Ocugen Inc (OCGN) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2017 Histogenics Earnings Conference Call. (Operator Instructions) I would now like to turn the conference over to Jon Lieber, Chief Financial Officer. Please go ahead.

Thank you and good morning everyone. Joining me today on the call is Adam Gridley, our President and CEO; Don Haut, our Chief Business Officer, Stephen Kennedy, our Chief Technology Officer; and Gloria Matthews, our Chief Medical Officer. A press release announcing Histogenics' financial and operating results for the second quarter of 2017 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 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 are described more fully in our SEC filings and are available on the SEC's EDGAR system and on our website. We encourage all investors to read our SEC filings.

All of 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 will now turn the call over to Adam Gridley.

Thank you, Jon, and thanks to our stakeholders for joining the call this morning. In the second quarter of 2017, Histogenics continued its track record of consistent execution and achievement of our corporate objectives. Most importantly, we completed patient enrolment in the NeoCart Phase 3 clinical trial and are now focused on reporting top line one-year superiority data in the third quarter of 2018. The completion of enrolment was a major achievement for Histogenics and subject to successful Phase 3 results. We intend to file our BLA for NeoCart with the FDA in the third quarter of 2018 with a potential U.S. approval and launch as early as the middle of 2019 if approved.

The NeoCart Phase 3 clinical trial is the largest prospectively designed randomized clinical trial in North America evaluating the treatment of cartilage defects in the knee against microfracture. It is the only trial with a one-year superiority endpoint and the design that's currently covered under a special protocol assessment with FDA.

Patients receiving microfracture, the current standard of care, are the target demographic for NeoCart, and where we see the largest unmet need and the biggest opportunity for NeoCart, if approved. Our target market is those patients with smaller lesions less than roughly four square centimeters often considering or undergoing microfracture procedures.

As a reminder, there are approximately 150,000 to 200,000 microfracture procedures performed each year in the United States. However, as we think about incidence or prevalence, there are more than 1.2 million arthroscopic procedures related to cartilage defects that are performed each year in the U.S. These defects, if left untreated, can progress to debilitating osteoarthritis and then potentially to an eventual total knee replacement.

For quite some time, we have believed that a significant opportunity exists to revolutionize the cartilage repair market by offering patients, physicians, and payers a novel living tissue therapy to treat cartilage defects in the knee. And our recent market research confirms our thinking. We strongly believe that with a product such as NeoCart, we can offer each of these customer groups distinct benefits as compared to the treatment alternatives either currently available or in development.

So first and foremost for patients, NeoCart has the potential to offer clinically meaningful pain relief and return to function in roughly half the time of microfracture and other treatments with potentially less rehabilitation and lower use of opioids. For physicians, we're developing a robust set of clinical and non-clinical data, and we're the only product with a one-year superiority endpoint, and established mechanism of action and a simple 30-minute procedure that does not require special training. We also have long term durability data in excess of five years in some cases and will continue to augment this data set with additional patients from our Phase 3 clinical trial. For payers, we believe that NeoCart may lower the overall total cost of care starting with the first debridement from microfracture surgery, where NeoCart has the potential to get patients back to work and activity more quickly, and with the potential for less costly rehab and lower opioid use. Then almost a third of patients receiving microfracture have a second costly procedure within the first two years. In addition, if treated correctly the first time with the product such as NeoCart, there's the potential to delay or prevent osteoarthritis progression and eventual total knee replacements, which brings down the total cost of care.

We believe that this is possible because of the unique characteristics of NeoCart and the NeoCart process; specifically our ability to manufacture tissue ex vivo. Keep in mind that NeoCart is a living piece of hyaline-like cartilage tissue developed by mimicking the body's natural ability to grow cartilage as a juvenile. And as a result, we're only asking the body to rapidly integrate the NeoCart implant, unlike other products or procedures that try to grow new cartilage tissue over 12 to 18 months, which is incredibly difficult in adults.

