Plus Therapeutics Inc (PSTV) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, welcome to Cytori Therapeutics' year-end earnings conference call. Today's call is being recorded. Before we begin, we want to advise you that over the course of the call and question-and-answer session, forward-looking statements will be made regarding events, trends and business prospects, which may affect Cytori's future operating results and financial position. Some of these risks and uncertainties are described under the Risk Factors section in Cytori's Security and Exchange Commission filings, which Cytori advises you to review. Cytori assumes no responsibility to update or revise any forward-looking statements to reflect events, trends or circumstances after the date they are made. I will now turn the call over to Chris Calhoun, CEO. Please go ahead, sir.

Great, thanks, Dave. Good afternoon. Welcome to the quarterly Business update. Cytori is pioneering a new era in medicine in the emerging field of cell therapy. Much progress is being made each quarter to advance Cytori to be the leader in cell therapy. Since our Q3 update, we've made tangible updates in the many core areas identified during that call, including the FDA approval of US ATHENA chronic myocardial ischemia trial, then only 30 days after submitting the IDE application, the APOLLO six-month heart attack data publication in the Journal of American College of Cardiology, issuance of several new core market patents, further strengthening our proprietary position, and positive developments relating to breast reconstruction reimbursement in the UK.

We entered 2011 on the heels of what appeared to be accelerating revenue growth. However, unfavorable regulatory challenges in Japan and the US impacted that growth. We did not -- we did post positive growth in Europe, in the emerging markets and in the launch of our approved PureGraft product. This partially offset the revenue loss in the US and Japan. Year-over-year, revenue was essentially flat.

We recognize the growing complexity and challenging needs of our nascent commercial Business and successfully recruited a highly accomplished industry veteran, Clyde Shores, who came on board in mid- 2011 to lead our global sales and marketing team. Under Clyde's leadership, we've shifted our sales strategy in the near term to a profitable growth strategy, and have substantially reduced sales and marketing expenses while simultaneously maintaining our investment and focus on long-term market access requirements for our products. The immediate impact is lowered expenses, but in the intermediate term, this series of moves should result in a positive contribution margins to Cytori, more predictable consumable sales and ultimately breakout growth once full market access is achieved.

Looking forward in 2012, our plan to increase shareholder value is clear. We have three major initiatives. First, achieve value-creating milestones for our cardiovascular pipeline. Second, grow our Commercial business toward positive contribution margins while establishing the elements for market access. And third, strengthen our balance sheet with primary emphasis on strategic partnerships. The main focus in a clinical development efforts is to advance our US and EU cardiac trials. And pending approval in Europe for a chronic myocardial ischemia to establish a patient registry for no option chronic myocardial ischemia patients.

We are preparing for the first patient to be enrolled in the US ATHENA trial during the second quarter, significantly ahead of schedule. We are managing the Commercial business toward profitability and expect that within 12 to 18 months, we will get this Business to a positive contribution margin. We are already showing signs of how a more efficient and better tailored sales and marketing effort is able to grow sales for fewer resources.

For 2012, we estimate at least $9 million in product revenue. Thirdly and importantly, we are working on securing minimally or nondilutive capital through corporate partnerships and other sources of strategic funding. Our current business development funnel has a number of maturing processes that gives us a very high level of confidence that at least one, if not more, significant partnerships and deals will be completed this year.

One important goal is to have a minimum two years of cash on our balance sheet and a clear path to overall break even for the Company. We have reduced SG&A expenses in the 2012 budget by more than $6 million and increased the R&D budget by $3 million to accomplish the aforementioned objective. Given the investments we have made to get our Business where it is today, and through the hard work of our talented team, we are confident that we will be able to accomplish more with less in 2012.

The fourth quarter and full year update has as been described in detail in our press release and quarterly shareholders letter available on Cytori's website, therefore, we would like to move straight into the Q&A session. As a note, I'm joined today by our President, Marc Hedrick, who is calling in from Europe, Mark Saad, our CFO and Clyde Shores, our Executive VP of Sales and Marketing who are both here in San Diego with me. Dave, could you please open up the call for questions at this time?

