Plus Therapeutics Inc (PSTV) 2014 Q4 法說會逐字稿

Good morning, afternoon, ladies and gentlemen. Welcome to the Cytori Therapeutics fourth-quarter and full-year 2014 earnings results call. (Operator Instructions)

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, business prospects, and financial performance which may affect Cytori's future operating results and financial position. All such statements are subject to risks and uncertainties, including the risks and uncertainties described under the Risk Factors section included in Cytori's annual reports on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission from time to time. Cytori advises you to review these risk factors in considering such statements. Cytori assumes no responsibility to update or revise any forward-looking statements to reflect events, trends, or circumstances after the date they are made.

It is now my pleasure to turn the floor over to Dr. Marc Hedrick, Cytori's President and Chief Executive Officer. Sir, you may begin.

Good afternoon, everyone. Thank you, Doris; and welcome to our fourth-quarter and year-end 2014 conference call. My name is Marc Hedrick; I'm the President and CEO. Joining me is our CFO, Tiago Girao.

Our press release was issued today as well as 8-K, and both have been posted on our website; and also we have a copy of this transcript that can be found there as well. On today's call I would like to focus first on our clinical and operational progress over the last few quarters and year, as well as the outlook and anticipated milestones for 2015. Then I'm going to ask Tiago to update you on our financials, and then we will close out with a recap of specific milestones for the remainder of the year and then go to Q&A.

I'd like to lead off, though, first with a recap of some of the corporate highlights for the past few months. Recall that over the summer we embarked upon a substantial refocus of our strategy, restructured our clinical programs and operations, and really launched a blitzkrieg attack on our expenses. Subsequent to that, we delivered on an expanded BARDA relationship in the form of an executed $12 million development milestone, plus an additional $8.3 million conditional option for thermal burn injury trial. We then subsequently upped that $12 million to $14 million late in 2014.

We also obtained US FDA approval for a knee osteoarthritis trial and then subsequently enrolled the first patient in February. Also, towards the end of Q3 we announced the publication of Phase I/II data for a scleroderma indication and the pilot data related to that, and then developed that into a US-approved pivotal trial approved by FDA late in 2015; and then subsequently expanded that trial to 20 sites; and then announced a parallel trial in Europe called SCLERADEC II would be forthcoming; and then announced positive EMEA opinion on orphan drug status for our ECCS-50 therapeutic subsequent to the end of the year.

Now in terms of new announcements, I'd like to highlight from our 8-K today, noting that given the recent stock price appreciation NASDAQ has formally notified us that we are in full compliance with all listing requirements.

Now from the big-picture update, I'm really happy to communicate -- and specifically for the sake of our team of employees and for shareholders -- that we are really beginning to see tangible signs that the hard work and the discipline the Company is exhibiting is really starting to pay off. I just personally cannot say enough great things about our team here, how they've persevered over the past few months and executed on everything they been asked to do.

Cytori is truly fortunate to have the great, dedicated team that we have with us today. And I just want to take a moment to thank them publicly on this call: job well done.

I'd also like to take a moment to go back to our last call and remind folks of some of the goals that I articulated that are important to us, in order to help frame the call for us today. First and foremost, it's been our team's intent to identify a number of focused or niche indications that we can bring forth to late-stage clinical trials, preferably in the US, but very quickly.

We want to do that in a manner that balances the overall corporate risk profile, but that individually those should have a sufficient IRR to warrant their pursuit. Well, we've made substantial progress in this area over the past three quarters, and we intend to continue to move very deliberately in that direction.

Second, we do intend to better combine what remains still a very nascent sales and marketing effort, and marry that to a thoughtful and systematic approach to partnering. Our goal is for those efforts on a whole to be profitable, to be cash flow positive, and growing at least modestly in the near term, at least until such time that we are able to obtain meaningful data, reimbursement, and see the kind of significant breakout growth that we all want to see. I must say I'm obviously very pleased to the fact that we've achieved a positive contribution margin in Q4 for the first time in recent history.

But maybe more specifically in this particular area, we intend to make our direct sales force efforts under our CE Mark approval and our Class-I device clearance cash flow positive. We will continue to ensure that our BARDA partnership is as cash flow positive to the Company as possible, and we'll do our best to better leverage the current economic benefit of our existing partners and licensees as well as anticipated future partnerships.

And then third and finally, I want to also mention the obvious importance of improving what are two long-standing weak links in the Company, namely our balance sheet and our cash burn. As Tiago is going to discuss we've made substantial progress in that area in terms of expense management, and I have a high degree of confidence right now in our current plan to strengthen the balance sheet, including our debt obligations.

The operational and cost improvements made over the past couple of quarters have, to my mind, really put the Company in a more sound position to be able to prudently capitalize the Company while continuing to meet our critical business objectives. So today, Tiago and I together will hit the key clinical operational, financial high points, and I'm going to start off with a clinical update.

