Plus Therapeutics Inc (PSTV) 2012 Q3 法說會逐字稿

Good afternoon ladies and gentlemen, welcome to the Cytori Therapeutics Business Update and Third Quarter Results Conference Call. Today's call is being recorded.

Before we begin, we want to advice you that over the course of the call and questions 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 Securities and Exchange Commission's 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. Thank you. Good afternoon and welcome to our quarterly business update. I'm joined today by Dr. Marc Hedrick our President, Mark Saad, our CFO and Clyde Shores, our Executive VP of Marketing and Sales.

Management has delivered strong results during the quarter and for the nine months 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, our three principle objectives are to advance our cardiovascular disease pipeline, grow the commercial business and achieve our operational and financial performance goals. We provided a shareholder letter that discuses our progress in greater detail. This is available on the homepage of the invest relation's section on 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 two major achievements in Q3. Our most notable achievement during the third quarter was the award of our BARDA contract for up to $106 million in development funding for Cytori cell therapy as a treatment for thermal burns combined with radiation injury. It's an important accomplishment that serves as recognition of the value of our technology and leadership position, expands and accelerates our US product pipeline and provides a very achievable path to substantial, non dilutive funding.

From a strategic perspective, this contract compliments our ongoing efforts in soft tissue repair indications, specifically wound healing.

The second major achievement during the third quarter was establishment of a full commercial license in Japan and subsequently, we obtained class one clearance for our portfolio of products, including the solution system, stem source system and pure graph. This clearance is expected to accelerate sales growth in Japan, leaving a growing demand from researchers at academic hospitals seeing to perform investigator studies utilizing Cytori's technology.

Now, let's turn to the cardiovascular disease pipeline. Our FDA clinical approved trial Athena for refractory heart failure is up and enrolling patients. We want to thank Dr. Tim Henry at the Minneapolis Heart Institute Foundation for enrolling the first patient back in September and initiating the trial. That first patient is doing well as of our last report.

Today, both Minneapolis Heart Institute and Texas Heart Institute are actively screening and enrolling patients. Collectively, these sites have seven patients screened and are being schedule for treatment. An additional 10 patients are actively in the screening process.

Three of the remaining four sites are in the final states of initiation and we expect they will be actively screening patients by the end of this month while the sixth center will be up and running by the end of the year. As a result, we're tracking to achieve full enrollment by mid 2013, as previously projected.

Our pan European advance pivotal trial for acute myocardial infarction has been amended to meet current regulatory standards, improve the trail design and to expand the utility of that trial toward reimbursement.

Screening is now active at the first approved side. Two more sites are projected to be active before the end of the year. Additional sites will continue to come on line as individual country regulatory approvals and ethics committees are achieved. Currently, application are under active review in the Netherlands, Italy, France, Spain, Germany and Canada. The application for the UK will be submitted this month.

Ethics committee approvals have been obtained in France and Italy. We will announce the first patient treated, which we expect will happen during this quarter. We can provide guidance on the enrollment rate and anticipated completion timeline once we have a critical mass of active sites and enrolment rate experience in the trial.

Regarding our CE Mark expansion. We are in the final states of review our interbased product CE Mark. Multiple rounds of Q&A have been completed and based on the most recent dialogue with our notified body this week, we believe we're nearing approval. When combine with our existing claims for reinfusion of cells, we believe this combination of claims will allow us to access the broad vascular market in Europe.

Let's move on to our commercial business. In pioneering a brand new field, it's often difficult to find reliable metrics that accurately document the progress that's being made as early utilization and adoption can be inconsistent. With that said, there are clear trends the support our primary mission, adipose derived regenerative cells are rapidly becoming the cells of choice in the clinical therapy. There are now more than 40 independent investigators led studies around the world, utilizing or preparing to use the solution platform in a broad array of clinical indications, like the study recently announced in France for scleroderma.

In Japan alone, the six MHOW approved studies using the solution system represent approximately 20% of all approved investigator led clinical stem cell studies. That market share is set to continue to increase as we're working with five more institutions with solution based studies that are in the process of application and review in Japan.

When you look to the daily news and clinical reports of success in cell therapy, the large majority of these reports involve cells from Adipose tissue and account for the vast majority of the reported clinical case reports in news book. This too appears to be gaining momentum.

