012. All of this increase was in R&D expenses as we focused our activities to accelerate and execute our clinical development agenda. And SG&A expenses were flat at $1.9 million, which was essentially what we had in Q1 of 2012. So the loss from operations increased in Q1 2013 to $6.3 million compared to $5.3 million in 2012.

So looking below the operating line, net other expenses total an expense of $159,000 in Q1 2013. This was substantially lower than the $4.9 million in net expense we saw in Q1 of 2012. The difference was due primarily to how we account for the fair value of our warrant liability.

In Q1 of 2012 we had $4.9 million in other expense due to the increase in the warrant liability, while in Q1 of this year the change in the liability was very small and, hence, resulted in very small expense. Again, as a reminder, under warrant liability accounting changes in the fair value of the liability do pass through the income statement as an income or expense, but these are non-cash items.

So the bottom line, in Q1 of 2013 we reported a net loss per share of $0.17, or an aggregate net loss of $6.4 million, and this compares to a net loss of $0.45 per share, or $10.2 million, in Q1 of 2012. On a cash flow basis, our cash used in operating activities was $6.6 million in Q1 of 2013.

So with respect to cash balance, as of March 31, 2013, we reported just over $17 million. However, we announced last month that we received $9.9 million in net proceeds from a loan we entered into with Silicon Valley Bank. So, on a pro forma basis, we had about $27 million at the end of the quarter.

We also announced last month that we had entered into an agreement with the California Institute for Regenerative Medicine, or CIRM, for $19.3 million to help fund our IND-enabling activities for Alzheimer's disease, with the goal here being to file an IND within four years. This funding is in the form of a forgivable loan, meaning that the loan will not have to be repaid if our HuCNS-SC cells are not successful as a treatment for Alzheimer's disease. So we expect to draw the funds from CIRM periodically over the project period, subject to meeting various financial and scientific milestones.

So those were the numbers and I will turn the call back over to Martin.

Thanks, Rodney. So I guess I would characterize the first quarter as a continuation of very eventful 2012 in which we reported encouraging results of our Phase I PMD trial, clinical data from our Phase I/II spinal cord injury trial, and preclinical data for AMD and Alzheimer's disease.

So, first, let me summarize the results of our clinical trial for PMD. This is a rare lipodystrophy that is characterized by imperfect growth of the myelin sheath surrounding neurofibers in the brain. Firstly, evidence of progressive and durable donor-derived myelin in all four patients transplanted with the cells; gains in motor and/or cognitive function in three of the four patients; while the fourth patient remained clinically stable.

Now given the natural history of the disease, the gains observed in neurological function were unexpected and they provide the first demonstration of a biological effect of our cells in humans.

As I have previously stated, each patient has been enrolled in a separate four-year observation study, so we will be in a position to provide additional information on their progress and we plan to provide an update later this quarter on their status at the two-year time point. We also plan to meet with the FDA to discuss possible pathways to registration and to obtain their feedback on our proposed design for a multicenter Phase II study.

Second, with respect to spinal cord injury, we announced in September interim six-month's data from the first patient cohort which showed multi-segment gains in century function in two of the three patients. Now, given that these were patients whose injuries were classified as complete injuries, the gains observed were unexpected.

In February of this year at the BIO CEO & Investor Conference in New York, we announced that the first patient cohort had completed the trial and that the multi-segmental gains in sensory function first observed at the six-month time point had persisted to the 12-month time point. In addition to that, we also announced that one of the two patients had converted from a complete injury to an incomplete injury, i.e., from an ASIA A to an ASIA B classification.

Third, in January of last year we published the preclinical data that underlay the IND for our ongoing Phase I/II trial in dry AMD, which showed that the HuCNS-SC cells preserved vision in animals that would otherwise go blind. To date we have dosed three patients at The Retina Foundation of the Southwest in Dallas, Texas, and we expect enrollment to accelerate now that we have added a second study site at the Byers Eye Institute at Stanford. And we are also continuing to work at adding more sites for this trial.

Fourth, in July of last year we presented preclinical data demonstrating that our cells restored memory in two animal models with relevance to Alzheimer's disease, which suggests our neurostem cells may represent a novel therapeutic approach for memory enhancement. As Rodney has already mentioned, in April of this year we entered into an agreement with CIRM for a $19.3 million forgivable loan to help fund our preclinical and IND-enabling activities for Alzheimer's.

So in summary, with regards to the clinical data and progress to date, while still too early to be definitive, the clinical data that is emerging from the Batten's trial, the PMD study, and the spinal cord injury trials are starting to confirm the exciting results that we have previously reported in the various animal models. So this gives us confidence that we are on the right track. So our focus now is on accelerating patient enrollment in our ongoing trials and then to report out the data.

So before finishing up, I just want to mention that on the last call I indicated that we would be able to provide some color behind our decision-making process regarding the CIRM awards. So, specifically, you will recall that we declined CIRM funding for our cervical spinal cord injury program, but accepted it for Alzheimer's disease.