In addition, we have a proven mechanism of action and can demonstrate at a cellular, biological, and biomechanical level why our cartilage tissue implants can have such a demonstrable early clinical impact on patients. We believe that this provides a true differentiation against both microfracture, and historical and current cell or cell and scaffold constructs that do not make cartilage tissue ex vivo. This is supported by data from our Phase 1 and Phase 2 clinical trials, as well the non-clinical data generated as part of our collaboration with Cornell University. In contrast, in many other products and procedures the resulting tissue is often fibrous cartilage or scar tissue, which lacks the functional competence at the time of surgery and it often breaks down over time.

In the second quarter of 2017, we also announced the completion of formal consultations with the Japan Pharmaceuticals and Medical Devices Agency, or PMDA, regarding the full marketing approval pathway for NeoCart, and continued to generate important data and high quality publications to support the NeoCart [platform] through our collaboration with Cornell and Intrexon.

Moving on to some additional details around our accomplishments during the quarter. So we have a strong finish to enrolment in the NeoCart Phase 3 clinical trial with a total of 249 patients randomized, including 30 patients in the quarter and 17 in the month of June, records for both period. More than half of the patients in the trial are already past their one-year primary endpoint, and we continue to receive positive anecdotal feedback from our investigators. Furthermore, NeoCart continues to exhibit a strong safety profile based on the results of the semiannual May 2017 meeting of our data safety monitoring board.

I would be remiss if I did not pause here for a moment to thank the patients, investigators, and Histogenics employees who helped us complete enrolment in this landmark clinical trial. We could not have accomplished this without the dedicated efforts of each of our clinical sites, and the commitment of our clinical, manufacturing, and quality teams all working together to recruit and enroll the patients into this clinical trial.

We succeeded where so many other companies have been repeatedly challenged, and I believe it is a direct result of these outstanding efforts, our creative strategies to bring patients into the trial, and the resulting investigator enthusiasm, particularly as they saw their first NeoCart patients back in their offices. We believe that we can apply these lessons learned and potential product advantages when we ultimately commercialize NeoCart subject of positive Phase 3 results and FDA approval.

As we completed the Phase 3 clinical trials, we confirmed that patient demographics were quite similar to those in our Phase 2 trial, which utilized the same protocol. In the Phase 3 trial, patients for both the NeoCart and microfracture group who are on average just under 40 years old, body mass index was approximately 27, and average lesion size was approximately 2 square centimeters. On the clinical investigators side, we ended the trial with 36 active sites; four of which were in Canada. Finally, 20 of our sites enrolled more than five patients, up from only three sites back in 2015 when we introduced our new strategies for increasing enrolment.

With enrollment now behind us, we have pivoted to prepare for the potential BLA filing and potential commercialization of NeoCart should it be approved by the FDA. In order to achieve our objective of a rapid turnaround from the time we anticipate reporting our top line data to the BLA filing, we have shifted a large portion of our organization into sub-teams, each responsible for different elements of the BLA. We believe that this will maximize their chance of hitting our objective of a high quality BLA filing in the third quarter of 2018.

Now we also sought to leverage our long history and investments in NeoCart in the United States to other regions such as Japan. We completed successful formal consultations with the PMDA regarding the approval pathway for NeoCart in Japan. You may recall our initial goal was to seek conditional approval via the new regenerative medicine laws that allowed companies to gain early approval, then collect additional data for eventual full marketing authorization. However, in our formal clinical consults with the PMDA they had suggested that we instead seek full marketing authorization; thereby skipping the conditional approval pathway. We believe this is a direct result of the robust Phase 3 clinical trial design in the U.S., the Phase 1 and 2 data, and our CGMP capabilities. This is further supported by the data we can show that demonstrates the clear mechanism of action that leads to our ability to make cartilage tissue ex vivo.

As a reminder, our formal feedback from PMDA includes the following elements: our ongoing Phase 3 clinical trial in the United States may provide sufficient evidence of safety and effectiveness of NeoCart for full approval in Japan augmented by a 30-patient, one-year confirmatory clinical trial in Japanese patients utilizing the same clinical protocol and demonstrating a trend only with no statistical significance required; confirmation that NeoCart will be regulated as a regenerative medical product in Japan, and that we can manufacture and supply the confirmatory clinical trial in Japan from our facilities in the Boston area; and agreement to conduct additional minor non-clinical safety studies and make a number of minor additional updates in changes to CMC procedures in testing methodology, all of which are also part of our planned BLA filing in the U.S. We believe that the feedback from PMDA, along with the Japanese market research we conducted with 80 physicians in Japan, will be instrumental in advancing our ongoing discussions with Japanese pharmaceutical companies, where we continue to seek a potential commercial partnership.

