Plus Therapeutics Inc (PSTV) 2007 Q3 法說會逐字稿

Welcome to the Cytori Therapeutics third-quarter financial results conference call. The discussion today will include forward-looking statements regarding events and trends which may affect the Company's future operating results and financial position. Some of the risks and uncertainties are described in the risk factors section in Cytori Therapeutics' 2006 Form 10-K and subsequent SEC filings available through either the SEC or Cytori's website.

I will now turn the call over to Chris Calhoun, Chief Executive Officer for Cytori Therapeutics.

Thank you, and good morning. Welcome to Cytori's third-quarter conference call. I am pleased to report that marketing of the Celution System has begun. We are actively working with Green Hospital Supply to install the Celution Cell Banks in Japan in the first quarter of next year. In addition, following recent European approval, we have begun key commercial activities to introduce the Celution System in that region for reconstructive surgery.

Cytori has accomplished a tremendous amount in a very short period of time. Celution System development began in 2003, based on an innovative concept; and in less than five years, we are now ready to recognize revenues from this first-in-class product.

The Celution System is truly platform technology with large revenue potential in multiple markets. While it will take time to fully develop these market opportunities, we expect meaningful near-term revenues.

Total product revenues in 2008 are expected to be 10 to $12 million. While there are many variables in introducing disruptive products to market, we believe 2008 performance will serve as a strong base for future growth and have a favorable impact on our balance sheet.

These revenues will primarily consist of StemSource installations through Green Hospital Supply, as well as some initial Celution System and related consumable sales in Europe for reconstructive surgery.

We reached this range based on market intelligence from our distributors, physicians, and partners; but recognize that this is new and disruptive technology for which there is no precedent. We will monitor and revise this range as we gain continued commercial experience.

Cytori is working closely with Green Hospital Supply to launch the StemSource Cell Bank and complete the first sales in Q1 2008. We remain on track for the launch.

We have completed production of the first Celution Systems and are finalizing details on sourcing-related equipment and completing programming of Cell Bank's proprietary software and database.

The StemSource Cell Bank allows hospitals in Japan to offer patients the opportunity to preserve their own stem and regenerative cells for future medical use through a minimally-invasive small volume outpatient liposuction procedure.

At the core of a cell bank are the Celution System and its consumables that will automate the critical and complex step of extracting stem and regenerative cells and preparing them for freezing and storage. Automation greatly improves the economics for cell banking, creates a strong barrier for potential competitors, and helps incentivize hospitals to purchase and provide patients with the StemSource Cell Bank offering.

The first part of a StemSource sale is the hospital installation by Green Hospital Supply. Their sales team, with support from Cytori, is already actively pursuing targeted hospitals. We expect this to be a high-value institutional sale with significant revenue opportunity for both Cytori and Green. The revenue will be shared equally.

Hospitals will be interested in the purchase and operation of a StemSource Cell Bank for the following reasons. It creates a potential profit center for the hospital; provides an opportunity to secure new and strengthen existing patient relationships; and to become an early adopter of regenerative medicine, a major competitive differentiator.

Once the bank is operating, revenues will be driven by the hospital sale of the banking offering to patients. Each patient bank will result in the sale of Celution consumables; and Cytori and Green will share equally in this revenue.

There are several reasons we are anticipating patient demand. Younger cells are more viable, and proper cryopreservation locks in their useful nature. Many of these patients are likely already undergoing some form of surgical intervention; and with this small incremental procedure, they can ensure having those younger cells available when they are needed later in life.

Although no therapeutic applications are currently approved in Japan, there is a rapidly growing body of evidence supporting the safety and efficacy of this cell population and future availability for age-related disease therapies.

In parallel with the StemSource launch we have made dramatic progress and are on track to introduce our Celution System in 2008 for reconstructive surgery. Earlier this month, we received a CE Mark on the second-generation Celution System, clearing the way to begin commercialization. In addition to the distribution partners we have in place for key European countries, our scope has expanded to include select countries in Asia.

