Ocugen Inc (OCGN) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2016 Histogenics Corporation Earnings conference call. (Operator Instructions)

I would now like to turn the conference over to your host for today, Jon Lieber, CFO of Histogenics. You may begin.

Thank you. Thanks and good morning, everyone. Joining me today on the call 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' third quarter 2016 financial results was issued this morning. For those of you who have not yet seen it, 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 business update and our financial results, which will be followed by a question-and-answer session.

Before we begin our prepared remarks, I'd 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' Discussion and Analysis of Financial Conditions and Results of Operations sections of our Form 10-K for the year ended December 31, 2015, and Form 10-Q for the quarter ended June 30, 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 September 30, 2016, to be filed at the SEC in the fourth quarter.

Our Form 10-K and other reports are available on the SEC's EDGAR system and our website. And 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, and 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'll now turn the call over to Adam Gridley.

Thank you, Jon, and thanks to all of our stakeholders for joining the call this morning. The third quarter of 2016 was a story of continued execution for the Histogenics team. In addition to our continued operating execution, we completed a significant financing with leading healthcare investors and have cash on the balance sheet that we believe will take the company to our top line Phase 3 data in mid 2018.

Our investors, both new and existing, share our enthusiasm in long-term vision for NeoCart and the cartilage repair market. We believe that the benefits of NeoCart, if approved, include a more rapid and durable recovery for the patient combined with a relatively quick and easy procedure for the physician, and we believe this will significantly grow the existing market.

Enrollment to our NeoCart Phase 3 clinical trial continues to run ahead of plan, with 186 patients enrolled as of today after recently announcing our 75% enrollment completion milestone a few weeks ago. We continue to reaffirm our plan to complete enrollment by the end of the second quarter of 2017, with some potential upside available if our enrollment trends continue. This timing leads to an anticipated one-year superiority data readout and the Biologics License Application, or BLA, filing in the middle of 2018, and a potential approval and launch in 2019.

Besides our myopic focus on enrollment, we continue to look towards commercialization as we develop manufacturing capabilities in anticipation of our BLA filing and subsequent launch. We have additional good news from the FDA confirming our equivalent strategy for our collagen 3D scaffold based on some of the compelling biomechanical testing that we conducted with Cornell University.

As we noted on our last call, we're not just thinking about commercialization in the U.S., but are rapidly seeking to define regulatory pathways in Japan to capitalize on the growing Japanese market and the expedited regenerative medicine development pathway there. We had a series of positive meetings with the Pharmaceuticals and Medical Devices Agency or PMDA in September. And we were pleased with the feedback, and look forward to formalizing our strategy with the PMDA in the first half of 2017. Lastly, with the completion of our initial proof of concept work within Intrexon Corporation and the compelling data generated to date, we intend to move into similar discussions on the most appropriate clinical development and regulatory pathways for that product candidate.

Moving on to some specific metrics around our Phase 3 clinical trial and accomplishments for the quarter. As you may recall, we have enrolled 167 of the 245 patients requited to complete the Phase 3 clinical trial at the time of our second quarter 2016 conference call in early August. As of today, as noted, we currently have 186 patients enrolled in the trial. We had a record August, for example, with 11 patients, and a strong September and October with six patients each; even with several of our top enrollers either on vacation, traveling, or presenting at leading medical and scientific cartilage repair conferences.

For the quarter, we had a total of 19 patients, a record for our traditionally slowest summer quarter. And we've enrolled 72 patients so far this year, and almost 70 percent increase over the comparable period in 2015 and consistent with our performance in the first half of 2016. 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, totaled approximately 205 of the required 245 patients in the trial.

As a result of this continued positive momentum, we expect to meet our updated enrollment guidance from last quarter, where we revised our target to 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, with some potential upside as we move into the first quarter, which is historically our strongest calendar quarter.

At the investigator level, we currently have 33 sites in the trial, with some of our newest investigators performing their first NeoCart implant with good results. And we continue to look selectively at augmenting the investigator base as appropriate as we near completion of the trial. We also had a recent meeting of the Data and Safety Monitoring Board, or DSMB, where the safety profiles of NeoCart continues to be excellent. And the trial, of course, has continued as planned.

