Plus Therapeutics Inc (PSTV) 2012 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Cytori Therapeutics Second Quarter Earnings Conference Call. Today's conference 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 Factor section in Cytori's Securities 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.

Thank you, Keith. Good afternoon and welcome to our quarterly business update. I am joined today by our President, Dr. Marc Hedrick; CFO, Mark Saad; and Executive Vice President of Sales and Marketing, Clyde Shores.

Management has delivered strong results during the quarter and for the first half of the year in each of our three business areas, achieving many of the goals established for 2012 and setting the foundation for leadership and growth in the cell therapy field. To review, the three principal objectives are to advance our cardiovascular disease pipeline; grow the commercial business; and achieve our operational and financial performance goals. We have provided a shareholder letter that discusses our progress in greater detail. This is available on the home page of the Investor Relations section of our website.

Before we move into the question-and-answer session, I'd like to discuss some of the highlights from the quarter. Let's start with our cardiovascular disease pipeline.

Our FDA-approved clinical trial, ATHENA, for refractory heart failure, continues significant momentum during the quarter. Along with some minor protocol improvements, FDA approved adding a sixth trial site. We are now actively working with six of the leading cardiologists and medical centers in the field, investigators that have led and/or have been involved in every major cardiovascular cell therapy clinical trial in the U.S. as well as many of the notable international trials.

Three of our investigators are members of the elite CCTRN, a network of physicians, scientists and support staff dedicated to studying stem cell therapy for treating heart disease that is sponsored and funded by the NHLDI, a division of the National Institutes of Health.

We are honored and extremely pleased to report our sixth site, including Dr. Tim Henry, one of our co-principal investigators with the Minneapolis Heart Institute Foundation; Drs. Emerson Perin and James Willerson, our other co-principal investigators with Texas Heart Institute; Dr. Les Miller with the University of South Florida in Tampa; Dr. Carl Pepine with the University of Florida in Gainesville; Dr. Farrell Mendelsohn with Cardiology PC in Birmingham, Alabama; and last but not least, just across the street from Cytori, Dr. Richard Schatz with the Scripps Green Hospital in Torrey Pines. You may recognize Dr. Schatz from the extensive work in cardiac catheterization and stents as a co-inventor of the famous Palmaz-Schatz stent, the first-in-class balloon expandable inter-coronary stent, the design of which all modern-day stents are based. He was also one of the first to develop a drug-coated stent.

Dr. Henry at Minneapolis is now actively screening patients with the first patient anticipated to be treated in the next 30 days, and we will report that.

Later this month we expect Texas Heart will begin enrolling followed by the remaining four sites so that all sites should be actively enrolling by our next quarterly update. These centers rank among the leading enrollers in previous chronic heart cell therapy trials, and our plan is to enroll, on average, one patient per month per center. The trial remains on schedule to be fully enrolled by mid-2013.

Our pan-European advanced pivotal trial for acute myocardial infarction has been amended to meet current regulatory standards, improved the trial design, and to expand the utility of the trial toward reimbursement. The details of the modifications were reported on our last call. Subsequently, the revised protocol has been submitted to several target countries and hospital-specific regulatory authorities for approval. This trial is expected to begin enrolling quickly after those approvals are received while simultaneously we work to expand the trial to approximately eight countries and up to 35 sites.

We can provide guidance on the enrollment rate and anticipated completion timeline once we have a critical mass of active sites and enrollment rate experience in this trial. The target countries include the G5, the Netherlands, Poland, and Canada.

Regarding our CE Mark expansion -- there were three key open items discussed on our last call including the details of a proposed post-market patient registry, a request for additional supportive data to further assess the risk/benefit ratio of cell therapy in this patient population, and agreement on the specific indications for use in claims.

The proposed post-market patient registry design has been completed and was submitted to the notified body for review during the quarter. We are providing additional supportive data recently requested by the reviewer and believe we're making progress toward approval. The final step, once the clinical review is complete, will be to define the specific indications for use in claims.

Let's move on to our commercial business. The commercial business continues to reflect the theme -- we're doing more with less. This is a great point to take a moment and congratulate our team who are working extremely hard to deliver these results.

Based on the first-half sales of $3.4 million, and our current sales funnel, we reaffirm our $9 million product revenue target for 2012. Consistent with prior guidance, 2012 sales are expected to be weighted toward the second half of the year.

Our strategy to drive hospital-based selling and consumable utilization is working. Some of the key trends in the first half include increased solution consumable utilization among our existing customers and expanded device space into new hospitals. Again, we have achieved record PureGraft sales.

In our shareholder letter, we detail three MHLW-approved investigator initiated studies in Japan under the cell therapy guidelines. These studies are in the plastic surgery, gastroenterology and urology specialties. There are a number of additional studies currently under review by the ministry.

In parallel, we have an active dialog with MHLW in Japan regarding solution system approval for breast reconstruction.