Under our current CE Mark we expect to begin receiving orders for the Celution System from early adopters in the reconstructive surgery field. We anticipate that these early adopters will utilize the device to perform procedures based on clinical precedent of related fat transfer procedures, as well as to perform clinical cases or investigator-initiated studies to explore exciting new reconstructive surgery applications.

The cornerstone of our longer-term commercialization strategy for plastic and reconstructive surgery are the RESTORE II and VENUS post-marketing breast reconstruction studies. Trial protocols have been finalized, and we are seeking the required approvals. They will be open-label studies intended to achieve specific regulatory claims for the reconstruction of partial mastectomy defects and reimbursement approval in key European markets.

The basis of these studies is preliminary data from RESTORE I, for which more complete results will be reported at the San Antonio Breast Cancer Symposium in December.

The principal investigator for the multisite 70-patient RESTORE II trial is Dr. [Emanuel Delay] who is chief of the plastic and reconstructive surgery at the Lyon [Verard] Cancer Center in Lyon, France. Dr. Delay is the ideal PI for the study, as he has more experience with autologous fat transplantations in the breast than any other surgeon in Europe.

Dr. [Gina Rigatti], a pioneer in the field of breast reconstruction, will be the principal investigator for the single-site 20-patient VENUS study. This study, as compared to RESTORE II, will enroll patients with more severe radiation damage.

Investigator-initiated studies will play an important role in commercialization. Last week, a study initiated in Japan using the Celution System for cosmetic breast augmentations. This is a 20-patient study in which four patients have already been treated. It will evaluate cosmetic improvement and volume retention at nine months.

Strategically, we believe this will be one of the first of many investigator-initiated studies across a number of medical applications that could accelerate and broaden the clinical for Celution. Data collected from these studies could play an important role in supporting future marketing efforts for the Celution System.

We in turn keep our resources and funds dedicated to the development of certain selected market opportunities. Until the Olympus-Cytori version of the Celution System is ready, Cytori has invested in and will leverage its in-house development and production capabilities to manufacture the Celution System and consumables.

We believe we have the capacity to meet the initial demand for both the cell banking opportunity and the commercialization in plastic and reconstructive surgery. Current capacity is up two systems and up to 200 consumables per week. Celution Systems and consumables are already rolling off the production line.

Importantly, Olympus has granted us rights through our Olympus-Cytori joint venture that allows Cytori to manufacture and sell the Celution System until the Olympus version of the device is available. This enables Cytori to take advantage of near-term commercialization while simultaneously developing long-term mega-market opportunities.

Cytori continues to rapidly move its product development pipeline forward along many fronts. Two randomized, placebo-controlled, dose-escalation clinical trials are underway, one for treatment of chronic heart disease patients and another for treating patients with acute heart attacks.

Our APOLLO acute heart attack study received approval to begin, and enrollment is now active. Getting this trial underway is a testament to the strength of our clinical development team, who has initiated two cardiac focus trials this year. Very soon we expect to add a second site in Rotterdam to accelerate trial enrollment.

In addition, our PRECISE chronic heart disease trial continues to enroll patients. We are well into the second of three patient cohorts, and intend to add Rotterdam as a trial site to accelerate enrollment for this trial as well.

Preclinical spinal disc repair data was reported this fall at the NASS meeting, showing that at six months adipose-derived stem and regenerative cells could be used at the time of surgery to repair herniated discs or prevent spinal disk disease from spreading to adjacent levels. 12-month data will be reported next year.

Moving to our financials, we remain on track and on budget for the 2007 year-to-date. Third-quarter development revenues were $3.4 million and $5.2 million, respectively, compared to $351,000 and $1.2 million for the same period in 2006.

Research and development expenses for the quarter and nine months ended September 30, 2007, were $5.2 million and $14.6 million, respectively, compared to $5.6 million and $16.7 million in the same periods for 2006. The decline and research and development expense for the third quarter and nine months ended September 30, 2007, is attributable to lower costs associated with preclinical studies, which were partially offset by clinical trial related expenses.

General and administrative expenses for the quarter and nine months ended September 30, 2007, were $3.2 million and $9.8 million, respectively, compared to $3.2 million and $10 million for the same periods in 2006.