Yes, certainly, thank you very much. (Operator Instructions) And we'll take our first question from Steve Brozak with WBB Securities.

Congratulations, gentlemen, on the trial approval announcement, but frankly, that is one I'm going to go directly into. I would like to know what has transpired since the approval announcement? And I've got a question to follow up on that process, please?

Hi, Steve, thanks for the question. It's Chris. Now that we have approval from FDA to move forward on the trial, I can give a lot more to color on the design of the trial and then talk a bit about what we have done to date and what the next steps are over the next few weeks. So, this design is a double-blind, placebo-controlled, fully randomized trial of 45 patients. It will be randomized 2 to 1, so we'll have 30 treated patients and 15 placebo.

The trial will be conducted at five sites in the US, the co-PsI are Emerson Parent at Texas Heart and Tim Henry at Minnesota Heart. The remaining three sites have been identified and will be announced in due course once everything is completed and they're up and running. Our schedule is to get the first patient in and enrolled during Q2 with full enrollment in somewhere near 12 to 18 months thereafter.

The 12-month time point will be the primary assessment of outcome and we are looking predominantly at safety, but in addition, some key functional measurements like MD02 and mechanistic measures like profusion. There will be other time points, for example, we will gather data at six months and then longer-term data, but the 12-month primary assessment is the primary time that we are going to evaluate.

So, next steps are to, and we're in the middle of this now, getting these sites online and up and running. That means local IRBs, getting all the legal and contractual arrangements in place and then getting the first patient in. We're on track to mid next quarter having the first patient enrolled in the trial and the expecting to see the enrollment really get going as we have five sites up and running.

Okay. Actually, that -- I'm delighted to hear that, because it seems like everything is progressing quickly, and that actually leads me to the next question. Since you did have such quick trial approval from FDA, can you give us color on the FDA relationship in terms of how you are working with them? Do they understand what you are doing? And obviously, you have to have an intimately close relationship with them, but as much as you can provide obviously on an open conference call would be really helpful.

Steve, it's still Chris. As we think about the different avenues through FDA, there's a number of potential pathways. So, the one we have talked quite a bit about over the years has been the 510K pathway, which really provides tool claims in a device-only approval, and we have been working with that for some time. But it's not our core pathway through the regulatory system, and it really doesn't give you the integers you need for market access.

The primary path for us is, and has always been, the PMA IDE pathway. So, as you know, we spent quite a bit of time going through the process with FDA because we really do a very different approach to cell therapy here, and it took some time to really align everybody that we are on a device track is not in a BLA biologic track. And so once that was done, then we began to work with FDA about going through a device-based, in other words, IDE, for looking at some therapeutic indications.

Over the summer we spent quite a bit of time preparing and then providing to FDA the trial design and all of the details from our two cardiac trials in Europe. Based on the very good dialog with FDA over the summer in our pre- IDE meeting, and we were able to resolve a lot of the issues up front with them, create a very good dialog.

And then when we went and put in the application late last year, I think in addition, we can take a little credit here that the application was also very well put together, and there's a lot of tremendous data in there that we've generated over the last 8 to 10 years that supported this. But based on all of those things, FDA reviewed the application in a very, very quick timeline, 30 days, and came back with an approval, which we were very pleased with.

So, I think it's a sign that we are really on the right track with FDA and we are on the pathway that we want to be on and that they want us to be on. And we are really looking forward to initiating getting the first patient in and getting this trial underway.

All right, thank you very much. Now we'll go to John Putnam with Capstone Investments.

Thanks very much, and I wondered if you could talk a little bit about your cash burn mark for the quarter, and can you give us a little guidance word on a quarterly basis through 2012?

Sure, John. We continue to reduce our operating expenses in the second half of 2011, consistent with what Chris was talking about, largely on the sales and marketing side that we had invested more heavily in going into 2011 and early in 2011. And in response to some of the regulatory and overall market issues, we then carried that back to try to right-size the business to emphasize that profitable growth objective for sales and marketing. You start to see that really in Q4.