In Europe, we have again expanded our CE Mark indications for use based on clinical data and guidance from our notified body. These complement our existing claims and include general surgery procedures to facilitate healing in patients with cryptoglandular fistula, deficiency of injury of skin, fat, muscle and fascia, soft tissue wounds, ulcers, or fistula associated with trauma, diabetes, ischemia, or radiation injury, and tissue ischemia.

Now turning to our operational and financial performance -- we are executing on our stated operational and financial performance goals. For the quarter Cytori achieved the planned improvement in our operational efficiency and financial performance. Sales and marketing expenses were reduced by 29% in the first half of the year compared to the same period in 2011, and R&D and G&A expenses were tightly controlled.

Correspondingly, net cash used in operating activities was reduced by 18% in the first six months down to $15.9 million. We will continue to keep downward pressure on non-R&D expenses and expect further reductions in cash operating loss in the second half of the year.

I'd like to spend some time now and go into some detail on our current cash capital requirements and financing strategy. The Company ended the second quarter with $26 million in cash and equivalents plus $2 million in accounts receivable net of reserves. Our internal budget and long-range plan for the Company is expected to require an additional $20 million to $30 million in cash to reach breakeven. This calculation is based on a heavily discounted forecast of revenue growth.

After a significant investment in this technology to date, we can see the light at the end of the tunnel and believe the Company is within striking distance of removing the balance sheet as a barrier. But, clearly, an outstanding question in the minds of shareholders is when and how do we close the gap? The answer is pretty simple -- bring in capital while maximizing value to the Company and its shareholders. The most preferred option is a strategic deal.

As highlighted last quarter, there are half a dozen opportunities that are progressing toward completion. Most of these processes made clear and defined progress during the quarter. We also reported that we would be focusing on two of the most advanced deals, and that we anticipated closing at least one in the very near term. And by "very near term," we meant that we expected one of these deals to be announced at least before our call today. This guidance was based on the most current information at the time, particularly related to the near-complete status of one specific opportunity and the increasing probability of a second.

Subsequent to the call, the counterparty underwent a surprise internal management change that led us to an unexpected delay in the process. We believe we have successfully overcome the additional process requirements created by this change and are back on track with this partnership and expect it could be completed as soon as this quarter.

In parallel, several of the other opportunities have advanced as well, with one in particular moving rapidly toward completion. We have good transparency on both of these processes and believe it's likely that at least one will be achieved before the end of the third quarter. Outside of the strategic options, which are clearly hard to accurately predict exact timing, we have several alternative plans, including parallel discussions with certain existing investors.

Additionally, there are approximately 11 million shares in warrants and options that are set to expire within the next 24 months, which, if exercised, would bring in more than $40 million in cash. We believe the success in any single deal above would lead to increased shareholder value and could likely stimulate at least some of these holders to exercise.

Finally, I want to note that the Company added three new patents during the quarter, strengthening our intellectual property position to include 49 issued patents, four allowed patents, and more than 75 additional applications under review.

Our first patent was issued in June of 2008, and during the subsequent four years we have, on average, added a new patent every single month. Year-to-date, our IP portfolio have issued and allowed patents worldwide has grown by 26%, far exceeding our 15% goal, and we anticipate at least a few more patents will be issued during the remainder of the year.

In summary, significant clinical, regulatory, commercial, and corporate accomplishments continue to define our progress and achieve a milestone-rich year. To date, we have achieved many key milestones including approval to initiate the ATHENA trial; expanded CE Mark indications for use in wounds and tissue ischemia; PureGraft 850 FDA and CE Mark clearance as well as PureGraft 250 and 850 approval outside of the US in certain countries; solution system approval in Russia and Croatia; publication of APOLLO primary six-month data as well as RESTORE 2 results at 12 months; and submission of the UK breast reconstruction medical technology assessment application.

The remaining value-driving milestones that we expect to achieve between now and the end of the year include the following -- completion of a strategic partnership; initiating enrollment in the ATHENA trial; vascular CE Mark claims; publishing APOLLO 18-month data; and PRECISE six and 18-month data; and achieving our revenue target of $9 million for the year.

Keith, now I'd like to take this opportunity to open up the call for questions that they may have for me or my management team.

Thank you. (Operator Instructions) John Putnam, Capstone Investment.

I was just wondering if you might elaborate a little bit on the ATHENA trial -- how large it will be, and you've said that it's on schedule to be completed by 2013. I am assuming that that's just the patient enrollment?

Hi, John, it's Marc Hedrick. The bottom line is we made great progress, thanks to the hard work of our team and really going from zero to 90 on this study. Going back to the FDA, adding an additional site, so now we have six sites will make this go more quickly. As Chris said, we're actively screening on site 1 in Minnesota. Two to six sites are at various stages.

Assuming we get all those sites onboard by the next two or three months, we're striving for all by Q3, but a little bit of that's out of our hand, and we're really on track to enroll completely in about a year, assuming some pretty conservative enrollment philosophies.