It's important to remember that there's generally a greater acceptance and desire for personalized regenerative medicine therapies in Japan, establish reimbursement, and the belief that many patients with untreated cartilage defects progress to osteoarthritis. Some of the specific findings from our market research in Japan include approximately 60% of patients with knee cartilage defects receive either no treatment or treatments that are simply designed to relieve the pain with approximately two-thirds of these patients likely developing osteoarthritis. More than 85% orthopedic surgeons are not satisfied with the currently available treatment options, and over half of the surgeons feel they would utilize NeoCart based on data already published.

While hard to predict with any certainty our goal is to secure a partnership by the end of 2017, which may provide expertise, commercial capabilities, and potentially additional non-dilutive funding to support this program and eventual commercialization. We believe the market is approximately one-third of the size of the United States with similar robust reimbursement. Given our success of taking our data and clinical protocols to the Japanese regulatory authorities, we will also explore doing the same in other territories such as Europe or China in the future as well.

Now we also conducted market research in the United States, and the results were remarkably consistent with what we saw in Japan and indicate a product like NeoCart, if approved, could have a meaningful impact in the market. In total, we received feedback from almost 200 orthopedic surgeons across both markets. Some of the specific findings from our U.S. market research include 60% to 80% of patients with symptomatic knee cartilage defects are not treated at all with a large gap between diagnosed incident and actual treatment. Of those patients that are treated, most received debridement or microfracture.

Only 25% of physicians are satisfied with current treatments, with 75% either dissatisfied or open to new treatment alternatives. The most important factors for surgeons in choosing a course of treatment for patients are, first, longevity and clinical outcomes, rapid patient recovery, and a quick or easy procedure. And lastly, almost 90% of surgeons will be extremely likely or likely to use NeoCart, if approved, based on our target product profile which includes our published data.

In the second quarter, we also enhanced our executive team with the addition of Don Haut as Chief Business Officer. Don is focused on our commercial licensing discussions in Japan and other regions outside of the U.S., our commercial and product development strategies, as well our other business development activities. He has extensive experience in these areas, and we're pleased to have him on the team. I strongly believe that our ability to assemble the strong team we have in place today is a direct result of the strength of the NeoCart product opportunity and technology platform.

With NeoCart moving towards a potential BLA filing, we plan to continue to bolster our large library of data and leverage our capabilities to be in the process of developing additional products and indication. To that end, we have continued to generate valuable data through our research collaborations, including those with Cornell University and Intrexon. Our collaboration with Cornell has been very productive having already resulted in several high quality publications and generating important data to support the NeoCart development program, and potential BLA filing and potential commercialization. Most recently we announced the data from our work with Cornell on collagen and chondrocyte 3D bioprinting was published in the Journal of Biofabrication. We believe these data are important and that they add to our knowledge of the properties of collagen and may lead to more efficient production of next generation of NeoCart implants.

We are now also preparing our first submission of data for publication from our collaboration with Intrexon to develop next generation allogeneic products to treat cartilage defects. The initial focus of much of the work completed to-date was to use Intrexon's induced Pluripotent Stem Cell technology to potentially isolate and reprogram chondrocytes for use as a master cell line in future applications of NeoCart.

We have already manufactured second-generation NeoCart implants using the iPSC-derived chondrocytes supplied by Intrexon that exhibited similar critical biomarkers of cartilage production and biomechanical data of native cartilage in the current generation NeoCart implants. We're excited to share some of these data in an upcoming presentation or peer reviewed publication.

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

Thanks, Adam. For the quarter ended June 30, 2017, Histogenics reported a loss from operations of $6.4 million compared to $8.0 million for the quarter ended June 30, 2016. The decrease in overall operating expenses was attributable to a reduction in research and development expenses, and is reflective of our efforts to aggressively manage our burn-rate while continuing to advance the NeoCart development program. To that end, we expect lower total operating expenses over the next 12 months as we wrap up our clinical activities related to the NeoCart Phase 3 clinical trial and before we begin to prepare for the commercialization of NeoCart if approved.