As you probably know, when CIRM offers to fund a program they essentially share some of the risks and rewards with the Company. So if a CIRM-funded program turns out to be commercially successful the awardee is obligated to pay CIRM what they call risk premium payments, which are essentially success milestones.

So in the case of StemCells, Inc., these payments will be payable only if HuCNS-SC cells were successful for the relevant indication, example, in Alzheimer's disease or spinal cord injury. But, in any case, would be capped at 5 times the loan principal, or $200 million, if we borrowed the $40 million for both programs.

So given the huge market potential for an effective therapeutic for memory enhancement in Alzheimer's, we were happy with the prospect of paying the risk premium payments if we were successful. Conversely, if we were not successful, we would not have to repay the loan. CIRM funding, therefore, for Alzheimer's is a free option, and given the high risk/high reward nature of pursuing therapeutics for Alzheimer's disease, on balance accepting the CIRM loan is a good deal for our shareholders.

We arrived at a different conclusion, however, for cervical spinal cord injury due to the very different risk/reward profile associated with that program. For starters, the potential market for spinal cord injury is considerably smaller than for Alzheimer's disease, but the risk premium payments required by CIRM were the same multiples. Moreover, we were already well underway with our spinal cord injury program and had an actively enrolling Phase I study in Switzerland generating encouraging clinical data, albeit in thoracic spinal cord injury.

CIRM, however, indicated to us that it expected to extend obligations under the loan to our entire spinal cord injury program, not just for cervical injuries. So in our view, it was not in our stockholders' best interests to become obligated for potential risk premium payments based on the success of our entire spinal cord injury program in order to borrow money from CIRM to help fund preclinical studies in cervical spinal cord injury. Particularly since to date we have self-funded and born all the risk of our spinal cord injury program.

So for these financial and programmatic reasons we decided the Alzheimer's loan was in our stockholders' best interest, but that the cervical spinal cord injury loan was not.

So I thank you for your attention and we will now open the call up for questions.

(Operator Instructions) Stephen Dunn, LifeTech Capital.

Good afternoon, Martin and Rodney. Thanks for taking my questions. First item, now we've taken a $10 million loan and then you have a -- it is roughly $20 million forgivable loan from CIRM. And if I recall, that is a matching loan, correct?

Well, what do you mean by a matching loan, Steve?

I am not sure. I thought if they gave you $10 million, you would have $10 million to put to the program as well. Is that wrong?

The way I would describe it is that the funding that we will borrow from CIRM under the Alzheimer's project will fund some of the cost of the program. The program will cost an awful lot more than the $19.3 million that we are going to borrow from CIRM, but recognizing that, we have costs within the Company that are leveragable on any of the programs that we undertake.

Okay. So I guess what I was going to back into is of the $10 million loan you just took how much of that do you figure would be going to the Alzheimer's program?

Well, quite frankly, the monies that we have received from Silicon Valley Bank are co-mingled with the rest of the cash in the Company and will be used for general corporate purposes. We haven't earmarked any of the monies that we are receiving from SVB for any particular program.

Okay. The program is going to continue on with Dr. LaFerla?

Yes.

Okay. And then one final housekeeping question, more for the benefit of the listening audience. If you are successful in the Alzheimer's, the $200 million figure, 5 times maximum loan that is not a lump sum milestone payment. That is the payment over the course of the royalty terms, is that correct?

Martin McGlynn Okay, Steve. So I will have Rodney address most of the answers to your question, I just want to clarify something. It is 5 times the loan amount if, for example, you borrow $20 million then you are obligated to pay $200 million in these success milestones. So it is $200 million per program.

Sorry, it is $100 million per program. $200 million if we took both loans, Steve. So if we borrowed $20 million for Alzheimer's and $20 million for cervical potentially it would have been 5 times 20 plus 5 times 20.

Yes. I apologize, Steve, for adding confusion. Thanks for clarifying that, Rodney.

So it's -- let's use the real numbers. $19.3 million times 5 is, theoretically, the maximum risk premium payments, assuming we borrowed all $19.3 million. And you are correct, Steve, that the risk premium payments are essentially tied to the degree of future success, meaning they are tied to future commercial sales.

So at a certain level of sales you pay a certain amount of that premium, and as your sales continue to grow and you continue to have sales you would pay more of that premium, but it is capped. It will be capped at 5 times the principal amount that you borrowed.

Right, but the important point is once you get, let's say, theoretically, FDA approval you do not have to write a $100 million check, a lump sum. It is (multiple speakers).

Yes, that is correct.

Perfect. All right, thank you, guys.

Keay Nakae, Ascendiant.

First up, Marty, what is the first initiative that you will be working on in Alzheimer's now that you have got the additional funding?

Well, essentially we will be doing additional preclinical work in the Alzheimer's models with the cells that we would plan to bring into a clinical trial. That is essentially the major aspect of the IND-enabling work.

Right. And maybe more specifically, given the work that has already -- preclinical work that has already been done, how will the next bit of experimentation differ in terms of what it is trying to prove out?