On the trial itself, just to recap, and you asked, 45 subjects randomized 2 to 1 cells to placebo at six centers in the US. And the two principal centers are with the two PIs -- both the Texas Heart Institute and the Minneapolis Heart Institute so that the dosage is 40 million cells. And because it's a 2 to 1 randomization, 30 will get cells, 15 randomized to an inactive placebo. And the key assessments are really geared towards things that really revolve around overall myocardial function; in particular, MbO2, which I think the entire field is showing is not only the best assessment to put patients on the transplant list but to assess this group of patients whose natural history ultimately is either death or transplant. And so our analysis is really built around MbO2 as well as other similar measures of the failing heart.

Okay. And the follow-up period would be what, Marc?

Well, patients will be assessed up through 12 months, but the MbO2 screening is at six months. But we're going to follow these patients to clinical safety and forth out to 60 months.

Okay, great, thanks. And then on the ADVANCE trial, what -- how long do you think it will take to enroll 35 hospitals and get that up and running?

Well, you know, I think that's a harder question to answer because it's in Europe. It's a bigger trial and, in many ways, it's a much more challenging trial. So I'm not going to answer the ultimate enrollment time. We have internal timelines related to that. I can tell you that the key issue is how fast we get the G5 countries plus the other three -- Netherlands, Canada and Poland -- up and running. So once you get one country up and running, it's a relatively straightforward measure to get other centers up and running in that particular country.

So since the last call, we made pretty remarkable progress. Again, kudos to our team for getting the protocol retooled, for consulting with the competent authorities in those countries, so we've really gone to those authorities and said, "Look, how do we get this trial enrolled quickly? How do we navigate a changing regulatory environment?" And we've incorporated that into the protocol such that we've now refiled in two to three countries. And if we can get those countries onboard quickly, which we think the protocol is better suited to that, then that ought to have a downstream effect in terms of overall enrollment.

So I think I would look towards maybe the next call or maybe one call after that so that we can probably give you better guidance as to how long it's going to take to enroll and then process the data.

Steve Brozak, WBB Securities.

I actually have a more complex question, and then a follow-up on it I'd like to ask. Given the fact that you've been talking on the cardiac side, I'd like to go more towards the non-specific side; specifically, the other indications and what's your processes for the investigator-led studies, because candidly -- for instance, Japan. You've used that as a translational ramp up. How does that work as far as a proxy for what's happening with other clinical studies, with the CE Mark examples, and how it works as a proxy? And I've got a follow-up on that.

Steve, these translational studies and, in particular, Japan, which is where our original breast study is from, really becomes almost a clinical research engine in a very safe way for rapidly developing technology and bringing it to the clinic.

As you may recall, from about a year or so ago, we talked about the unwelcome MHLW stem cell guidelines, which we had a growing number of systems that we were selling very actively in Japan. MHLW introduced these stem cell guidelines, and so, over time, we've responded to that and really built our Japanese investigator-initiated strategy around it such that we're kind of the gurus of these MHLW stem cell guidelines. About 10% of all the approved studies somehow incorporate Cytori technology.

We have several more that we think are very close, and we are actively trying to expand it. It's almost a turnkey system that we work with our investigators to help get that data to them so they can get approval for these studies. And it's not only actively contributing to our current revenue and relatively high-margin environment, but it's great positioning not only in the market generally but in these Japanese -- major Japanese academic centers who typically acquire the technology. But it's also helped us in our positioning to PNDA. And PNDA is increasingly -- MHLW PNDA increasingly looks to us as the leader, as someone they can go to for questions but also look to for leadership in the market.

So can you give us an example in following up on this on anecdotal results as far as the anecdotal clinical results that you've seen? Things that would be completely unexpected or things where you'd say, you know, this is truly something that you had never seen before?

I can, and I think -- back to breast reconstruction. That started as an investigator-initiated study pre-MHLW stem cell guidelines resulted in 20 patients being treated under that in Japan. And then, ultimately, was expanded to a Cytori-sponsored trial in Europe for the majority of patients that have a partial mastectomy and now has translated into cases treated around the world in an application for medical technology approval in the UK. That's one example.

Second example is stress urinary incontinence. Again, a physician pulling our technology into the clinic under a small feasibility study starting out initially with male incontinence, which is very uncommon but happens in men with radical prostatectomy. Showing good early results -- the first three patients have been published. Many more patients have been treated, and now we see behind the scenes and, hopefully, we can talk about this soon -- the progress that that's making both in male post-prostatectomy incontinence but also in female incontinence, which represents a much bigger market need.

So there are other examples of that, but I think that adequately illustrates the power of these studies.

Great. A last question, and I'll jump back in the queue. Can you go into safety? Because, obviously, the golden rule is "first do no harm," and obviously you've got literally thousands of cases that you can look at. Can you basically describe what you've seen on the safety side and, again, thanks. I'll jump back in the queue.

