Ocugen Inc (OCGN) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Histogenics second quarter 2016 earnings conference call.

(Operator Instructions) As a reminder this conference call is being recorded. I would like to introduce your host for today's conference, Jon Lieber, CFO of Histogenics. Please go ahead sir.

Thank you, and good morning everyone. Joining me on the call today is Adam Gridley, our President and CEO; Stephen Kennedy, our Chief Technology Officer; and Gloria Matthews, our Chief Medical Officer.

A press release announcing Histogenics' second quarter 2016 financial results was issued this morning. For those of you who have not seen it yet, you will find it posted in the Investors section of our website at www.histogenics.com. On our call this morning, we will share with you a brief business update and our financial results, which will be followed by a Q&A session.

Before we begin our prepared remarks, I would like to remind you that various statements we make during this call about the Company's future results of operations and financial position, business strategy, and plans and objectives for our future operations are considered forward-looking statements within the meaning of the federal securities laws.

Our forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in the Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operation sections of our Form 10-K for the year ended December 31, 2015, and Form 10-Q for the quarter ended March 31, 2016, which are on file with the SEC.

Additional factors may be set forth in those sections of our Form 10-Q for the quarter ended June 30, 2016 to be filed with the SEC in the third quarter of 2016. Our Form 10-K and other reports are available on the SEC's Edgar system and on our website. We encourage all investors to read these reports and our other SEC filings.

All the information we provide on this conference call is provided only as of today. We undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events, or otherwise. Finally, please be advised that today's call is being recorded and webcast.

I will now turn the call over to Adam Gridley.

Thank you, Jon, and thanks to our investors for joining the call this morning. I am pleased to say that our operating business continues to perform well and we have already achieved many of our 2016 corporate objectives. Enrollments in our NeoCart Phase 3 clinical trial continues to run ahead of plan with 167 patients enrolled as of today. And we are now less than one year from the expected completion of enrollment, which we remain confident will be complete by the end of the second quarter of 2017.

This timing leads to an anticipated one year superiority data readout and a BLA filing in the middle of 2018 and a potential approval and launch in 2019. During the second quarter, based on the FDA clearance received in April 2016, we also began using collagen produced internally at our manufacturing facility in Lexington, Massachusetts in the ongoing Phase 3 trial.

This transition to internally sourced critical raw materials followed positive feedback from the FDA and the regulatory approval for clinical supply of certain critical raw materials for NeoCart, and as a direct result of the incredible work done by the team here at Histogenics.

In addition, as we began to implement a more global regulatory strategy, we have reengaged with the Japanese regulatory agency to develop a conditional approval for NeoCart under the new regenerative medicine laws in Japan. This follows our acquisition in May 2016 of the Japanese development and commercialization rights to NeoCart from our long time partner, Purpose.

We also generated compelling new data as part of our collaboration with Intrexon Corporation that is supportive of further development of a potential next generation, one step allogeneic NeoCart cartilage implant. This data has accelerated our potential development strategies for this program and we are conferring with regulatory and technical experts to develop appropriate data packages to advance this program.

Finally, we continue to receive positive feedback from our clinical investigators on the performance of NeoCart. As more investigators see increasing number of patients in the trial at various stages after receiving a NeoCart implant, we gain more comfort with the potential for NeoCart to offer patients a more rapid and durable recovery than can be achieved with microfracture.

And with an eye towards a BLA filing and potential commercialization we're working with many of our investigators to further enhance our collective understanding of the target NeoCart patient, the surgeon profile, and the potential for NeoCart to replace microfracture as the standard of care for the treatment of cartilage defects in the knee.

Moving on to some specific metrics around our Phase 3 clinical trial; as you may recall, we have enrolled 147 of the 245 patients at the time of our first quarter 2016 conference call in early May. I am pleased to report that the positive momentum in enrollment has continued and as of today, we have enrolled a total of 167 patients or just over two-thirds of the 245 patients required to complete enrollment.

After a record first quarter we had a solid second-quarter enrollment of 19 patients, which represented the third highest quarterly enrollment total for the trial. We enrolled 47 patients in the first quarter of 2016; an almost 70% increase over the comparable period in 2015. And this brought the total number of patients in the trial to 161 as of June 30.

Given the slowdown that occurred in prior summers and is typical in the industry, we expected that we might encounter that same challenge this year and was reflected in our forecast. Overall, the summer and August in particular is shaping up to be slightly stronger than we expected, and we remain ahead of the enrollment goals that we set last fall.