In the major society meetings, from cardiology to plastic surgery, cell therapy is now moving into the spotlight at center stage and included in the mainstream agenda. While more studies around the world continue to document the use of adult stem cells from various sources as safe, many independent studies now showing - are now showing that bone marrow, the first adult source of cells to be used clinically, has a generally weak therapeutic signal in many of the reported studies and trials.

As the field matures, companies, researchers, regulators and clinicians are working hard to distinguish their respective cell products from the general category of cell therapy.

Each approach has strengths and benefits based on the activity of the selected cell type which will drive specific mechanisms of action. It is clear that not all cells are created equality, nor do they all have the same function, capacity, or capability. While this adds complexity, it also creates significant opportunity. The right cell population that provides clear benefit, will likely become the clinical choice. Add in ease of use and access, and the right pharmacoeconomics, and that will become the dominant commercial winner in standard of care.

Our approach to cell therapy is unique in the field. Not selecting and relying on one specific cell type to provide therapeutic benefit, but a heterogeneous population of repair cells the work together in a combination of ways to orchestrate healing and repair.

Coupled with our point of care system that provides an affordable and easy access to each patient's own cells, it's no surprise that these cells are fast becoming the cells of choice for clinical cell therapy with more than 5000 patients treated, three completed and two active company sponsored clinical trials and more than 40 investigator led clinical studies. The data supports a clear and strong signal that Adipose derived regenerative cells are both safe and appear to have clear and consistent clinical benefits to patients.

And Cytori is taking a leadership role in the field. We've been investing heavily in this science and engineering for more than a decade and have, by far, the most comprehensive understanding of these cells. We are also taking a leadership role to counter ineffective or dangerous technologies or groups that make unsubstantiated claims or present inaccurate data.

We recently presented multiple scientific presentations, better defining ADRC's, how to affectively attain safe clinical ADRCs and various other approaches that do not yield ADRC's although they claim to do so.

The Cytori brand is being built on the foundation of a deep scientific understanding and clinical experience. As share holders, we want you to know that we're taking an active leadership role in the field as we work to build the leading brand and cell therapy.

This is also being reflected in our rapidly expanding patent portfolio. Our innovative and novel science, engineering and clinical developments are being translated into patents around the world.

Since our last conference call three months ago, we've added five new issued patents and four new allowed patents. More than 75 additional applications are currently under review around the world. Three of these newly issued patents are direct to cardiovascular disease and the other two are directed in the soft tissue platform. The four newly allowed patents include soft tissue, wound healing, kidney disease and our next generation device.

On the regulatory frontier, as noted last quarter, we have significantly expanded our claims on the broad European approval, or CE Mark. During the quarter, we've also effectively opened up the Japanese market, obtaining a multiple commercial and medical device company licenses and class one registration as mentioned earlier on the call.

At the end of the quarter, several new distributors in Japan were appointed, orders received and products shipped that represents approximately $1.7 million in sales that are expected to be recognized as revenue in the near term. We anticipate a strong fourth quarter as well and are reaffirming our annual revenue guidance of $9 million.

We are also expecting continued growth in pure graft sales, now opening up the markets in Japan and Taiwan as well as regulatory approval in Korea this week for pure graft.

Now, turning to our operational and financial performance. The bottom line is 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 and general administrative expertness' were reduced by 13% in the quarter and for the nine month period compared to the same periods last year. R&D expenses were tightly controlled and slightly increased year over year as planned and budgeted. And correspondingly, net cash used in operating activities has been reduced by 13% compared with the first nine months of 2011 and generally stable over the year.

We will continue to keep downward pressure on non R&D expenses, and expect further reductions in our cash operating loss during the fourth quarter. Increase in revenue, collection of receivables and contributions from the BARDA contract will all contribute to reducing the Q4 cash operating loss.

So, 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 third quarter with $18 million in cash and cash equivalents, in addition, we expect to receive $3 million attributed to accounts receivable and the additional shipments related to our third quarter approval in Japan. As described last quarter, we're projecting that the company will acquire an additional $20 million to $30 million in cash to reach break even.

As we have discussed there are a half a dozen or so opportunities that are progressing toward completion. We committed to completing at least one during the third quarter and that was the BARDA deal and it was accomplished in the $106 million contract.