Moving on to some specifics for the quarter. The decline in research and development expenses in the second quarter of 2017 as compared to the second quarter of 2016 was due to reductions in collaboration, consulting and temporary labor costs, headcount-related expenses and patient recruiting expenses related to the NeoCart Phase 3 clinical trial. These decreases were partially offset by a small increase in research and development expenses related to our sponsored research agreements.

General and administrative expenses were essentially flat in the second quarter of 2017 as compared to the second quarter of 2016. Net loss attributable to common stockholders was $5.5 million in the second quarter of 2017 or $0.25 per share compared to 8.0 million or $0.61 per share in the second quarter of 2016. The decrease in net loss attributable to common stockholders is primarily due to the lower operating expenses just discussed and the allocation of a portion of the net loss to the Series A preferred stock that was issued to investors in connection with a private placement we completed in the third quarter of 2016. As a reference point, we currently have approximately 22.5 million primary shares outstanding and 42.6 million fully diluted shares outstanding. As a reminder, the 42.6 million fully diluted shares outstanding include 13.4 million warrants issued in connection with the 2016 private placement that do not have a cashless exercise provision. So should the holders exercise those warrants prior to their expiration, we will receive approximately $30 million in proceeds.

At June 30, 2017, Histogenics had cash, cash equivalents, and marketable securities of $18.5 million compared to $31.9 million at December 31, 2016. 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 2018.

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

Thanks, Tom. Completing enrollment of our trial in June was a milestone for the industry and the culmination of many years of perseverance by our teams. The second quarter had several other milestones with an excellent outcome from our work with the Japanese regulatory authorities, several publications, and the recent market research conducted. We've accomplished a tremendous amount in the capital efficient manner by aggressively managing our operating expenses. We have now fully pivoted to focus on the top line data readout to the middle of 2018 and the preparation of our BLA application for NeoCart.

We continue to believe that microfracture is an inadequate standard of care, and a quicker recovery, faster surgeries, and less reliance on difficult rehab protocols, in conjunction with a strong safety and a one-year efficacy end point, will make NeoCart a success in the marketplace subject to positive Phase 3 results and a subsequent approval by FDA. This is supported by the results of our market research indicating a large majority of physicians are either dissatisfied with current alternatives or open to new treatment options with the characteristics of NeoCart. This is particularly important for patients with smaller lesions where this portion of the overall cartilage repair market remains under developed in large part due to the limitations of and poor satisfaction with the current treatment alternatives. Based on the data generated to-date and the feedback we've received from our investigators and collaborators, we believe NeoCart will provide an early and robust clinical response from pain and function, and eliminate unnecessary and costly additional surgeries.

Thank you for joining today's call. We will now open up the line for any questions. Operator?

(Operator Instructions) Our next question comes from Josh Jennings of Cowen & Company.

Congratulations on the completion of enrolment for the Phase 3 trial. As you said in the press release, it's a significant milestone. I wanted to start with just asking you about the timelines that you laid out, the 3Q '18 BLA submission filed by mid-19 commercialization. I was hoping you can just outline and just remind us of the steps post submission of what the, I guess, the optimal time line could be post submission to approval and any risks for that or hurdles that could be in front of you that could push that timeline out?

Happy to do so and thanks for joining the call, Josh. So, as we think about the completion of enrolments in June, we would expect that, that could lead to top line data in the summer or mid of 2018, and we're doing a lot of work to prepare to turn that top line data into the BLA itself. And as you know there are several milestones first on the clinical side and then on the manufacturing and preclinical. So the entire organization is working on that actively as we speak. Gloria and her team have been working closely with the investigative site, database, and making sure that we can take that data and then quickly translate that into a robust BLA submission.

So our target is third quarter of 2018 for that submission. And then if you look at the PDUFA date that was granted for one of the competitors, we think that there is probably from there about a two-month period where the FDA would look to package. Assuming that it's acceptable for filing, they would let us know. And then traditionally we've seen about a 10-month PDUFA date review. So, in total, after the BLA submission, we think that you could see, if everything were to go well, approval of about one year after that submission or potentially earlier if things were to go very well.