Moving on to the pipeline; we have eight additional patients with scheduled arthroscopies, or scopes, thus far the remaining days of August and are currently scheduling patients in September and as far as out as October. As a reminder, arthroscopy is the final confirmatory step prior to the patient's enrollment in the Phase 3 clinical trial, and historically approximately 85% of the patients that have an arthroscopy are then enrolled in the trial.

Also as of today, our pipeline of consented patients, which includes those that have agreed to potentially participate in the trial but have not yet scheduled their scopes, totals more than 195 of the required 245 patients in the trial. We do feel this is important information and it gives us further confidence that we are continuing to refill the pipeline on top of the strong enrollment trends we have seen in the first half of 2016.

As a result of this continued positive momentum, we are narrowing our yearend 2016 enrollment guidance by increasing the bottom-end of the range from 180 to 190 patients at yearend 2016, for a revised target of 190 to 200 patients by the end of 2016, and we remain confident that we will complete patient enrollment by the end of the second quarter of 2017. At the investigator level, we currently have 35 sites in the trial compared to 34 as of our last call.

As we previously discussed, we monitor enrollment trends at each of the sites on an ongoing basis while also evaluating the potential of new sites to determine the best mix that will maximize overall trial enrollment. To that end, we recently opened a second site in Arizona and are also looking at a few additional locations.

We strongly believe that sites added in the second half of 2016 can still have an impact on enrollment given our expedited on-boarding process and the ease in the NeoCart surgical procedure, which our physicians seem to prefer compared to the alternatives.

On the last couple of calls we also shared with you some specific recruiting initiatives we undertook in conjunction with some of our sites, having gained an understanding of which markets respond best to these initiatives, we began to narrow the focus of these efforts as we moved to the end of the trial enrollment period. We continued to run local TV spots most recently in conjunction with Steadman Hawkins in Denver.

We are also leveraging our early work in radio to additional geographies and sponsoring or attending many running and athletic events, often with our local investigators. Given the momentum we have seen over the last several months and with the end of enrollment in sight, we are now beginning to increase our focus on the NeoCart BLA filing as well as preparing for the potential commercialization of NeoCart.

Our activities in these areas include: generating and publishing additional data that can support future regulatory filings as well as commercialization activities, and these include our five year data, Cornell ORF data other symposiums held at [ALSFM] recently.

In addition to the more formal discussions we have with our investigators, we continue to receive positive anecdotal feedback from them regarding the ease of the procedure and the recovery of their NeoCart patients. We are told that many of their NeoCart patients are back to their normal activities within three to six months of receiving the implant, a marked contrast to microfracture, which often takes much longer.

We also continue to make progress on the transition in regulatory approval for clinical supply of the critical raw materials for NeoCart to our manufacturing facility in Lexington, Massachusetts. We started this transition project almost three years ago with several goals including: one, proving the quality and documentation of these materials; two, compiling data to support our eventual BLA filing; three, lowering our costs; and four, ensuring ample clinical and commercial supply.

So after completing our facility build out in 2014 and the manufacturing qualification runs for collagen in 2015, we submitted the data to the FDA in the first quarter of 2016. Then in April 2016, the FDA approved the use of our internally produced collagen for use in the ongoing NeoCart Phase 3 clinical trial, and we began using the new material in June 2016.

As a reminder, we started with collagen because it's the key raw material needed for the manufacture of NeoCart, the NeoCart scaffold and adhesive. And we believe that we significantly reduced the overall risk associated with the manufacturing part of the development program.

We do anticipate that this progress will also add value to any commercial partnering discussions we have regarding NeoCart. The two primary issues a new partner may have are likely around enrollment and manufacturing, both of which we're rapidly putting behind us as we plan for eventual commercialization in the event NeoCart receives approval.

Stepping back and putting this into perspective, entire medical device companies are formed and sold on the basis of what we did in less than three years for our raw material plant in Lexington. While our primary focus is completing enrollment in the Phase 3 clinical trial and generating the data to support the NeoCart BLA filing, we also believe that we can leverage the technology platform and capabilities to create additional product candidates.

As such, we've continued to work with Intrexon Corporation to develop next-generation allogeneic products to treat cartilage defects, and have made significant progress with these efforts. The initial focus of much of the work done to-date was to use Intrexon's iPSC technology to potentially isolate and reprogram chondrocytes for use as a master cell line in future applications of NeoCart.

During first-half of 2016, Histogenics manufactured second-generation NeoCart implants using the iPSC derived chondrocytes supplied by Intrexon. These implants produced at Histogenics exhibited similar critical biomarkers of cartilage production to those in our current NeoCart manufacturing process.