So, when you look at Q4, obviously a much lower operating expense number than you have seen. The cash burn on the surface is going to look pretty close to what we saw in Q3, in the high 7s, but if you dig in there a little bit, you will also see we paid off about $1 million of accounts payable in the quarter and actually grew some AR in the quarter as well. When you offset that, actually ends up getting closer to the mid- 6s on a pro forma basis.

There's been fairly meaningful improvement in the cash burn over the course -- on an operating basis over the course of 2011. And as we look forward to 2012, our objective is to keep that number below 7 per quarter, and the quarters -- there is variability in quarters and when expenses on a cash basis go out the door. Typically more go out in Q1 than any other quarter, but over the entirety of 2012, while they will be quarterly variability, we expect that number to be below 7 on a quarterly basis when you normalize the year.

Potentially better if certain things come through, and there's always the ability we have to try to tighten further where necessary, so it's not as if we don't have a fair amount of control. But what we are investing in are things that we believe are going to result in the commercial growth that we are looking for, the strategic objectives that we are working on in a number of cases, as well as the clinical objectives. So, we will be spending less money in 2012 than we did in 2011 for sure.

Okay, thanks. I wondered if you might talk a little bit about Japan and what, Chris, what your regulatory hurdles are there and how you can get around those?

Yes, so currently, because the products are approved in Europe, physicians in Japan have the ability to bring that technology into Japan under a doctor's license. A few years ago, the government instituted some cell therapy guidelines for physicians, even doing translational work that they needed to get approval to do that, anything with stem cells through the Ministry of Health.

And early on, we interpreted, along with a lot of the lead investigators at some of these translational centers. And I'm talking about people at some of the leading hospitals across Japan. Interpreted that our approach was not included in that cell therapy guidelines. Well, under review, it turns out we are. And so what we have done is we've taken all of those translational trials, received approval through the Ministry and have them up and running.

But new trials for new things take a little time, because you have to go through that application review period. That pulled down our revenues a little bit last year in terms of the translational sales, which were a large part of the overall sales worldwide, but also certainly in Japan.

But that is not the end goal there. The real avenue is going through the Ministry of Health as a device, much like we are doing in the rest of the world and gaining specific indications. And on the breast reconstruction side, which is the one we're furthest along, we have an application in last year for breast reconstruction and the device. Subsequently, we have provided all of the data on the breast reconstruction trial called RESTORE2 in Europe through the Ministry, and they have reviewed that.

We are now going back, reformatting that into a format they call the Japan's version of good clinical trial protocol format, AGCP. And we think we are on track for that review and hopefully, unless something new comes up, that will be enough to win our first approval in Japan with the indication of breast reconstruction.

And then you probably know in Japan, reimbursement typically follows pretty quickly after approval, unlike other places in the world. I think we can really get the integers for market access fairly quickly in Japan once we achieve that first goal of getting the approval.

Looking forward, I think there are opportunities to bring several of our cardiac -- one or more of our cardiac programs into Japan that would not be multi-hundred patient studies, but more satellite-type design trials that can mirror and echo and be supported by some of the larger international trials to expand those approvals in Japan, but based on smaller clinical trials, which we expect to have to run in Japan.

All right. Thank you very much. We will now move on to Chad Messer with Piper Jaffray.

Hi, thanks for taking my question. I was hoping you could give a little bit more color about the deal pipeline that you are talking about. Maybe just in terms of bucketing what kinds of conversations are going on. And then anything you can help out with what size or terms you think you're getting, especially given your stated goal of getting to two years of cash primarily using nondilutive funding.

Chad, hey, it's Chris. I'm probably not going to give you a lot of color on some of these deals, but you can imagine there are a variety of things in our funnel that we have talked about, north of half a dozen active deals that we are working on.

And as I put in the shareholder letter, some are core, some are noncore, there's a lot of different options that we are pursuing. Some are regional, so they're not all global type deals. But there's just a whole variety of different things which allows us to work in parallel on a variety of different deals.