We ended the quarter with $18.9 million in cash and cash equivalents. We believe our future cash needs will be supported by the initiation of product revenues, in addition to potential partnering opportunities consistent with our track record.

Since 2002, approximately 80% of the money raised by Cytori has come from strategic sources. Much of the success was achieved years before commercialization of the core technology. We are making progress in additional corporate partnering opportunities. With significant advancements in product development, we are optimistic in the ability to continue to make strategic dollars a significant part of our capital base.

We would now like to open the call for questions.

(OPERATOR INSTRUCTIONS) INSTRUCTIONS) Ted Tenthoff.

Great. Thank you for taking my question, and congrats on the update and progress during the quarter. Two questions if I may. Firstly, your comments with respect to the cardiac trials. Just could you give us an idea of when enrollment should be completed there and when -- just give us the update on when we should be expecting data from that?

Good morning, this is Chris. I'm joined today by Mark Saad, our CFO, and Marc Hedrick, our President. I am going to ask Marc to answer that question.

Hey, Ted, it's Marc. Thanks for the question. Let me talk about each trial specifically. I will try to give you as much information as I have.

First, on PRECISE. Enrollment is moving forward steadily. The trial itself is going well. I think as we have said before that we passed from the first cohort in terms of dosing to the second cohort. We are still right basically in the middle of that second cohort.

I think it is going to be difficult to hit our enrollment target of getting all the patients enrolled by the end of the year. We are trying, and over the last few months we have implemented an action plan to increase the enrollment rate by adding a second site and doing various things with the sites to increase physician and patient awareness.

So our best estimate today is we will finish that study by sometime in the first half of '08, depending on how effective these things are to improve enrollment. Data still anticipated in public, second half of '08. So that is our best estimate today.

With respect to the APOLLO trial, that is underway. Recall that that is a-40 patient double-blind, randomized, dose-escalation, placebo-controlled clinical trial.

Our goal is to right off the bat have two sites relative to that. We are working on getting final medical ethical committee approval at the second of the two sites, which is Rotterdam. Remember it is Rotterdam and Madrid for those two sites.

I think that once we get experience with the enrollment at both sites, then we will be able to better predict the duration of enrollment. But as of today, we really don't have a solid number for you with respect to that.

Great. I guess just as a follow-up to those comments, what is it that with respect to the PRECISE trial is extending enrollment? It doesn't sound like it is pushed out that much. But just curious, what is the factor that is kind of different from your initial expectations?

Really, it is the numbers of patients who are being referred in for evaluation and the strictness to which we are applying the enrollment criteria. We have not deviated one iota from the enrollment criteria. So when the data is ultimately produced I think it will be extremely strong data. But we have resisted that and have asked that the principal investigator maintain very strict enrollment criteria, which he has.

So to the degree that the problem is referring site awareness, we can go out and increase the awareness at those sites. But, to your point, yes; it is not that much pushed out. But to the degree we can do something to improve it, we are trying to do everything we can.

Maybe just a quick follow up if I may, or going in a little bit different direction. Chris, you had mentioned that interest on the partnering front is stepping up.

Can you give us just a sort of a top-down view of how you are looking at partnering? Would this be a specific application? Would this be a broad distribution deal? Would it be global? Just what are you general thoughts along those lines?

It's Chris, thanks for the question. Our strategy on partnering is actually changing the more we have sort of been out talking to a variety of companies.

At the end of the day, this is really disruptive technology, so going out to try and really analyze what market segments are available for this technology, there is no comparable out there. So it is hard for big companies to kind of get a grasp on what the opportunity is, and then to see how that fits the growth needs of what a big company would have.

So we have talked to most of the big companies that would be appropriate. We are now looking to more midsize companies, where we can have an impact and who have a little bit more flexibility in understanding the nature of a disruptive technology.

So these partnering opportunities are typically related to a therapeutic area and distribution, and then potentially codevelopment within that therapeutic area, where they would sponsor studies and help move the ball from -- anywhere from early to preclinical or even in some cases potentially just right into clinical. So it kind of depends on the different application that we're talking about.