Our internal teams are quickly turning their focus to 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. Two examples of this are data from the biomechanical testing we've conducted with Cornell University that were presented at ORS in March 2016, and then also at the Biomedical Engineering Society Annual Meeting in October 2016. These data show the unique properties of NeoCart at the time of implantation and demonstrate our ability to produce hyaline cartilage tissue ex vivo. This work led to our recent FDA approval to use the same methodology to demonstrate equivalence and qualify our internally produced scaffold, and validate our long-term strategy covered in our Type C meeting with the FDA in 2014.

While these data will be important to clinicians and patients in explaining NeoCart's unique performance characteristics, we're also leveraging the comprehensive data package in our discussions with the regulatory authorities. Given the productivity of our sponsored research agreement with Cornell and the expertise in tissue engineering of Dr. Larry Bonassar, we recently announced the addition of Dr. Bonassar to our Scientific Advisory Board. We believe our clinical data are quite compelling particularly at early end points. And the translational work our collective teams are doing at the bench provides a scientific basis, mechanism of action, and additional confidence on the reproducibility of the results we've seen thus far.

As enrollment wraps up, we intend to look selectively to expand the utility of this platform and the robust data generated this far in clinical trials, both in new indications and new regions such as Japan. To that end, we had several continued productive meetings with the PMDA regarding our strategy to utilize our existing Phase 1 and Phase 2 data from the U.S. study acknowledgment with the small data set of Japanese patients. We had two separate meetings, one for manufacturing and one for clinical, where amongst other things, we reviewed our plans to support Japanese trials from the U.S. with our large compendium of pre-clinical and CMC data.

We also discussed the already available demonstration of probable efficacy and safety from the clinical trials we have conducted to date as well as the verbiage used to describe the requirements for conditional approval. Our dialogue with PMDA regarding our unique cell therapy program continues to be positive. And we expect to move into formal meeting process with PMDA in the first half of 2017.

In parallel, we have started to engage with potential Japanese pharmaceutical and medical device partners, most recently at the Sofinnova Japan Conference two weeks ago. This conference is a premier event attended by many of the leading Japanese pharmaceutical companies all with a keen interest in regenerative medicine, both culturally and as a result of the recent laws enacted in Japan to accelerate the development process.

With several Japanese investors and co-founders, we're excited to bring a hybrid U.S.-Japanese regulatory strategy to PMDA to advance our programs. While hard to predict with any certainty, our goal will be to secure a partnership in 2017, which may bring expertise, commercial capabilities, and potentially additional non-diluted funding to help support this program and eventual commercialization.

We have also continued to advance our program with Intrexon Corporation to develop next generation allogeneic products. 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 the first three quarters of 2016, Histogenics manufactured and optimized second generation NeoCart implants using the iPSC derived chondrocytes supplied by Intrexon. These iPSC-derived NeoCart implants produced at Histogenics exhibited similar critical biomarkers of cartilage production to those in our current manufacturing process. We're now working with Intrexon on pulling together an integrated development and regulatory strategy that we can present to the regulatory authorities either in the U.S. or abroad.

In addition to our work with Intrexon, we're doing some limited work through our SRA with Cornell on additional next generation products specifically in the area of 3D printing of tissue. Of course, the primary focus of our work with Cornell continues to be the biomechanical characterization and testing of NeoCart and the underlying raw materials for submission to the FDA and in support of our potential commercialization efforts. However, we believe there's a unique opportunity to combine our cGMP collagen with Cornell's 3D bioprinting technology to create next generation tissue manufacturing methodologies and products.

While it is early days, we believe that the work in 3D printing of tissue has the potential that the meaningful impact on the market and our business in the future. In fact, we recently presented some of the data as part of a poster presentation at the International Society for Biofabrication, or ISBF, at Wake Forest University in late October.

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

Thanks, Adam. For the third quarter of 2016, Histogenics reported a loss from operations of $6.6 million compared to $8 million in the third quarter of 2015. The decrease in overall operating expenses was attributable to reductions in both research and development, and general and administrative expenses and is reflective of our efforts to aggressively manage our burn rate while advancing the NeoCart program.