We have heard from the other competitors that there would be no advisory panel. So there is no reason to think that we would have one either given the clinical protocol is covered under a special protocol assessment. And, of course, we've been in active dialogue with the agency over the last couple of years regarding our [CNC] processes and submission. So, generally, I think we feel pretty comfortable about the upcoming package. I think the risks are always going to be around sort of data and the robust nature of the manufacturing process, but I don't expect that there are any surprises given the long history that we've had on this program.

Excellent. And, you know, it's exciting to be able to ask this next question and it's still early, but I just wanted to ask about commercialization strategy, understanding that it may evolve over the next 12 to 18 months. But in terms of the U.S. commercialization, any early thoughts just in terms of the thrust there for sales force to build out, et cetera?

Sure. So we're doing some work on that as we [speak], combination of Don joining the last couple of months, the activities, of course, that Gloria has been leading over the last couple of years working very closely with our investigators, but we continue to believe that the unique benefits of NeoCart's, first and foremost, it's a very quick and easy surgery with (inaudible) training. And many of the learnings that we've been able to glean from the clinical trial set us up for what is probably a very focused high touch commercial launch where we are really targeting those orthopedic surgeons that are focused on the microfracture market. They're doing a lot of procedures every day. We saw this in our recent market research and in some cases 10 to 20 patients a month that may have these feedback, albeit with a much smaller percentage that they actually treat. And so, we think that, that sort of high touch, high science, easy procedure focus will allow us to build out probably a small and very scalable infrastructure initially, and that will then link to broader growth out to the, let's say, larger surgeon population in that process. But we continue to think that NeoCart's unique properties allow to do things a little a bit differently, and that's we're doing a lot of work to understand how we best launch this.

And just an update on the competitive landscape, is it your view that NeoCart will be the number two player to the regenerative cartilage repair market?

From a timing perspective, yes, we believe that we would be the second product in the market followed or coming right after the MACI program that was launched about six months ago. We believe that we will be focused very much on the different part of the market. So as you all know that's very large. The prevalence is quite enormous, and I think there's a big gap between what patients and physicians are looking for in those that are available on the market. And so, we believe that NeoCart should have a very leading position in that process as we launch with our one-year endpoint and, of course, really trying to replace microfracture not the larger lesions that some of the other products are focused on.

My last question is just on the potential for licensing and partnership in Japan, plus to understand how the process has gone thus far, whether you're close to finalizing an agreement. And then also are there any other markets on your radar where you've done market research and that you're interested in moving on as we go through these next 12 to 18 months. Thanks for taking all the questions and congrats.

Thanks, Josh. So I will go ahead and cover the first part of the question, then turn to Don Haut, our new Chief Business Officer, to get into a little bit more detail. So as everyone knows, in May of 2017, we did announce the results of our discussions with PMDA, and that was really the first step of kicking off those partner discussions. Many of our discussions and targets have been with more pharmaceutically oriented partners. Regenerative medicine is something that is very interesting for many partners in Japan. But there haven't been a lot of regulatory successes.

And so, we chose to engage with the PMDA to take any diligent questions on the regulatory timeline off the table. That was announced in May. We've had a number of publications, several interviews in Japan, a lot of excitement going into the late spring, and that led into us formally kicking off those commercialization discussions.

With that, Don, I will turn it to you if you want to add a little bit of color on where we're at Japan and then some of the other markets that we're thinking about.

Sure. Thanks, Adam. So like Adam said, the feedback from PMDA and the publications, and the recent completion of enrollment or our trial has driven a lot of interest. I think we're in -- I can -- safe to say we're in active conversations with a number of different parties primarily what we probably characterize as pharmaceutical companies, and we hope to have some clarity on what relationship could look like with them over the next six months or so.

With respect to other markets, as you can imagine, there are some very interesting markets outside of the United States, particularly in Asia, and we're actively exploring those so far. We're not in any kind of conversations with anybody yet.