Currently, we have two additional strategic deals at the contract stage. We expect to complete and announce at least one of these before the end of the year. Both deals include a substantial upfront cash component.

Before I close these opening remarks, I'd like to take moment to personally thank Mr. Ron Henriksen for his vision, support and contributions as a member of our board for more than a decade. Ron was one of the founding board members of Stem Source, a predecessor company to Cytori. Ron served on our board as chair for three and a half years and either participated or chaired various board committees during his tenure.

Ron's generally considered the father of biotech licensing. He led the first deal in the field between Ely Lilly and [Hypertech] and went on to complete well over 100 partnerships and acquisitions over his career. Without Ron's guidance and input over the last 10 years, Cytori would not be where it is today. We are sincerely thankful for his service to the company and we wish him all the best in his retirement.

Now, in closing, significant clinical, regulatory, commercial and corporate accomplishments continue to define our progress. We are committed to finishing the year strong, achieving all of our core milestones and significantly strengthening the balance sheet.

Now, I'd like to take this opportunity to take any questions you may have for me or my leadership team. Jackie, please open up the call.

(Operator instructions).

Your first question comes from the line of Stephen Brozak with WBB Securities.

Hey, good afternoon [Johnson], it's still WBB Securities. I - I'm going to head straight to the point, obviously the BARDA contract is a significant contract and I wanted to try and get greater granularity on it in terms of what you need to do for the quote unquote commercial application for it, and how that will work and what the rough timeframes that you're looking at are going to be, because obviously it's something that differentiates you from a lot of other companies.

Hi, Steve. It's Marc Hedrick. With respect to the timelines, it's a five year contract, but the payments are relatively small at first, approximately $5 million. Those are geared towards achieving some proof of concept milestones and we feel confident that we can get those done ahead of schedule. Perhaps at the end of 2013, early 2014. Depending on how quickly we can get up and running and appropriate hires and so forth.

So we have a high likelihood of getting to those. Then, assuming we hit those, then it initiates a couple of different milestones. Those preclinical proof of concept studies trigger about $55 million in - up to $55 million, which includes a path two pivotal study in the US and that's another key facet of this, is it does open up a unique and far reaching soft tissue application in the US. And then, ultimately, assuming that there is success in that pivotal, then there's an additional option payment, 45 million, roughly, to go into our pivotal - sorry, pilot before pivotal.

So, those are - those represent the $106 million of the contract. That doesn't include the potential commercial applications of the government helping us to preplace these systems around the US, in hospitals from level one trauma centers down to community hospitals, so the nation's prepared, if in fact the worst case scenario happens in their multiple causalities with radiated burns from a nuclear accident.

Now, just a follow up on that has to be, how do you see this leveraging? And I'll ask it two ways and then I'll hop back out? How do you see this leveraging your technology? Both on the commercial and on the regulatory side? And again, I'll hop back out.

Well, from a technology leverage perspective, and kind of looking forward now to some point during the contract, the development phase or thereafter, should the government decide to purchase these systems and help place them around the country, it puts our technology into many, many hospitals in a few deployed fully trained fashion so that doctors have access to our technology and it does what - it does for us what Cytori would otherwise have to do alone, which is to go out and sell hospitals and the technology.

The government effectively becomes the main driver in preplacing the capital equipment infrastructure, but then, we can leverage not only for this crucial national defense application, but for really any application across the spectrum, and that's a key strategic part of this. And I think, build this side of a couple of three key things with respect to this, BARDA provides - and also NIAID, who was part of the evaluation process, at least for us, substantial third party validation about the utility of this technology.

It took us a long time to get where we are today and there was a lot of scrutiny with respect to our technology and our business model.

Secondly, this - this development contract helps more rapidly move us to next generation technology, which completely changes the cost and pharmaco economic equation and that's built into this particular study. And finally, and just to remind you what I mentioned before, it sets up the US government as a, if not a key potential customer in the relative near term.

Great. Thanks again, gents, and I look forward to the updates on that study.

So, we're being told there's nobody currently in the queue, but we did get an email question in that I'll kind of paraphrase. It references the data coming out of the meeting up in Los Angeles, the American Heart Association.