I think the key point to make is that -- and we estimate 5,000 cases. This technology is clearly safe. But how do we think about safety, and how has that evolved over time?

Step 1 is the safety of retrieving the cells and processing them is basically the same level of safety that you have with -- that most common of cosmetic surgery procedures, liposuction. Very safe, lots of different doctors do it, local anesthesia, or general anesthesia, it's a very safe procedure. So part 1 is just the liposuction, very safe. I think with a minimal amount of training it can be accomplished safely around the world, even in clinics.

The other part of the safety is really geared towards the delivery of the cells, and that's very different, procedure to procedure. It's a very simple process in injecting it into the face or breast, but injecting cells into the heart, either during a heart attack or with a patient who has very severe heart failure can be a very different matter. So the safety is really predicated more on the delivery than it is on anything else. And we individualize that thinking depending on the application.

Laura Engel, Stonegate Securities.

Good afternoon and nice progress during the question, gentlemen. I wanted to switch over to some financial information. Product revenues, a little bit higher than I expected, and I wondered, I guess, given the guidance, if you could comment on, you know, were any of these revenues that were expected in the second half of the year, or should we just expect this trend to continue and maybe even be in excess of that $9 million mark?

Hi, Laura, it's Mark Saad. So yes, we are consistent with what we've said on the prior two calls where we indicated, due to a variety of factors in terms of building the market access and how we see our revenues coming from that the year will be second-half loaded. So that's what we've expected, that's what we've messaged, and I guess what you estimated.

And the other reality is given the nature of the commercial experience that we have, a significant portion -- a very significant portion -- of our revenues in any quarter can tend to come in towards the end of the quarter. So there's a lot of late-quarter variability as part of having, really, the state of the revenues where a lot of the systems are more translational in nature for those types of customers. And as we get in the future to where it's more predictive, consumable base utilization taking the lion's share, which is driven by the market access things we're working on, I think the business, overall, gets more and more predictable. So that's the overall trend.

We don't see, within our sales funnel, effectively robbing Q3 or Q4 revenues into Q2 and still, I think, are consistent with what we've said for the year, which is the sales funnel, the way it's tracking, the way the incremental approvals are tracking, such as getting Russia approval, which is meaningful for us, and we'll expect to see some second-half benefit from things like that and other things like that -- expanded claims that was talked about on the earnings call in Europe and more expanded claims, ideally, coming soon.

So those are the types of things that go into the mix when we look at the second half versus the first half, and I think we're just tracking well within where we described we would be and, obviously, I guess, within your estimates as well.

Right. Okay, and then looking at margins, they're tracking well. Could you, I guess, remind me as far as the second half of the year, maybe even into 2013, expectations for those? And how you expect to see those trends, going forward?

Absolutely. So the existing manufacturing infrastructure that we have is where we make and assemble -- we make a lot of the elements of our systems and consumables. We outsource others as we get to critical mass where we can get leverage through outsourcing. But we still do a lot of physical manufacturing and assembly here in San Diego.

And, as part of that, your employee base, your physical footprint, your other classes, go into a base overhead of manufacturing, whether you sell $1 or $1 million or $10 million within a given quarter. So that first $1 million of revenue is at a very, very low margin, largely, to overcome that overhead associated with the presence that we have.

As we go from there, the incremental revenue dollars carry a much, much higher margin and, certainly, the type of sale, maybe a translational system, we tend to get a much higher margin on and incremental consumable at this level of scale, perhaps lower, and you put it all into the mix.

So, in general, we were in the high 40s for a little bit -- just shy of $2 million of product revenue. That's consistent with previous experience, and as we take two to two and a half to three to five to 10, the incremental revenues go up a lot higher. So I would expect to the extent we meet this year's goals, your second-half margin should be meaningfully higher than the first half. And then as the market access factors come to play for the following year, I think that's where we can start getting into high 60s, ideally into the 70s, and north of that over the next few years without unreasonable expectations.

Okay, and then on G&A, it's continuing to trend down, I guess. Could you comment on how much potential you have to continue to improve that and maybe even where you see that leveling off as far as in the $3 million to $4 million range maybe this year and even going into subsequent fiscal years?

Absolutely. So if we look at SG&A, overall, we've done a lot to get the sales and marketing side of that down pretty considerably -- 30% roughly between the first half or even in the most recent quarters year-over-year. So I think Chris mentioned before, do more with less, and that's really about understanding really where our revenues are coming from, where we're going to be able to get the best leverage where maybe some efforts aren't going to pay off as well in the immediate term and position ourselves to benefit from the market access element that should be coming together -- so do more with less. And we're doing that, we think, very well, and the trend is very clear.