In terms of scale and size, I'm just not really allowed to give you much color on that right now, but I can give you an example of one. For example, a couple, maybe a little over a year ago, a cellist came in with a premium equity as a first step toward a therapeutic partnership.

They locked up a two-year option for the first right on a liver indication. And I think we've been fairly public about this, and it's pretty well known that we have been working together with them towards the goal of achieving a therapeutic deal in the liver area, which to us has been typically pretty noncore, but it would represent a potential deal.

So there's a number of deals like this out there that we are working on. The timing, it's difficult to exactly predict, but I would say that we are standing today looking forward, we're highly confident that we will achieve at least one, if not more, of these partnership deals this year.

What is the level of interest in your ongoing cardiac programs, being one of the more advanced, and certainly from my point of view, interesting indications that you got?

I think there's a lot of things coming together that support not only potential cardiac partnerships, but all of these different partnerships. You now have a much clearer picture of the US regulatory pathway. I think people even up until we announced the IDE approval questioned whether we are really going actually going to be IDE or we'd have to retrench and be a BLA. But the exact clarity helps.

Publication of the data from the acute trial in January was important because peer review publications give validation that you data is real and been reviewed. As you know, I think we've put out there that both the RESTORE data and the longer-term APOLLO data and the longer-term PRECISE chronic trial data are all submitted to various journals for publication, and those will be coming through over the next month.

I think that also helps drive some of these partnerships. Cardiac is, we think, probably our most valuable pipeline indication because it's furthest along. We have completed two trials. If you look at the [methoblastin ethanol] deal as a precedent, we think that the number of patients in their trials compared to the number of patients in our trials were very similar. Not going to surprise you for me to say that I think our data was far superior.

And we think in Europe we don't have to take that into another large pivotal trial, but working towards getting that right into the market and following with a post-market registry. US, moving that into the trial here. So, I think there's an enormous value there, if you look at that as a surrogate for just that indication alone.

So, I think the opportunity is that these are huge markets and for the most case, a lot of the things that we're going after are really no-option indications. Treating the heart muscle after a heart attack and that damage, there's nothing out there that really does that. Trying to restore these no-option heart failure patients, their function and improve their survival and benefits, these are things that other things have not been able to do.

I think we are really representing no option markets that could be enormous. And we're going to be pretty careful about protecting that value as we've had, but we also can see the significant value a partner could bring. Not so much even in terms of the upturned cash and the value of that, but just in the terms of access to partnership and certification.

I'll just reiterate that there's a number of deals in our funnel. They are nearing completion and we are confident that we are going to get at least one of these done, and we are working to get it done as soon as possible.

All right, thank you very much. We'll now move on to Ren Benjamin with Rodman.

Hi, good afternoon, guys, and congratulations on the progress, and thanks for taking the questions. Can you give us a little bit of the more color, Chris, or maybe it is a Marc question, regarding the amendment for the ADVANCE trial and some sort of an idea to what exactly is being amended and how long they should take?

Hey, Ren, it's Chris. Just maybe for summary, we identified, evaluated and selected now 27 sites in 12 countries with an emphasis on the G5, and that also includes Canada. We received the full approvals in two countries and then initiated enrollment back in May. But as you know, Ren, our approach to cell therapy is unique. Solution is GMP in a box. This has been validated by FDA, the European notified bodies and many of these country-specific competent authorities.

But think when the regulations were made, they did not really contemplate what we are doing. They did not consider point of care device systems, and so when we go individually to the various countries, the regulations regarding cell therapies, they are inconsistent country to country. And it is a dynamic environment over there, and I would say the regulations are changing. In some ways, dramatically around the world.

They're trying to catch up with what we are doing as a front runner in this whole area. The focus of what we are really targeting isn't around the device and the cells and the GMP, our cell characterization or those kinds of things, because that has been well-established. It is really looking at how hospitals and how groups within certain countries regulate cell therapy, and in our case, that really means what is the GMP of the overall procedure?

So, looking at the tissue from the patient to the device and then the cells from the device back to the patient and the procedures and protocols around that. That is really probably where we are really more focused. But our goals in this are to establish a consistent regulatory review and pathway country-to-country across Europe.