Moving on to some specifics. The decline in R&D expense in the third quarter 2016 as compared to the third quarter 2015 was due to reduction in consulting and temporary labor costs, hiring fees, and raw materials in patient recruiting expense related to the NeoCart Phase 3 clinical trial. These amounts were partially offset by increased clinical trial costs related to increased enrollment in the NeoCart Phase 3 trial and an increase in facility-related expenses. The decrease in G&A expenses in the third quarter of 2016, as compared to the third quarter of 2015, was due to reduction in hiring fees, facility-related costs, and legal and consulting costs, which were partially offset by an increase in stock-based compensation expense.

Moving down the income statement. For the third quarter ended September 30, 2016, the company reported a net loss attributable to common stockholders of $9.2 million, or $0.70 per share, compared to a net loss attributable to common stockholders of $8.1 million, or $0.61 per share, in the third quarter of 2015. The increase in net loss attributable to common shareholders is primarily due to accounting charges related to the warrants issued as part of the financing that was completed in September 2016 and was partially offset by the operating expense reduction just discussed.

As a reference point, we currently have approximately 15.9 million primary shares outstanding and 41.6 million fully diluted shares outstanding. However, we believe a better way to think about the shares outstanding, given that the warrants issued in the transaction do not have a cashless exercise provision, is to look at the fully diluted share count using the treasury stock net, which takes into account the proceeds from the exercise of the warrants. In this instance and using a share price of $2.40, the result is approximately 28 million shares outstanding.

At September 30, 2016, Histogenics had cash, cash equivalents and marketable securities of $38.0 million, compared to $30.9 million at December 31, 2015. Based on our current operating plans and the expected timing of product development programs, we believe our cash position will fund our operations into the middle of 2018 or through our top line data from the ongoing NeoCart Phase 3 clinical trial.

As we announced on our August conference call, we did take certain steps in June 2016 to reduce our burn rate for a combination of deferral of non-core expenditures and personnel reductions. We are currently working through our 2017 planning and budgeting process, and we'll be providing formal guidance in the first quarter of 2017. However, we believe that total operating expenses in 2017 will be below 2016 levels as a result of the cost reductions implemented in the second quarter.

For 2016, we expect full year operating expenses to be approximately $29 million. This compares to $31.5 million in total operating expenses in 2015, despite having enrolled more patients in NeoCart trial and making significant progress on our manufacturing initiatives this year.

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

Thanks, Jon. We couldn't be more pleased with our continued progress over the last quarter. Over the last several quarters, we have delivered against our plan for the NeoCart trial as well as continued with the manufacturing upgrades and transitions. We appreciate the patience of our investors as we revamped our strategy to recruit patients into our Phase 3 trial, accelerated our work on our biomaterials transition, and advanced our pipeline. We've expanded our work with our Scientific Advisory Board and academic partners, and our data continues to impress these collaborators and the investigators in our trial are seeing first-hand the clinical results, at least anecdotally.

We continue to believe that quicker recovery, faster surgeries, and less reliance on typical rehab protocol, in conjunction with the strong safety and efficacy profile, will provide the boost needed to grow the cartilage repair market, which has clearly been underserved for 50-plus years. We believe NeoCart will provide a robust clinical response on pain and function, and eliminate unnecessary additional surgeries.

Importantly, we've removed the financial overhang that was clearly impacting us in the public markets. With the recent funding, we can focus on building upon this great platform and very much appreciate the support provided by the investors that were attracted to this important therapy. We acknowledge that these are long, expensive development projects and are now accelerating to our important top line data readout in the middle of 2018.

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

(Operator Instructions) Our first question comes from Josh Jennings of Cowen and Company.

I just wanted to start off, I know you've done a lot to enhance the enrollment trajectory, including new sites, and I just wanted to hear a little bit about, as new surgeons become investigators over the last six months or so, just how easy has it been for them to learn the NeoCart procedure and then what their early experience has been.

Excellent. Thanks, Josh, for the question. I'll ask Gloria Matthews, our CMO, to address that question given that she's in the field and working with these investigators regularly.