Based on the initial findings as well as additional data generated in the last few months, we and Intrexon convened a panel of regulatory experts in June to review and analyze the data. Based on the feedback we received, we are working with Intrexon putting together an integrated development and regulatory strategy that we can present to the regulatory authorities either in the US or abroad.

Given our burgeoning international regulatory strategy, we may evaluate Japan as an example for the completion of clinical work to support our worldwide commercialization plan. Along those lines, in May 2016 we acquired the rights to develop and commercialize NeoCart for the Japanese market where the newly commissioned regenerative medicine pathways are conducive to cell therapy evaluations.

Shortly after closing that transaction, we quickly moved to begin to lay the foundation to re-engage with the PMDA, the regulatory body in Japan, and are working towards meetings later this quarter. We had a positive meeting with them last fall regarding NeoCart, and hope to identify the development and regulatory pathway for both the current generation of NeoCart as well as potentially the next generation iPSC derived NeoCart.

We intend to use feedback from the PMDA and strong body of data generated to-date in the US to support the business development discussions in Japan and Asia where we intend to seek a commercial and manufacturing partner. There is considerable interest and excitement by many Japanese pharma companies who are all trying to get a foothold into cell and gene therapy technology platforms, and we'll begin those discussions in parallel to those with the PMDA.

At this point, I will turn the call over to Jon Lieber to discuss our financials.

Thanks, Adam. For the second quarter ended June 30, 2016, the Company reported a net loss attributable to common stockholders of $8 million or $0.61 per share compared to a net loss attributable to common stockholders of $7.6 million or $0.58 per share in the second quarter of 2015. As a reference point, we currently have approximately 13.3 million shares outstanding.

Total OpEx for quarter ended June 30, 2016 were $8 million compared to $7.6 million for the quarter ended June 30, 2015. The increase in operating expenses was primarily due to a small decrease in research and development expense in the second quarter of 2016, which was offset by an increase in G&A expense in the quarter.

The decline in research and development expense in the second quarter of 2016 as compared to the second quarter of 2015 was due to the purchase of raw materials to support the NeoCart Phase 3 clinical trial in the second quarter of 2015, which were not repeated in the second quarter of 2016, and a reduction in consulting expenses. These amounts were partially offset by increased clinical trial costs related to increased enrollment in the NeoCart Phase 3 trial.

The increase in general and administrative expenses in the second quarter of 2016 as compared to the second quarter of 2015 was due to increased head count, facility related costs and higher legal fees, which were partially offset by decreased consulting costs. At June 30, 2016 Histogenics had cash, cash equivalents and marketable securities of $15.9 million compared to $30.9 million at December 31, 2015.

Based on current operating plans and the expected timing of product development programs, we believe our current cash position will fund our operations into the middle of first quarter of 2017. We continue to aggressively manage our business and liquidity needs with a goal of getting to our expected trial enrollment by the end of the second quarter of 2017 with minimal additional capital.

To that end, we made changes to our operations in the second quarter that include a reduction in headcount and outside expenses that will reduce our operating expense by approximately $1 million per quarter through 2017. We are able to make these changes due to the positive feedback we received from FDA related to the raw materials transitions and the strength in enrollment, which has enabled us to reallocate some internal resources.

I will now turn the call back to Adam for concluding remarks before we go back to Q&A.

Thanks, Jon. In summary, our investigators, scientific partners and collaborators provide consistent positive feedback about the performance, the data and potential of our unique cell therapy and tissue engineering platform. We continue to believe there is a large market with a real unmet medical need for patients and unnecessary expenses for insurers.

NeoCart, if approved, may grow and expand the market substantially as patients now opt back into treating their defects with our unique, personalized biologic therapy. I am incredibly proud of the progress we made in the first half of 2016, and the business is stronger than it has ever been historically.

We have executed well with our new team. We are ahead of the plan that we committed to in the second half of 2015, and we enrolled close to 50 patients in the NeoCart Phase 3 clinical trial, which is now two-thirds complete. We received important positive feedback from the FDA in both clinical and manufacturing areas, advanced our collaboration with Intrexon, and acquired the Japanese development and commercialization rights for NeoCart.

Internally, our talented employees have affected a material turnaround in how we run the business and this is evidenced in these results and daily as we make NeoCart implants for our trial and prepare for future commercialization. We are grateful to their diligence and commitment to this important therapy.

Looking forward as we think about the next 12 to 18 months, we are excited about the opportunity in front of us. NeoCart is a late stage, relatively de-risked Phase 3 biologics with several near term milestones, including an interim analysis, completion of enrollment, and we are targeting a multibillion dollar market in need of a better standard of care.