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

Well-deserved congratulations on completing the trial, and you've made a lot of headway in Japan, too. I have a feeling you're kind of setting yourself up for a nice partnership there. It sounds like from the previous question you kind of went through a lot of what I would ask time lines here going forward on the filing and towards approval and commercialization. I guess thinking even more proximally, we're looking for publications this year; actually very excited to see publication on the work you've been doing with Intrexon. It sounds like that's in the works. Maybe take us through next steps in that collaboration. Is there any more we would be hearing in the next year to two?

Thanks, Chad, for joining. And we're similarly excited with all the progress we've made both on enrolment but then also on some of our future program. So, yes, we are in the process of developing a number of publications, posters, presentations for the Intrexon program, and that really comes out at a lot of the work that we've done both with them but also with Cornell University on the biomechanical testing. At a top level, we're continuing to determine where do we [next go] from a regulatory strategy perspective. It's also possible that we may explore going to Japan first, for example, given the grades, I think, are focused in appreciation for some of the regenerative therapies and then also for induced Pluripotent Stem Cell technology. So we will be working through those activities over the next probably quarter or two, but there's quite a bit happening on the R&D and publications front.

Steve, do you want to comment on that maybe broadly on Cornell and then how this translated in some of the work we did with Intrexon?

Yes, thanks, Adam. I think the key here is to work with Cornell, and obviously we've been talking about this notion that we're producing tissue. So we convinced ourselves that we're making tissue. We don't feel that -- we didn't feel that we had to complete proof of concept with the Intrexon sales. And now that we have been able to actually show that compressibility, the frictional forces, the way that this material acts under sheer forces, we can demonstrate that it is equivalent to what we're doing with native chondrocytes sites. And we feel very excited about the technology, and we feel that we have that much more data to take forward into a regulatory process as Adam described.

So that's really going to be the subject and then will be the focus of our publication strategy is the fact that we make tissue with these cells, and tissue that's very similar to what we're making with native chondrocytes. So with that background that we're able to -- thinking about the -- and really jump into the commercial strategies and the regulatory strategies that we go alongside the proven technical data package that we have.

And so, Chad, along with the commitment that we've made to a number of customers, including the folks that Gloria is talking to daily, we see such great clinical results, and often physicians will sort of question, well, is this real? And then the second question when they see their patients back a second time, they will -- it appears to be real, how is this possible? And that goes to a lot of the work that we've been doing both with our biomarkers but then also the biomechanical data. So it has become a real interesting platform, and it provides, I think, a strong mechanism of action that we can then communicate to our customers and then the regulatory agencies. So more to come there.

Yes, I look forward to that. Just to be clear when you talk about regulatory strategies for the work with Intrexon, are we talking about working out what preclinical in animal type studies would need to be run? Is that how should I think about the discussions you're having?

I think that's one element of it. I think the other is with all good sort of regulatory strategies, you're thinking about how do you go to first in human. As a reminder, because this NeoCart manufacturing process is ex vivo or outside of the body, we've got a unique opportunity to characterize these implants before they ever go into a preclinical model or a clinical model. Alternately, in its simplest form, a future allogeneic next generation NeoCart product would utilize the exact same process. The only change would be you may have a master cell bank rather than having a biopsy from the patient. So we're thinking that this could be at a more rapid development program than most de novo programs. We're starting from scratch. We're really trying to leverage most of the activity that's in our CGMP package.

So when we think about regulatory, of course, first, we need to establish safety, but then how do we also bridge into human clinical testing pretty quickly. We know NeoCart works, we'll have the data from that from our U.S. study in a year, how do you then take that into future applications as well? So it's probably much more holistic in how do we really advance this program into the clinic.

Yes, and I mean I would imagine the thing that the agency is most concerned about is how you show safety with the new starting material. All right, well, thanks again and once again congratulations.

(Operator Instructions) Our next question comes from Sean Lee of H.C. Wainwright.

Hi, guys. Congratulation on progress on a study. Just a couple quick questions. First is on the manufacturing in preparation for launch. Do you have to scale up manufacturing further? Or is the current facility enough?

So we do have capacity for initial launch here at our facility in Waltham, Massachusetts, where we have been making clinical material now for several years and that's the facility that will launch out of. We have got roughly I would say launch capacity to do the first, I would say, $20 million in revenue here, and then we've got another facility in Lexington, where we have the capability of expanding up to about $100 million of capacity.