So, this not only applies for a trial and getting the approval for trial, let's say in Germany or France or Italy. But really, in the longer run, to the whole market approval because we want to make sure once we get approval through the CE system, that we then have market access to go into these individual countries. So, what we're doing is really trying to align everything today.

Now, once this it is all harmonize, specifically in the G5, I think what that allows us to accelerate this trial and facilitate the country approval, which then leads importantly to getting these sites up and running. Our focus right now is to bring the majority of these sites online. To do that, we need to get these country approvals. As we mentioned last quarter, there's really a challenge as country to country to get that done.

We have kind of taken the step back, looked at harmonizing that, really -- not around the cells or even the trial safety, those kinds of things, I think that is all well-established. It is really around the procedures of how the tissue leaves the patient, gets processed and then comes back to the patient. This isn't really rocket science stuff. It's just something that we have to address and we want to harmonize across all the various groups.

I think once we get all these sites up and running, then we can leverage the enrollment goals. And once we get 30, 35 centers up and running, we can -- this trial can be on track and really enroll rather quickly.

Okay. And just as a follow-up maybe. I did not read, unless I missed it, any comments regarding the stem cell banking business? Can you give us an update there?

I'm going to turn that over to Clyde for a second, let him give you an update on the -- more on the commercial side.

Hi, it's Clyde. Yes, we just mentioned I think in the write up that some of our growth that we had in Europe and even in the US offsetting some of that decline and in Japan, was due to increase in our banking business. So, we continue to place more banks and we have a sharp focus on that, particularly in the United States, for adipose-only banks and then full adipose and stem cell banks globally. So, we have an increased focus on that.

All right. Thank you very much. We'll now go back to John Putnam with Capstone Investments for a follow-up.

Yes, thanks. Chris, I was wondering, it seems like the CE mark is taking longer than you'd anticipated. Would you agree with that, or can you give us a little color on what's going on there?

John, I'm going to hand it over to Marc. He is over in Europe right now and actually been working on this, so he's probably most fresh to answer it. Marc?

Thanks. John, can you hear me okay?

Yes, I can hear you.

The -- in short, we are making progress. The call that we issues claims expansion, we already have claims for four different clinical areas and we want to expand the claims for a narrow group of patients while there are a large group of patients that have no-option, chronic myocardial ischemia. I think it's an important priority for us to get that done.

I don't view it as a delay at all. A key gating item was getting the 18-month data to them, which we are able to do in mid to late Q4. Remember, we've only got 27 patients in that study, so having longer-term data is critical to convincing them of not only safety, but clinical efficacy. BSI has actually reviewed the 18-month data. They've responded, in fact, we've had two face-to-face meetings with them in Europe since then, which was -- which have all been in 2012.

I can tell you that we expect as part of those discussion, if we ultimately obtain approval, to have a registry. I think that's important not only from the regulatory perspective, but also to drive utilization and then ultimately, manage your pharmaco economics in pricing. I think that's a reasonable expectation for that as we have.

On the timing side, I think we expect that to have a pretty good idea whether we are going to see claim expansion in the overall timing in Q2. Although that timeline can be pushed out if we have request for more data and so forth. So, I think we are making progress. We are closing out issue by issue with our notified body. And I think we can see the progress and working towards Q3 for a resolution.

Great, thanks.

All right, thank you very much. Well, we have no further questions that are in queue at this time. I would like to turn the call back over to Mr. Chris Calhoun, CEO of Cytori.

Great, well, thank you all very much. I have been cautioned to use too much flowery language, but I think it is important to say that I feel about 2012, that we are on track for this to be a transformational year for Cytori.

We are focused on advancing the Company in three core areas that we believe will be substantially build shareholder value and just to reiterate those, advancing our cardiovascular pipeline, our commercial business growth and profitability and then strengthening our balance sheet through strategic partnerships. I would like to thank you all for your time, interest and ongoing support.

Thank you very much. Well, again, ladies and gentlemen, that does conclude today's conference.