We believe there is a significant opportunity to capture a meaningful share of the 150,000 to 200,000 microfracture procedures performed each year in the US, and with reimbursement already in place, to potentially generate several hundred million per year in revenue just a few years after launch. Remember, at current reimbursement rates, 10,000 procedures generate $300 million per year in revenue.

We are on track to achieve our near-term milestone and we will work to ensure the Organization is adequately funded through these milestones to further in advance de-risk this opportunity and capitalize on the market opportunity.

Thank you very much for joining today's call. We will now open up the line for any questions. Operator, go ahead and open up the line, please.

(Operator Instructions) Chad Messer of Needham & Company.

The enrollment has a very reassuring and consistent trend throughout the year and I appreciate that took a lot of hustle to keep that going into the summer. What is less reassuring and has made me nervous is the cash balance. I know you have been consistently guiding to get through enrollment with minimal additional capital, but as I am sure you are aware, there is nothing magic about the moment of finishing enrollment, since you have got another year plus to get to an end game.

It's looking to me like strategic alternatives are becoming increasingly likely to be part of the solution here. I was just wondering if there is anything else you can add to what you are considering. I know you did talk a little bit about Japan and seeking a manufacturing partner there, but what other alternatives are you considering, and maybe give us a little bit of an idea where you are in some discussions in that process.

We agreed there is a palpable change in the way that the business is operating and we are literally counting down the months at this point. One is quick clarification; we're now less than 10 months away. We continue to be ahead of plan on the enrollment side. But your question on financials of course is a very important one.

We're looking at this from multiple angles; strategic alternatives really are in the backseat and I would project those as really just creating upside on today's business. So first from an expense perspective, we are managing the business appropriately. Some of the recent successes allows us to modulate or moderate our expenses appropriately. We've already done that.

So it brings down our future burn a little bit. And the gap to complete enrollment, particularly given that we are slightly ahead of plan is not that great. We are confident that through a variety of discussions we are having on equity or other financing alternatives, that we'll be able to fund the Company appropriately.

As we think about the sort of upside created through other, let's say, non-diluted sources of funding, such as partnerships, we are looking at a number of efforts in parallel; primarily overseas. As we've stated for many years, we don't intend to commercialize there. And so we are running a number of those discussions in parallel, but for modeling purposes, I think you should assume that we are confident that will be well-funded and ultimately any of those other strategic alternatives to provide upside.

You mentioned some cost-cutting -- about $1 million a month to $3 million a quarter. When should we think of those as having gone into effect? 2Q spend has been very much in line with what the previous few quarters were like.

Just to clarify, it's $1 million per quarter, not per month.

Thank you.

And those changes should come into effect in the third quarter. So by the fourth quarter, you can think about adjusting your model for the full million, and in third quarter you can kind of do a partial adjustment from that perspective. And you can think about those, at least for the time being, going all the way through 2017 at this point.

And I guess just one more question along that line. A lot of the trial costs that can be in acquiring patients -- what kind of run rate and burn would you have after you've enrolled versus before?

Sure, it's a good question, Chad. I think you should assume that the burn continues to come down upon completion of enrollment. Obviously, that's the primary driver of cost on a per patient basis. There are still associated follow-up patient costs that are then billed at the time that those patients return.

We then move into largely some of the same activities that are focused on now, but really getting ready for BLA prep. But in that context, you're not spending a lot of money on materials, development run and sort of day-to-day manufacturing, you're really transitioning into BLA prep.

So in that context, I would expect that the operating expenses need to come down for some period of time as we continue to assemble the data and get ready for a top line data readout. Then far in the future of course, you start to ramp up the plan for commercialization, but with all good news both on the timeline for enrollment and on the recent raw material and progress at the Agency, we are finding that some of the projected spend that we anticipated is just not required.

Similarly, as we think about recruiting as an example, as we are really only about 10 months away from completion or potentially less, you can imagine there is tail on certain recruiting expenses and you don't book those all the way up until the trial has enrolled. Those start to peel off prior to that. Is that helpful clarity?

Yes, very helpful. Thank you. And again, congratulations on operating very well now for several quarters.

Thanks, Chad, appreciate it.

Thank you. I am not showing any further questions in queue at this time. I would like to turn the call back over to Adam Gridley for any further remarks.

Excellent. Thank you, Operator, and thanks to our investors for listening in today. We appreciate the continued support of our investors, our employees and our investigators, and we look forward to updating you on our continued progress both on the trial and the Organization. Have a good day, everyone.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a wonderful day.