But the real advantage that I think we have is that this technology is a platform technology. There is a growing body of evidence -- not only that we are working on, but researchers around the world are showing --that this technology is safe and effective. And that our business model, as the foundation of this technology is really -- from what we have heard from many and our belief is -- it's the real, practical, realizable business model for cell therapy.

So coupled together, we are getting more interest. The reality of it is it has taken a long time to -- you know, we dance with partners for years as they kind of follow the technology. But ultimately, we expect that we will have partnerships with probably midsize companies if the right kind of match going in, where we will have a codevelopment and then ultimately a commercialization component.

Great, excellent. That's very helpful. Thank you.

Neil Gagnon with Gagnon Securities.

Good morning, everyone. Chris, earlier, you mentioned that (technical difficulty) marketing. Can you broaden that and tell us what you are thinking about, please?

Neil, unfortunately that mostly cut out. We didn't hear much of that. Can you repeat it, please?

Sorry, let's try this. Am I on now?

Now you are, yes.

I'm sorry, telephone problems. You mentioned earlier investigator-led studies and that you are going to incorporate that with your own marketing sales plans. Can you flesh that out and tell us some of the things you are thinking about there, please?

Neil, it's Marc Hedrick. How are you?

Hello, Marc, good. Thank you.

Thanks for the question. Yes, this is a critical element for us, and we believe this strategy is inherent in having the platform technology. It is going to ultimately allow us to as rapidly as possible broaden the applications for which this technology can be used.

This investigator-initiated study that started in Japan we anticipate being one of many such studies. It is a study that uses the existing platform that we're developing for treating patients that have had partial mastectomy, which is an unmet medical need.

But this study goes beyond that and takes this technology into cosmetic surgery and begins to expand it for a very significant cosmetic market, breast augmentation. So very rapidly, a surgeon in Japan identified this potential use for the technology; went to his IRB; got approval. We are supporting the study, but in the end he is driving the study. It is not Cytori.

We would take an enormous amount of resources that we don't have to put multiple, multiple clinical studies throughout the world. This allows us to gather clinical data relatively quickly, expand into new indications, broaden our regulatory claims ultimately, and then in the long run drive revenue.

Marc, how did you get clearance with the IRB for him to use your machine, and how did you get a machine there?

Well, once you have a CE Mark, it is relatively straightforward for physicians in Japan to input those using their own medical license. The doctor is really responsible for getting his own IRB clearance. So he partners with local IRBs, gets his clearance, then imports the device into Japan under his medical license, and then is responsible for executing the study with our support.

Have you given this study a name?

No, you know, our [poll] is not to give these investigator-initiated studies names. I think the studies that are geared specifically towards regulatory approval and reimbursement that are sponsored by Cytori will be named studies.

But it is likely that there will be so many of these investigator-initiated studies going on around the world through our strategic [end] that we don't believe it is important to name them.

Okay, this one seems to have gone quite quickly. We heard about it, and all of a sudden you have had four patients. How soon will this study be done?

Well, again I think that is really up to the investigator. We have enrolled now 20% of the patients; and I think he intends to move very quickly through enrollment. Hopefully, the study is successful; and then we can together, both he and we, can use that data to expand the market for this product.

When will we hear about first value of that data?

Again, I think that is up to the investigator. You know, I think in consultation with the investigator we think it will take about nine months after the enrollment of the last patient to know the final result of the data. Then it should be presented likely at an academic meeting after that.

Would you anticipate -- last question on the same subject, on the augmentation area -- similar studies going on in Europe?

Yes, I think it would be crazy not to assume that this investigator-initiated strategy, study strategy if you will, will not multiply from Japan into Europe and throughout the world.

Thank you.

Steve Brozak with WBB Securities.

Good morning, gentlemen. Again, congratulations from this transition from an R&D to an actual sales company. I wanted to follow that up on your last thought, because the principal hallmark that you have got, that you have in your franchise is that these are investigator-initiated studies. The one thing I want to make sure that you explain is that you have control of these systems as to how you go out there and vend them and what you do, and the collaborations with these independent researchers.