The G&A is trending down as well. You see a modest reduction year-over-year in the current quarter, and we see that continuing as well. Clearly, we want to minimize that where, if you were to look at the lion's share of G&A, yes, they're staffed, and you've got your team and your management, your accountants, and your lawyers and et cetera. You also have your professional services -- your auditors, your -- and then the litany of legal groups that we work with. A lot of that can be things like intellectual property, and I think it's important to point that out because a substantial part of our G&A has been investing in our IP, and Chris mentioned the degree in which that's really grown from zero issue patents in June of 2008 to now. I think the number is 49. And that's been a meteoric rise and really a credit to an extraordinary intellectual property team both internally and externally. So that costs money, and so our protecting our assets with a robust and dynamic, comprehensive IP vision has -- there's been a price to that, and that's in the G&A.

So as we trend to keep forward, I think we see, really, containment and pressuring that number further down incrementally over the next few quarters. We don't see anything noteworthy to drive it up at this point. We'll just try to keep clamping it down wherever we can.

Okay, and then last question, you know, based on everything you've given on the call, it looks like you all are -- or sounds like you all are kind of adhering to the timelines you've given and achieving some of the milestones. One thing I noticed in the shareholder letter, it was like there's two additional studies approved by the Japanese Ministry of Health. I wondered if you could confirm that for me and then just give a little bit of color as to the significance of those two additional studies?

Hello, Laura, it's Marc. So yes, so we have three studies approved at MHLW to the specific stem cell guidelines. That's by no means all the use of our technology that's going on in Japan, but we have some centers that are using the technology that are transitions there used through the MHLW stem cell guidelines with existing systems. And then others that are coming online buying systems as a result of that MHLW stem cell guideline approval.

So just to reiterate -- the points made previously to Steve Bozak's question -- the significance is, in part, revenue, and those are high-margin sales. And there are, we think, greater opportunities for those. The -- I mentioned the stress urinary incontinence and breast reconstruction and how those have helped underlying feed subsequent areas of corporate and other research clinically that we've decided to promote.

And then, finally, in Osaka, wound healing is an important area of our claims expansion that we mentioned, and we're actually seeing pull through in Japan for that same indication where some of the wounds that we now have indications for in Europe are actually very significant problems in the Japanese market, and we have major investigators such as the Chairman of Surgery at the most prestigious Department of Surgery now in Japan at Osaka, who we used to work with at our very first breast trial is now bringing its technology into Osaka.

Jason Kolbert, Maxim Group.

Actually, a bunch of questions for you today, but I'd like to start out by understanding a little bit about what you're thinking on ATHENA versus ADVANCE? And where I'm going with this specifically is trying to understand the focus of a STEMI trial in Europe versus a CMI angina trial in the US. And when I look at those two markets, I just see angina dwarfing the opportunity in STEMI. So internally is there, and I understand STEMI is more advanced. But help me understand, when you look at these opportunities, which one do you want to focus on, because you're doing both right now.

You're right, and we've completed -- as a reminder, we've completed two pilot studies in Europe -- one for chronic myocardial ischemia and one for STEMI. And they're different opportunities and we think both are very valuable and very worthwhile. And our trial strategy is, in many ways, very geared towards our current commercial strategy. So I think it's hard to separate commercial strategy from clinical trial strategy.

So if you look at [York], for example, our strategy very much is built around -- I think as we discussed on the last call -- two halves of the orange. Number one is that we have a very successful pilot study called PRECISE in Europe. Statistically significant improvement in those patients, and we've gone through our notified body to ask for incremental claims so that we could begin to sell in Europe and then build a registry and ultimately get reimbursement.

So in some ways we've been able to --

Can you remind me -- what's the background on the PRECISE trial?

What do you mean background?

We were talking about both STEMI and CMI. So what were the enrolled patients in PRECISE?

PRECISE was a no-option CMI, or a refractory heart failure study. So very similar to the edema study in the US.

And so now what's the strategy with -- ?

So we've completed the PRECISE study. We've taken that data, we've gone to a notified body, we're trying to get claims and then build a registry and ultimately adoption and reimbursement.

ADVANCE fits in because we have an extremely promising pilot trial called APOLLO in Europe. It's been completed. We've reported that data out to 18 months. There's roughly a 50% improvement in the size of the infarct, and that's a smaller study although randomized controlled, and now we're taking that to the next step, which is the ADVANCE study.

And so those ADVANCE sites could also very well be commercial sites for chronic ischemia because they're trained in the technology and the use of it, and so those two things work very well together, and that is our -- ?

You're confusing me a little bit, though, because you're switching back and forth between STEMI and CMI. So I'm trying to understand when you're talking about APOLLO, and you're talking about STEMI, and you're talking about reduction in the size of the infarct, are you not saying that you want to pursue STEMI, and wouldn't you have to pursue that in a pivotal trial format in order to get a STEMI claim?

ADVANCE is a pivotal study.

I'm sorry, is -- ADVANCE is a pivotal study with 216 patients?