So, if any of you are following the news, there's been a number of studies that were presented earlier this week in a late breaking clinical trial session that predominantly looked at bone marrow cells used in acute heart and the take away from most of these studies is that bone marrow is safe, but has a weak signal towards therapy. So, they're seeing slightly positive outcomes, but generally, not - not seeing a tremendously powerful signal here.

One of the headlines that received quite a bit of attention was a study from Dr. [Hair], in Florida. And he effectively looked at antilogous cells, compared to [allogenec] cells, both derived from bone marrow. And while the headline focused on the safety aspect, that they both appear to be equally safe, they didn't pick up much of the story on the effectiveness, which really didn't seem to have much improvement again, kind of a slight positive signal, but nothing that's very dramatic.

So, as we look at the field, I think that - and we look at the data that we're seeing in our differentiated approach that really uses this mixed population of cells, we're seeing a very strong signal, even in similar indications, like acute heart. So, again, I think as the field matures, we don't want to kind of lump everything as - cell therapy as one bucket. But we want to really start to define what types of cells our companies are investigators studying, because each of these different approaches will likely have different safety profiles, different mechanisms and different clinical outcomes. And in the studies that we've seen using the mixed cell approach, which is fairly unique to Cytori, we have a very strong signal towards efficacy as well as a clear signal and safety.

So we have another email coming in. what does the class one mean to the business. Mark, why don't you take that one?

Thanks for the question. The Japanese commercial approval perhaps represent one of the biggest and most important developments in the Japanese markets since our partnership with Olympus many years ago. What's probably not apparent as it's been going on behind the scenes and we're well over a year, we've been working on transitioning our 10-K to a fully operational, full resources medical - independent medical company in Japan.

Remember, previously, we were only able to selling the Japanese market under a physician's prescription, which is a relatively limited way to sell. And so the transition from selling on prescription to having a fully functional medical business is a non trivial exercise. We've been working on that for a while. That includes new headcount, logistics center, it includes pharmaco vigilance capability, enhanced regulatory and quality certifications and so forth. So, this is a massive improvement in our operational capability in Japan.

At the same time, and in parallel over the last year, year and a half, we've been working with MHLW and in a dialogue as to how we can ideally regulate our products in the Japanese market, and we've agreed with them to a two pronged strategy. The first is class one, which is effectively [tool] claims, not too dissimilar to 510-K and they've allowed our key technology platforms to be introduced in the market in this way and that's the regulatory approvals that Chris just discussed in Japan that led to - at least from a sales perspective, our best quarter ever.

The other aspect of that two pronged strategy is that for specific commercial applications where we want a - go after a specific indication that we had the class two and class three path available and we're working on approval in that as well.

So, the - I think the key for us is that whole we don't want to get too far ahead of our skis, we think this represents a much heightened ability to sell and to market our technology in Japan, to provide enhanced customer support and we think that this is one of the keys to being able to expand in the translational medicine area that's driving a lot of our sales right now, and this will help drive growth in 2013 and beyond.

We do have an audio question from the line of Steven Jackman, private investor.

Hi guys. This contract with the government and - is that with the completion of that or as that goes forward, does that give us any additional ability to use any of the approved soft tissue approvals that have been granted in Europe here in the united states? Or do we have to go through a tryout process for each one of those?

Hi, Steve, it's Marc Hedrick. It's a big question. The way that the contract is set up, is it presumes that we would develop specific indication in the US related to burn reconstruction and take that in - from a pilot clinical trial, into a pivotal trial and get claims in the US.

However, a couple of caveats of that, that - that burn wound claim is not limited to a terrorist incident. That - in fact BARDA wants the technology to be used frequently and broadly in the US, so the US is prepared in case the worst case scenario happens. They don't want to have to get centers up and running in this sort of chaotic timeframe around something like this happening, god forbid. So they want the technology used, and this allows it to be used beyond just this very narrow indication.

However, the second caveat is BARDA doesn't have to wait until we have a clinical trial or a full regulatory approval to buy the technology for us and put it out because of a potential nuclear disaster and emergency. So, they can buy it ahead of a potential regulatory approval.

There's one other point that I think is relevant. It's related to your question and that is that this third - this validation that comes to this BARDA contract has direct implications in discussions that we're having with governments, beyond the US government who have similar concerns about nuclear power plant related injuries and/or nuclear detonations. And they see BARDA as the global leader and they are now more interested in establishing a similar relationship with us because of what BARDA's done.