Can you give a little bit of visibility on that? Because it is not like you're just shipping these machines out and then you don't follow up what goes on. And I have a follow-up question after that, please.

Hi, Steve. It's Marc. Thanks for the question. You know, we are very thoughtful and deliberate about who we choose to work with at this stage. The selection of scientifically rigorous and credible investigators is of paramount importance to us.

Dr. Kamakura is one of the most well-respected plastic reconstructive cosmetic surgeons in Japan today. We have worked with him in context with the RESTORE I trial and know him well.

So we are preferentially partnering with investigators who have a proven track record, who have the ability to conduct the trial on time and be able to present credible results to the scientific and medical communities. We will apply that same strategy in Europe. We are very familiar with the investigators in this area.

We are working with other key opinion leaders outside of plastic and reconstructive surgery to identify other potential investigators and vet them before we move into an investigator-initiated clinical trial with them.

Great. Actually, that leads me into my next question. Because when you talked about multiple clinical trials in the future and multiple applications, there's lots of different disciplines that you can go into or that these researchers can go into.

Can you -- I don't want to put you in a box where you're going to basically say, hey look, we can apply it here. But this platform that you talk about is only limited to the different medical applications that are out there.

So can you give us, let's say, three different areas that you think in the past people have approached you? I am not binding you to it, just to give a brief glimpse of what is possible out there in other disciplines.

I will do the best I can, Steve. I think our strategy really is to -- for cardiac, those require very stringently-controlled clinical trials. Those are two areas we don't anticipate doing further investigator-initiated studies anytime in the near future.

Plastic and reconstructive surgery, however, is different in that we have a Company-sponsored clinical trial that recognizes there are many potential spin-off applications in plastic and reconstructive surgery.

Cosmetic, burn surgery, tendon repair, and all those areas there are preclinical or clinical one-offs that have been done using similar technology. So those are very high likelihoods of being able to expand into those related areas.

It is no secret and Chris discussed this in his opening, that disc and the orthopedic area is an area that has been using, although at a low level, cells in a variety of applications. To have a real-time one hour or less access to autologous progenitor cells and stem cells for the patient could be a big boon in that specialty.

We have developed a preclinical research program in treating disk disease, and so far that data looks very good. That might be one area that we could expand into relatively soon.

Great, I won't push anymore. Let me jump back in the queue, but again congratulations on the quarter and on the -- spectacular 2008.

Thank you very much, Steve.

(OPERATOR INSTRUCTIONS) Jason Napodano with Zacks Investment Research.

Hey, guys. Thanks for taking the question. I have got a question about the product, the Celution Systems that you are going to be selling with your own in-house manufacturing capabilities to early adopters. Will those be switched eventually to the Olympus-Cytori version? Are those easily upgradable? Or will those people remain with the in-house manufactured products?

Jason, good morning. Our plan is to have a three-year shelf -- or three-year product lifecycle for those initial systems. So they will go in, and then after roughly three years they will be upgraded to the new Olympus-Cytori version.

Okay. I've got a question about stem cell banking in Japan. You mentioned that some of the early-adopter hospitals, the patients that decide that they want the bank, obviously they are going to be -- you have to be of certain age.

Can you talk a little bit about what those patients or what the typical patient would look like in terms of age? And then why they would be -- what other procedure they would be in the hospital for? What is a typical procedure they would be in the hospital for that they would then decide while they are in there to bank?

Hi, Jason. It's Marc. Let me try to answer that. The beauty of the banking model that we're in the process of commercializing is it's really up to the hospital and their physicians and the particular specialties that they have in that hospital to decide how to best market the banking within their community.

For example, there may be some hospitals that are more wellness-focused, where they do physician physicals and see patients more for their ongoing routine health maintenance. Whereas this could be part, in those patients, part of an overall wellness program.

In other hospitals that are maybe more known for their orthopedic subspecialties, they could apply this technology as part of their day-to-day orthopedic practices and add this on to a knee replacement or hip replacement in people that are more likely to have joint and orthopedic problems going forward.