Great. Hi, Josh. It's actually been a very nice up ramp. We've brought on a number of sites in the last six months, and we've also had some sites that were brought on board earlier than that, that have done their first cases. And it's interesting how quickly -- we give them a fairly minimal training; it's less than an hour. It's all didactic-based training; there's no labs or anything. And they do it in literally 15 to 20 minutes, sometimes 30 at most. And it's rather easy procedure for the staff as well as for the surgeon. We've been getting some videos and pictures so that we can show people, when we eventually go to commercialization, just how simple the procedure is.

Great. And just a follow-up for you, there's been some modifications to the Phase 3 inclusion/exclusion criteria. And can you help us just with what types of contralesional are being enrolled into the trial? Is it broad based? Is there a specific lesion set that's more common? Any details you can provide?

Sure. The addition of the trochlear lesion to the inclusion criteria has helped to increase enrollment better, I think, than we maybe we might have predicted. We've had about a 30% -- well, let me put it differently. We had that approved as of December of 2015, and we had to get IRB approval of each of those -- of the new amendment. That took about a month. So we've literally had this in place since late January. And since then roughly 30% of the new cases have been trochlear lesions and the rest continue to be femoral condyle.

Great. Okay. And then, I guess, for Adam, just thinking about the manufacturing systems build-out, I mean what -- can you help us understand what are the risks in terms of being able to scale manufacturing? You've had a lot of progress, you've incorporated the internally produced collagen. But I just wanted to help understand more fully, are there risks to getting manufacturing to scale?

Sure. Great question, Josh. And I've got Steve Kennedy, our Chief Technical (sic - see company website "Technology") Officer, here as well, who will likely comment. I think a couple of the major risks actually have started to come off the table just in the last couple of months. The primary risks that we've disclosed over the last couple of years were some of the critical raw materials that are used in the manufacture of NeoCart. This is a supply risk, it's a compliance risk, and then obviously very expensive. And so, the program, we kicked off about three years ago, has really been bearing fruit over the last couple of quarters with up to three, sort of, clearances from the FDA on how we bring those materials into our commercial production suite. So I think that was probably the biggest risk, and we're starting to kick that off the table very rapidly based on some of the good news that we've had over the last couple of years.

Then, as we think about commercialization, I think our strategy has always been to responsibly prepare for commercialization without building out massive brick and mortar facilities to support the potential ramp. And so, I think as we think about commercialization, we move much more into sort of standard operating launch risk, which is making sure that you're never in a spot where you go on backorder and at the same time you don't create additional capacity; [business hurts] your growth margins.

Steve, do you want to comment further? I think we're moving much more into sort of daily operating, manufacturing strategy and execution. And some the big risks have now come off the table.

Yes, I think you made very good points there, Adam. Yes, the one that jumps into my mind right now is really that process risk and understanding what are your key operating variables and what are the ranges that we need to run within and how do we optimize the process. And I think one of the unique things about cell therapy, autologous cell therapy, in general, is that we have to produce a NeoCart for every single patient. So we naturally get that operating experience to be able to study our process ranges. And so that's unique, and I think it really de-risks the processes side.

And then the other piece of that is once the trial is completed we do have a plan in place to be able to actually study those key operating variables in a very defined way using statistically designed experiments so that we can really hit the ground with a completely optimized process right at launch. So I think that that part of it, it gives me a sense of security that that next level of (inaudible) risk is going to be addressed when we start commercialization.

Great. Thanks for that. And my last question is just some more updates on the Intrexon collaboration. And I was just wondering if you could give us an update just on whether or not you feel like your ahead of pace from the initial plan at inception of the collaboration with Intrexon. Thanks a lot.

Sure. Great last question, Josh. And I think the top level answer is we've made excellent progress and probably a bit ahead of plan. Now, when we signed the agreement back in the fall of 2014, it was intended to be very exploratory. We expected for a couple of years we were going to be working through typical R&D experiments, some characterization. And as we noted publicly over of the last couple of quarters, we've actually moved to proof of concept pretty quickly.

Now, that comes from, I'd say, two contributions. One, from the Intrexon side, they've done excellent work. Their R&D team is really talented and they move very quickly. We've been able to very rapidly define a potential master cell bank using the reprogramming and iPSC technologies. That's one contribution.