Correct. Is that a challenge?

No, it's not a challenge, I'm just trying to understand. And the primary endpoint in ADVANCE? I know a secondary endpoint is [MACE] but that's reduction in the infarct size is the primary endpoint for a STEMI trial with 216 patients?

As measured by MRI, yes.

Has there been a proven correlation between the size of the infarct and mortality?

Yes, absolutely. I think you -- bigger infarcts correlate with the worst outcomes. Smaller infarcts below about 15% do much better.

I don't want to spend time on this call going over this, but --

We're happy to follow up with you later, and --

I think that would be really helpful, because I'm confused a little bit in terms of how a 216-person trial can be a pivotal trial for STEMI? I'm a little confused as to why size of the infarct is a primary endpoint in that kind of trial. And I'm trying to understand -- by the way, I'm very excited, I'm very excited about what you're doing. I think it has tremendous potential, but I just am not connecting it to kind of the clinical strategy, and I'm not connecting it, and I'm thinking in terms of the US regulatory environment. Maybe that's what's screwing me up a little bit. But when I look at CMI, I'm trying to understand also in CMI, kind of, you know, it's a huge, it's a gigantic market potential. But you're absolutely right, and I loved your comments. Probably the most dangerous thing in CMI is [NOGA], and so I'm trying to understand kind of where you want to go in CMI versus where you want to go in STEMI. And I'm trying to understand at some point whether the agency will view this more like a drug and a BLA than a device and kind of how that approval pathway will evolve, because ultimately the potential here is gigantic.

Jason, thanks for your enthusiasm, and your detailed questions, and I completed agree that next best step probably is just spend some time with you explaining our device, our regulatory strategy, that's been validated not only in Europe but in the US; explaining our commercial strategy in Europe, which is very different than it is in the US because of completely different regulatory factors; and then also we can explain why 216 works in Europe; probably wouldn't work, certainly not at this stage in the US and why we're focusing on STEMI versus CHF. So we'll get back to you in a comprehensive follow-up on those exact issues.

Okay, great, and then I'm sure at that time, too, we can talk a little bit about breast reconstruction in Japan, which is an interesting market. You know, I've spent a lot of time in Japan, and I'm just wondering why you would do that indication in Japan.

Yes, no, good question, thank you.

Nathan Kelly, Noble Financial.

I've just got two quick questions. In the CMI trial in the US, if I have this correct, what type of [MAX CO2] data would you be looking for? Or would you be happy with that regard on that data point? And then what would you say are the salient forthcoming catalysts, near term, over the next 12 months would be for the Company?

Hey, it's Mark. I'll take the first one and then hand off the second one. So MbO2 is critically important in these chronic refractory heart failure patients who have an element of ischemia, but whose heart is continuing to fail. The natural history of the disease is characterized by these areas of chronic ischemia that ultimately don't get enough blood supply die. They go into heart failure and they either die at about 20% per year, or they end up on the transplant list.

One of the important things in terms of stratification on the transplant list is MbO2, and it was a little controversial in our first study when we selected that as a key outcome measure, but I think, since, in other cell therapy studies is validated, and why it's also used on the stratifying patients for transplant, and that it's a very good overall objective quantifiable measure of overall cardiovascular oxygen utilization, which correlates not only to the functional demise in these patients but also below about 14, they tend to have a much higher mortality, which is approximately the cutoff for patients to be listed on the transplant list or not. It's more complicated than that, but I think you get the picture.

So what's important and what range are we at for this ATHENA study? It's the same as our PRECISE study, and that is we're trying to take patients that are above, roughly, that 14 area and stabilize them or improve them by improving the blood supply to that hibernating myocardium and then block the continued demise or downward spiral that they have as the natural history as that cardiac disease progresses.

So it's right in that sort of 17, 16, 15 range that we're trying to stabilize or improve that patient before they get listed on the transplant list.

And then the other question? Oh, regarding milestones? Chris, do you want to take it?

Hi, Nathan. So I think probably the most important milestone that people are really looking for relates to the balance sheet, as I described in the -- at some detail in the script. And so completing a partnership is clearly probably the top milestone that will be value-driving that really gets people to look away from the balance sheet at all of the other success and what we're doing as a Company. And as I mentioned, I think we're nearly there from a cash consumption point of view after a pretty long road.

There's a lot of other value-driving milestones. I think these -- expanding our CE Mark claims to vascular indications, as Mark mentioned, we're already kind of building the foundation to be prepared for that. And it could have a commercial impact even this year, and we're confident we're on the right track towards that.

Publication of our data from these other trials is important, it's validating. That tends to have an impact on shareholder value. It also has an impact on partnerships because the validating effect of getting this published in peer review journals is important.