Could you - on a delicate subject, can you comment on the partnerships - the existing partnerships in Japan with Olympus and [Greene], and if you talked about that in the beginning, I'm sorry, I didn't get on at the very beginning of the conference.

Steve, hi. It's Chris Calhoun. So, yeah, as you've mentioned and Cytori's established multiple partnerships over the years, two of which - actually three of which are in Japan. We have a partnership with [Astellus] and that's essentially an option for a therapeutic indication that they want to co-develop around the world, and while that option exercise period, kind of timing out here pretty soon, we're actively working with them towards defining which areas they want to work on and what a larger more formal strategic partnership looks like and I think that's going to ultimately end up in a larger, more formal partnership based on our current activity dialogue with them. And that's moving forward.

Timing on that is probably I'd say sometime into Q1 or Q2. So when I talk about some of the late stage stuff that we're working on on the partnership side, I'm not specifically talking about Astellus, although they are one of the ones in the queue that we think is positively moving forward and we expect will get completed.

The Olympus relationship, as you know, they've undergone a significant amount of change over the last year or two and they're refocusing their efforts on kind of their core business, which is really around the medical technology side, and we've been working pretty closely with our counterparts at Olympus to define how we might or might not fit into that longer term strategy for them, and what would be the best outcome for both of us. And while there's nothing that's finalized yet, we're exploring different paths and some paths include working together and there are paths that include that we kind of go our separate ways. And I think there are advantages to both ones.

So, as soon as we have something more specific there, in terms of a final outcome, we're going to share that, but as of right now it's kind of status quo and we're working together as we always have. But we're - at the same time, we're really exploring what does this relationship look like going forward and how might that change. So, nothing definitive to say about that yet, except that we're really looking at it together.

Greene Hospital has been a partner on the banking side in Japan. There's a number of banks that are in the funnel. I think we're expecting one more this quarter. Some of them, Greene Hospital is really behind selling and driving these bank sales and we're supporting them and they've been a good partner to us and they continue to be a god partner, and nothing's really changed on that front. But, that's the kind of the overview of the Japanese partnership discussion.

Your next question comes from the line of Lee Graham with RBC Wealth Management.

This is probably to you, Marc. On the partnership -the potential partnership deal, is it - can I assume, and I know it may be a high assumption, but can I assume that - or should I assume that it would be enough to fund your operations for the foreseeable future until maybe BARDA kicks in.

Hi, Lee. Thanks, it's Marc. The way I would describe the transactions, which include multiple at the contract stage is that the value - the aggregate value of the near term or upfront money of the proposed transactions go well beyond the stated capital gains of the company.

So, on that basis alone, we feel as if the realistic achievable outcomes go well beyond our capital needs. Over and above that, and I don't know how well understood it is, the BARDA deal, which has been delivered as we achieve that within Q3 does carry a substantial capital improvement to the company when one looks at the aggregate elements of that contact, and then, within that look at the attributed overhead recoupment that goes to the company, the direct costs that we're currently incurring that can be reasonably applied to the contract activities and the profit margin that's negotiated in. A

nd if you look at the aggregate of those things, the pickup potential to the company of an already delivered contract meets or exceeds our aggregate capital need on its own.

(Inaudible)

And then we factor in other things. So, we have several things that are completely strategic that have either already been delivered, or we believe have a high probability that do cover us there. And then, we look elsewhere as - in parallel for - as we need to, or always in parallel discussions on the investor front as always. But we see a lot of strategic potential.

Okay, well I think I've talked to you earlier about the BARDA contract, and I think I understand it pretty well. So, I appreciate your clarity on my - on this question. Thanks.

Thank you.

Ladies and gentlemen, we have reached our allotted time for questions. I would now like to turn the floor back over to Mr. Chris Calhoun for any additional or closing comments.

Great, thanks Jackie. We want to thank you all again for your time and support as stake holders and shareholders in our organization. For the remainder of the year we remain committed to executing across the three core areas of our business, advancing our cardiovascular pipeline, growing the commercial business and strengthening our balance sheet through strategic partnerships. Thank you very much.

Thank you. This concludes today's conference call, you may now disconnect.