The other unique characteristic about this program is because we have very specific biomarkers and manufacturing specifications for the manufacturer of NeoCart, which is done on an ex vivo basis, we can then very quickly demonstrate comparability or equivalence, and rerun new NeoCart implants. Normally for other therapies you have to actually implant into the patient and then taking biopsies. None of that exists because of our very controlled manufacturing process that Steve was talking about. I think both of those elements have allowed us to move very quickly. And in less than two years, we've already demonstrated proof of concept.

Next steps for us are moving into the definition of regulatory strategy. We want to make sure that future R&D efforts and clinical development strategies are well informed and socialized with FDA and other regulatory bodies. So that's where we're moving into the discussions in the next quarter.

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

Let me add my congratulations on another quarter of good progress with enrollment. This is starting to become pleasantly monotonous and hopefully will remain so for a couple more quarters. I was hoping maybe you could give us a little bit more on the Japanese strategy. I know you stated your goal is to get a partner hopefully in 2017; obviously a loose time line there. But was wondering what you hope to get specifically out of your formal meetings with regulators over there now that you've had the chance to talk to them informally. Is it a list of studies that need to be complete? What guidance are you hoping to get from them when you meet with them formally?

Thanks, Chad, for the commentary and the questions. The strategy in Japan is actually pretty straightforward where we are seeking to eliminate any uncertainty regarding the clinical and regulatory development pathway given that there's some new laws put into place about two years ago. So our strategy is to move far along in the regulatory process with PMDA to define exactly what you just described. What clinical trials may be required for conditional approval and then associated marketing approval many years later? Is manufacturing and/or other data that we are supplying from the United States sufficient? And so, we've had very, sort of, detailed and also very collaborative discussions with PMDA.

The way that the regulatory process works is that you start with informal meetings where you are defining the list of topics and questions for then the formal meeting; think of it almost as a pre-IND meeting or the equivalent of in the United States. And our goal is to get that clarity because we think it's going to be meaningful for potential partners. There are a couple of therapies available there, but because these laws are new, any potential partner is going to want to understand what is the time line and what is the strategy to bring it to the market. We think that because of the large compendium of U.S. data that we're bringing to Japan, we're going to be in the best spot to negotiate what that process looks like. And we think that also creates additional interest and value for potential partners.

So we're really running both of those in parallel. We know that the partnership opportunities in Japan may take some time, but we want to eliminate any of the uncertainty regarding how long it will take to bring it to market so that we then collectively, with a partner, can think about taking it through a final clinical trials, which we expect to be a small number of patients and then bring that into the market.

We don't have the capacity nor do we expect to build our own sales force in Japan, and I think that is the strategy of many companies in the United States regardless of size. So we want to make sure that we can contribute with our regulatory expertise and then be able to hand it off and partner with a potential license or commercial partner.

(Operator Instructions) Our next question comes from Kyle Rose of Canaccord Genuity.

This is [Dan] on the line for Kyle. I was wondering, the patients that are enrolling in the study sooner, does that materially influence the ability to get the submission in earlier than the expected time line right now? And if so, how does that impact approval?

No, I don't believe there will be any impact. The time lines that we provided publicly, which is enrollment completed by second quarter of '17, top line data read out by mid-201, that's all contemplated in our public guidance. So we believe that those time lines are on track. We've indicated that there's some potential upside in terms of completion of enrollment, which we'll continue to update our investors on. But otherwise, all the time lines very much incorporate our expected time to capture the data, turnaround for database loss, and then, of course, capturing any of the patient-reported outcomes.

(Operator Instructions) And I am showing no further questions at this time. I would now like to turn the call back over to Adam Gridley, CEO, for any further remarks.

Thank you, operator, and thanks to our shareholders for participating in our quarterly call. We're very proud of the progress we've made over the last several quarters. This is an extremely difficult space that has historically been underserved, and we look forward to reporting our continued progress as we wrap up enrollment of the NeoCart trial.

We acknowledge and are grateful for the continued support of our investors, our employees, and investigators as we develop this important new personalized therapy for cartilage defects. We'll look forward to updating you on our next call. Have a good day.

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