A little bit later towards -- you know, through the year, hitting our milestones, continue our financial performance, hitting our revenue guidance, cost containment, those kind of things I think are going to be important. Again, kind of fundamentally going to the balance sheet and performance. And then, ultimately, there's a whole cast of potential headlines here in terms of regulatory beyond the expansion of the CE Mark, which we just expanded today, in fact, for a broad category of wounds and tissue ischemia, which is, I think, very impactful.

There's country-specific approvals that are pending -- Canada, Australia, New Zealand, we're working in Japan. So there's a number of country-specific approvals that are significant markets that we're getting close to, we think, winning approval, and that will really open up some new markets and growth for us. So I think there's a whole combination of lots of different things that are in our pipeline yet to be delivered this year, and we're pretty confident we're going to hit a lot of these.

What type of wound care targets are you going after? Or what type of indications?

I think Marc's talked a little bit about the fistulas already. There's been a number of clinical series on different kinds of wounds -- venous stasis ulcers, diabetic foot ulcers with pretty remarkable healing in Europe that's been completed and is, I believe, in press. Tissue ischemia -- so this is both related to damage from radiation from cancer therapy; radiation necrosis, which is a very significant type of wound that's probably nearly impossible to heal in many of these patients. And some of these are more niche markets but, in many ways, going after these niche markets may be easier to really get a footprint in and get a beachhead in and get reimbursement for. So they really represent, I think, meaningful near-term revenue opportunities.

And, broadly, one of the claims we added is tissue ischemia. And so the fundamental mechanism for a lot of this relates to blood flow, and these cells have been proven over and over in different indications that beneficial impact in blood flow-related conditions is where these cells really contribute. So adding the tissue ischemia claim, I think, was important for us.

Buzzy Northen, Thompson Davis Asset Management.

There was an article this morning in the Wall Street Journal that was titled, "The FDA Wants to Regulate Your Cells." And on the surface, it's a little disturbing. Could you all comment on that, and then I have a follow-up question.

Hi, Buzzy, it's Marc. The article was, I think, regarding the ruling for US versus Regenerative Scientists. And for those who aren't aware, that court decision in the US district court recently in the last week or so, describes a group of physicians that use cultured bone marrow cells for orthopedic indications. And the ruling basically said that cultured cells are a drug, and the patient's own cells processed only by the doctor but although cultured is a drug. And I think that was, in some ways, an unexpected and troubling decision, and I think that's likely to be appealed, and so we may not be -- we don't have a final word on that yet.

But a couple of comments on that -- you know, one, I think it highlights FDA's aggressiveness, and we've, since that, take a look at our 510K matter, which we're in federal court regarding whether our device could be approved as a 510K or not. We've recognized that aggressiveness over the last several years, and that's why we've made a very strong stand to protect our ability to be regulated as a device, and I think we've been very successful in doing that. The FDA has said we are definitely a device. We need the key 1271 regulations because we don't culture the cells. They're minimally manipulated, they're used in the same surgical procedure. So I don't think that ruling applies to us.

And so I think, in some ways, it might be considered a fortunate decision for us, and I think that device distinction has been something that we've been able to leverage on a global basis not just in the US.

The other thing I think that article shows in the aggressiveness on the FDA side and the uncertainty and risk it creates for companies, I think that also validates our decision not to just be a US-clinically focused company. In fact, we've carried the burden, but we also are beginning to reap the benefits of being a global company, and I think this helps validate our strategy to go into places like Japan and Europe and begin to not only build our clinical dossier but build a commercial operation and a regulatory base outside of the US.

Well, my second question, basically, is a follow-up on a comment about (inaudible), and what it has to do with the news this afternoon on expanded claims in Europe? You briefly mentioned, talking about commercial [about building] in the second half of the year. What I'd love to hear is just could you clarify a little bit more, expand a little bit, on what this could mean commercially to the Company?

Sure. Hi, Buzzy, it's Clyde. So in follow-up to that, what we've stated is, really, today, our revenues come from aesthetic and reconstructive views from patients who are self-pay. And then a large part of it is really through those translational research studies that are funded within an institution or a hospital by an investigator.

And so commercially, certainly, these claims are very important to us because they help us generate revenue now. But they also start to really strengthen our broad base of data that we've got in multiple indications, and that sets us up to head down the path much as we've done with breast reconstruction in the UK to get market access and ultimately to get reimbursement for that procedure. And that, then, of course, will drive broad commercial utilization.

So -- we've seen that the process is really well-defined, the breast reconstruction is a good example of that. We sell the system or place the system into an institution. The investigators of the hospital purchase the consumables. We develop feasibility data at the point of care, and as we get that data and it's published and we have additional investigator-driven studies, we may choose to move into a clinical trial. We gather health economics data, and all of that builds our dossier across multiple indications for the platform to get broad utilization.

And that's not just in Japan but globally that really has positive brand impact with our key investigators, key opinion leaders in the different specialties and with hospital systems and, ultimately, with patients. It's similar to what we talked about at Cytori before, like GE's model of design in, or it's like Apple having a platform and then generating lots of applications. And we're seeing that now in the hospital settings where we place a solution device. More and more, it's beginning to be used across specialties not just in plastic surgery but in other areas.