The way we think about it is as I think we may have talked a while ago, our manufacturing capacity is a modular strategy; very similar to the way we've been working with FDA on our prior submissions in sort of building out production suite area. And so for roughly $10 million of capital, it takes about a year to do it to get it validated and build up assuming there's a facility there as we do in Lexington that we can do that. And so, the idea would be subject to successful Phase 3 data. We would then pull the trigger on that next set of capacity so that we're exiting the first year of commercialization with that type of manufacturing capacity and revenue run-rate.

Great. It's nice to hear that you only need about a year of lead-up to scale. My second question is on Japan. Could you give a little bit more color on your strategy there, like the kind of partner you're looking for? And also because you only need a 30-patient study for pool, would the company consider doing this independently or after you have secured a partner?

Sure. So I will answer the second part of that first and then have Don talk a little bit more about the types of partners that we're seeking. So we have considered given the small number of patients and our expertise in running these clinical trials. Gloria and her team have done a tremendous job, have great relationships with the surgeons. And because it's such an easy procedure, it's literally just a continuation of what we're doing in the United States albeit in a different territory.

We have two surgeons that actually have been trained here in the United States from Japan that came and met with Gloria and a certain number of our investigators. They were at the PMDA meeting with us, and they are queued up and ready to participate in enrolling those patients. We'd probably find another four or five, maybe six investigators to augment them.

And at this point, what we have determined to do is really find a partner to help us do that. There are certain logistical elements that will be required. PMDA has indicated that we can ship from our Boston facility given the robust nature of our process. So that's great news and we don't have to tech transfer anything.

But what's probably most important is helping a commercial partner understand the market and prepare for commercial launch. So I think a lot of the value in that clinical trial would be some of the trainings, the learnings from those clinical activities, and that's where we probably want to do that more in conjunction with the partner. We're obviously watching cash carefully. We think it would actually be a tremendous investment and may lead to additional value, but we don't want to lose sight of the partner wanting to potentially participate and learn in that process.

Sure. And on the types of partners that we're looking for ideally, we'd like to find a partner who can have the product from cradle to grave, meaning they can develop, manufacture, market, and sell the product. I think, as I said earlier, we're talking with a number of different parties, and they kind of run across the spectrum there. Some would do everything, some would be more commercial partners, and in that case we would find it different way to handle the manufacturing.

The final point that I would add that surprised me a little bit is the fact that there is a very little opioid use in Japan other than oncology indication. So what many of the pharmaceutical companies are looking for are pain therapies. And at its core, this is in many cases a pain product given the early nature of response, the fact that you're treating the defect itself, which may present pain in those cases. And so we are surprised by the response from some of the companies that said this is really regenerative pain therapy with a clear mechanism of action and there's a huge unmet need in Japan. So talking to really a wide variety of partners that have different commercial interest, but pain is a big deal for folks in this market.

Good to hear that. My final question is on the 3D bioprinting study that was published. I noticed that the largest improvement was on the credibility of the reduced error of the printed sizes. For example, with the new material, they were able to reduce the error down to less than 5% compared to 60% previously. How important is that to for the manufacturer and especially for the healing of the cartilage?

Yes, I think -- this is Steve Kennedy. I think the key on this study is more of the biomaterials than the printing itself. I think the printing itself is different type of technology, and it's well proven that the actual biomaterial needs to be able to hold an edge, it needs to be able -- we need to be able to create these parameters that would result in us being able to print an accurate implant for some of our future thought. So I think a critical point on that setting is to be able to control in our case the use of collagen [in-house cross-selling fluid], it can be printed most precisely with the equipment that they use in Dr. Bonassar's lab at Cornell. So that's really where the -- it's kind of the basis of the collaboration.

And I'm showing no further questions at this time. I would like to turn the conference back over to Adam Gridley for any closing remarks.

Thank you, operator, and thank you to our shareholders for participating on the call today. We do appreciate your support. We look forward to reporting on our progress for the upcoming BLA filing subject to successful Phase 3 results of course, and that's all via potential commercial launch in the U.S. and other territories if approved. So we appreciate your support. Have a great day.

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