Then in hospitals where the treatment of breast disease is important and they could target those women that may or may not be likely to have breast-related problems or breast cancer in the future, statistically.

So it is really up to each individual hospital. But I think in summary, it is a variety of potential patients that could be potential customers for the banking services.

Is there a target age that you would say patient is -- I mean, obviously there's going to be patients that are too young. But is there kind of a cut-off where banking no longer makes sense for a patient?

No, there isn't an age cut-off. The cells will never be younger than they are today. We internally have collected data from patients in their 80s as well as patients in their 20s. We describe the population of stem cells in those different kinds of patients, and we think they are all appropriate as potential banking patients.

That's helpful. Thank you, guys. Appreciate it.

Caroline Corner with Pacific Growth Equities.

Hi, thanks for taking my call. I just was wondering if you could give us a little bit more granularity. I apologize, I'm relatively new to the story about with your Celution System how you are going to get these early adopters using products that are produced with in-house manufacturing and then later transition them to the Olympus product?

Can you tell us how long until -- how long you're going to be manufacturing in-house? Just a little bit more detail about how Olympus is going to come up to speed and start contributing, and what their capacities are, etc.

Good morning, this is Chris. Our plan is that -- together with our Olympus-Cytori joint venture, is that the target is to have the Olympus-Cytori produced systems available in early '09.

So, the volume and the infrastructure we have set up here at Cytori, the two systems per week and about 200 consumables a week, is fairly a low volume anticipating that within about a year Olympus-Cytori will be up and running, and we can transition it over to them, which is our ultimate goal.

So we intend to have systems available during that 12-month interval and then support them for up to three years post placement.

What kind of capacity will Olympus have off the bat in '09? Any idea on that?

Again, the forecasting for disruptive technology is difficult, because there aren't existing markets we can kind of point to and say, well, this is a typical ramp rate, or this is the market that is going to adopt right away.

So in part, we know these are large markets and we are doing our best to estimate them. But we will be determining over the next six to 12 months what that adoption curve looks like.

I can say that one of the advantages to partnering with a company like Olympus is that their capacity is easily scalable and enormous. They are used to working in large, large volumes. We have been at the facility in Mishima where they are going to manufacture these systems, and they have the ability to scale that capacity very quickly.

Great, thanks for taking my call.

Brian Gagnon with Gagnon Securities.

Hi, guys. Sorry if you guys already said this; I got on the call late. Do you have an idea whether or not Olympus is going to help you on the service and support of the systems that you're manufacturing at this point?

Hi, Brian. It's Marc. We don't anticipate getting any formal assistance from Olympus with respect to the [CT-800], which is this [simulation] that we're introducing currently. But clearly, they will be involved in the future generation that comes from the Olympus-Cytori joint venture.

Okay, good. What are they doing in preparing for their support and servicing of these systems?

Which systems? The Olympus-Cytori joint venture version, or the Cytori version?

No, the Olympus-Cytori joint venture ones.

Well, part of our strategy right now is to take this next year and to solidify the global logistics with respect to the Olympus-Cytori joint venture. That is going on in the background.

We have a strong idea today what that is likely to look like. Over the next year, I anticipate that we will begin to fill in those details as they become finalized.

Okay. So that is part of the planning process at this point.

Yes, absolutely.

Excellent. Thank you.

Thank you. Management, there are no further questions at this time. I will turn it back to you for any closing remarks.

Thank you. We have had an incredibly productive 2007 so far. We have a small but very efficient team of highly talented management and individuals driving our business forward at an extremely rapid pace.

We have bolstered our development pipeline with the start of two cardiovascular disease clinical trials; formed the key strategic partnership with Green Hospital Supply; and are now on the verge of commercialization for the first two first-in-class products, banking and reconstructive surgery. Thank you very much for your time today and interest.

Ladies and gentlemen, this concludes the Cytori Therapeutics third-quarter financial results conference call. You may now disconnect. Thank you for using AT&T teleconferencing.