So those new CE Mark claims enabled those physicians in multiple specialties in the institutions utilize the system, and that's a real validation of our technology today and, certainly, in the future.

David Musket, ProMed.

Marc, can you just help me clarify the ADVANCE trial dynamics again? Because that trial started, like, over a year ago, and then you stopped to get this unification of the terms. How many patients were enrolled before you stopped?

David, a very small number. I think it was approximately four patients.

Four?

Yes. A small number. Our hope is that those patients can still apply to the final study, but we had a tough time enrolling that study for a variety of reasons, and most of which were the reasons I discussed on the last call, which was GNP-related concerns that were different country-to-country. And those were evolving. In other words, it was a moving target.

So that prompted trying to get alignment not only with where the GNP regulations are with all the countries, how they've moved since we originally started and formulated that trial but also try to look forward, anticipate emerging trends by direct one-on-one consultation with the G5 competent authorities. And I think we've done that, and ADVANCE is a much stronger trial. It's a smaller trial in many ways, and I think it's a more robust trial because we've taken that time period to evaluate new data in the field and try to address pharmacoeconomic concerns to make the impact of that study greater than it would have otherwise been.

Right, well you just answered part of my -- it started off as a 360-patient trial. Did you drop a dose? It's just one dose now?

Exactly. We dropped one dose --

So you're at 20 million or 40 million? Are you going to do the same as the ATHENA?

Basically, it's the same as the ATHENA, based on the data that we evaluated from that study, so it's a 20 million cell dose --

(inaudible)

Yes, the same as APOLLO, sorry.

Okay, so 20 million, single dose --

2 to 1 randomized, double blind, 2 to 1 active therapy to placebo, approximately 30 sites around Europe focused on the G5.

Okay, so down from 35 as well. So fewer sites so there's fewer patients (inaudible).

They have approximately 30 sites.

Oh, I'm sorry.

Yes, we can have up to 35.

Okay. And so -- and we're still using the same primary, so it's -- we're going to have to -- we'll use that six-month infarct size reduction with MRI, but we'll be getting some of these other endpoints on a more regular basis, right?

Exactly. So that's the primary performance endpoint that we negotiated with their notified body related to MRI. But we've extended some of the additional time points out to 36 months, and we're looking at things that evaluate left ventricular remodeling such as echocardiographic follow-up and looking at the cardiac volumes. And, by that time, we ought to see decompensation in these patients. If we're really making a difference by lowering the myocardial infarction size, then it ought to result in healthier hearts than the ones that receive cells. And in hearts that are continuing to decompensate and those that receive placebo, it should be measurable and directly read on the overall economic impact of the treatment.

Okay. And then in the ATHENA trial, just switching gears for one second here -- that's -- you're going to do direct myocardial injections, right?

Now, ATHENA's direct intermyocardial injection through a groin cannulation into the LV.

So you're going to spread out the -- is it 20 million cells there, as well? Through, what, 10 injections or some number like that?

It's a little higher number because of the nature of the delivery and based on data that -- not only our data but data in the field. So it's 40 million cells, 15 intermyocardial injections delivered via the NOGA system based on areas of reversible ischemia as measured by preoperative studies -- the pre-procedural studies.

So it's twice the number of cells as you're using in the ADVANCE?

Yes.

Got it. And on the -- one last question here on the partnering agreements, Chris. I fully appreciate that the preferred option would be to bring in non-dilutive capital. As these deals have been winding their way, I know they're not, until they're signed, they're not -- we can't count on it -- but with these two deals, as you've configured them in terms of the terms you have in some level of discussion, bridge this gap to breakeven that you described earlier?

Dave, yes. The way they're defined right now, they would. So as you're kind of alluding to, the trick is the timing, and that can be tricky because this is a dynamic process. And so we're working very closely with the Board. They're getting -- sometimes daily -- but weekly and often more current updates than they have basically through the whole year about progress on all these things and really trying to balance when the right time is, if we needed to, to do something additional to that, and the confidence in when these deals are getting done.

So it's a little threading the needle, but the Board is very involved, and we're looking at this near daily on how these things are coming and where these processes are.

We're all pulling for you. Thanks very much.

Ladies and gentlemen, that does conclude today's question-and-answer session. At this time, for closing remarks, I'd like to turn the conference back to Mr. Chris Calhoun.

Great, thank you, guys, again, for your time, support, great questions, and for being shareholders in our organization. For the remainder of the year, we remain committed to executing across all three core areas of the business -- advancing our cardiovascular pipeline; growing the commercial business; and strengthening our balance sheet through strategic partnerships. We look forward to seeing some of you next week at our annual shareholder meeting and updating you again in the fall on our next quarterly business update. Thank you very much.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.