Well, the major difference is that the preclinical work that was done in collaboration with Dr. LaFerla was not conducted under what you would call GLT, and so there is a whole different set of rules that -- and restrictions that apply to doing studies in the animals under GLP conditions.

And also, secondly, the cells that you use in these studies are cells that can be taken into the clinical trials. Unlike the original work that was done in Dr. LaFerla's lab, which were research-grade cells that were not produced under GLP. Or GMP, sorry, GMP.

Okay, that is helpful. Then for Rodney, how should we think about the CIRM funding being received by the Company? What timeframe do you expect to see the first tranche of that?

And should we be thinking about either a quarter of that over each of four years in that quarter in multiple payments, be that twice a year or --? How should we think about that from a modeling perspective?

Keay, I think we would like to get the program going this year. What we have been talking about with CIRM is we anticipate, both we and they anticipate sort of twice-a-year draw, roughly every two quarters. You do the first one, you work for the two quarters, and then you kind of review how things are going. And assuming they are going well, you take the next draw.

So that is essentially how we foresee this happening, so the draw should be over the project period. I wouldn't necessarily say it is going to be straight-lined, but that is probably a reasonable assumption to make.

Okay. So the first bit of that maybe in Q3 is reasonable to expect?

Yes, yes.

Okay, thanks.

(Operator Instructions) Jason Kolbert, Maxim Group.

Unidentified Participant Good afternoon, Martin and Rodney. This is Dr. [Shoepenhan] calling for Jason Kolbert. Congratulations, it looks like you guys are making some great progress here.

So I actually have, like, two questions. I am going to start off with dry AMD and then talk a little bit about the spinal cord and PMD as well.

In dry AMD trial how many patients have you actually treated in the first cohort? I know that you were planning on treating eight patients. Have you already treated those eight patients or not?

No, so we have dosed three patients at the -- in Texas at The Retina Foundation center. We plan to -- we have actually added another site, the Byers Eye Institute, Stanford, and so we anticipate that we will be accelerating patient enrollment going forward.

And as I mentioned in my prepared remarks, we are also working hard to add additional sites in addition to the two that I have mentioned. So we have dosed three patients to date, total enrollment goal is 12, and we -- I'm sorry, total enrollment is 16 and we have dosed three to date.

And just a little bit of a scientific question, I am not sure whether one of you would be able to answer or not, but let me just give it a try. So my understanding is that this is a one-time injection of the cells, but in your preclinical studies you saw that the cells only gave protection up to 240 days in the RSC rats. So do you expect that you might have to do multiple dosages, or this is something you would look at after you determine safety?

So the procedure, the dosing regimen in the preclinical work, was a one-time intervention. The number of days really is a function of the lifespan of the animals; that is about as far as you can go with those animals.

In the clinical trial it is also a one-time intervention. Cells are transplanted into the sub-retinal space in an outpatient setting and the procedure takes approximately 60 minutes from incision to closure. So it's a pretty efficient process for transplanting the cells.

All right, let me move on to now spinal cord. How are you making progress with enrollment of the ASIA B patients, the incomplete patients? I remember in your last -- you guys were having slightly some trouble recruiting those patients.

So the first three patients were in the ASIA A cohort, which are the worst of the worst patients. The study design is a progressive study design where we move from ASIA A's to B's to C's, going down the severity ladder, if you will.

We have taken steps again to accelerate enrollment. This is now a very competitive space and so we are reluctant to be very specific in terms of what steps we have taken, but the results of those steps will become apparent over time.

Also, for these patients, the three patients, have you seen actual re-myelination of the nerves in these patients somehow? Because I know in PMD you were able to do MRI scans and you were able to see myelination. I was wondering if there is a way that you could do the same thing to show that your cells are actually re-myelinating the nerves.

Right. So, of course, in the animals studies that were done in collaboration with Dr. Aileen Anderson at UC Irvine they were able to demonstrate re-myelination, and that preclinical work has been published. For the spinal cord injury study, however, we are not imaging for myelin as we were in the PMD study, where we did show de novo myelin in all four patients that were dosed.

We do, however, in the spinal cord injury trial we use objective measurements such as [electrophys] to determine whether or not there is a complete transference of the electrical signal and conduct it all the way down across the site of injury. And so when we talk about response to stimuli, we are not only just talking about responses to touch, but we are also talking about responses to electrical stimulation across the cord.

Another thing is since you acquired the patents from NsGene so that you could actually purify now cells that could be deficient at the neurons are you planning on actually moving and making a new -- HuCNS-SC that (inaudible) to include (inaudible) you could make all different [of the] cell types?

No. The neurostem cell platform that we have is the platform we are developing and taking forward into the clinic.

Thank you very much. I fully appreciate it and congratulations.

Thank you so much. Thank you.

Thank you. I would now like to turn the call over to Mr. Martin McGlynn for closing comments.

Thank you, Sue. We appreciate everybody's taking the time to join our call. I know this is earnings season; there is a lot going on.

Appreciate the opportunity to continue to report excellent progress as a company and I thank you for your time. Much appreciated. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.