But before I dig into some of the details of the clinical indications and trials, I'd like to give you a little insight into our thinking as it evolves regarding the global regulatory environment and its effect on our clinical development strategy and planned commercial approach. And we're happy to (technical difficulty) questions later.

So today all of our clinical efforts, both R&D and commercial, incorporate the use a variety of mixed cell populations or outputs derived from a patient's own adipose tissue. We call those collectively adipose-derived regenerative cells.

An increasingly sophisticated electromechanical device we call Celution, its software code, the pharmaceutical agents involved in this, and its single-use consumables are all combined at the bedside to rapidly manufacture a pharmaceutical-grade autologous cellular therapeutic -- or drug, if you will -- for an individual patient and disease. Generally speaking, around the world the whole process -- the device, the therapeutic or drug -- are all regulated through the device regulatory pathway: CE Mark in Europe, PMA device in the US. This makes complete sense because, when you're making a therapeutic at the bedside, it is going to have distinct regulatory attributes and points of emphasis versus something that may be might be made in a factory and transported and then stored at a hospital.

It's our view increasingly that the FDA has provided its leadership and we believe the trends for us are pretty clear and emerging that the regulatory scrutiny is going to be increasingly more around the therapeutic agent or drug and the clinical claims. And the recent FDA guidance documents clearly support that notion, to us.

So the good news is, I think, that there is increasing regulatory confidence around our device, our reagents, our software, and our manufacturing equipment. On the whole, I think this puts us in a great position, because today we can sell or market the cellular processing technology via CE Mark or Class-I approval that allows us to generate positive contribution margin, revenue, and proof-of-concept clinical data, which we've continued to do for some time and will continue to do. I think that's a real advantage for us.

On the flip side, we've really done a yeoman's job over the years investing in the processes, the products, made sure they are the highest quality and they can stand up to the most rigorous regulatory standards in the world. We can play in both the device and the therapeutic world equally well.

But going forward, we intend to follow the regulatory lead in the US and increasingly focus our clinical and future commercial activities specifically on the therapeutic or drug and its clinical claims, while still maintaining our device-based regulatory pathway. Commercially, what does that mean? Rather than a one-size-fits-all razor/razor-blade model that we have focused on over the past years, this new approach will allow us to better take advantage of the niche opportunities such as rare diseases; enabling better -- realizing their pricing benefits; helps us to better market our products towards the clinical benefit of the therapy; and provide more clear-cut product differentiation between individual markets or competing technologies.

Now, this will be a transition process, of course. But I want to lay that out for you. As we move forward on a relative basis, expect to hear more from us, from the management team, from the Company about the specific therapeutic or drug and its clinical claims, its benefits, and the pharmacoeconomic outcomes, and less about the device, the consumables, the enzymes and cells.

Let me turn now to scleroderma, because that's a great example of the evolution of business. We have two pivotal scleroderma trials, STAR in the US and SCLERADEC II in Europe, both of which we plan to begin enrollment this year. In those we will test the use of our ECCS-50 cellular therapeutic for the hand manifestations of scleroderma.

With respect to STAR trial, we have final protocol approval and the FDA has cleared us to bring on up to 20 additional US sites to which -- to enroll the 80 planned patients. We anticipate that we'll begin enrolling some time in the middle of 2015, and anticipate it taking approximately a year to enroll the trial.

SCLERADEC II is really still in the planning phase. All centers will be French, with the intention to enroll 40 patients in that trial. A 2015 start date is possible, and we expect for that trial too about a year to enroll, once started.

Thus far, the published data suggest that the ECCS-50 therapeutic under study in both trials may have a disease-modifying effect at 6 months follow-up. Longer-term, 12-month results from SCLERADEC should hopefully be accepted for publication this year.

In the US, we are clearly regulated as a PMA device. We have, though, been effectively fast-tracked to pivotal despite the rare or orphan nature of the disease.

However, our current plan would not be to seek orphan designation in the US; there's really no benefit to that. But the disease is itself a rare disease affecting approximately 50,000 to 75,000 patients in the US, and we currently feel that we may be able to obtain very favorable product pricing, based on analog diseases and the current pricing trends that we see in related markets of greater than about $50,000 per year per treatment.

In Europe, however, we have sought and obtained a preliminary opinion from the European Medicines Agency and the committee on orphan medical products that we may be able to obtain orphan drug designation there. That's a real benefit for us there for a number of other reasons.

As one final point: as a rare disease treated at approximately 35 centers in the US, which is scleroderma, Cytori intends to commercialize this without a partner, and we'll update you increasingly as we move closer to that point in time. By virtue of being in an active US pivotal trial, our team will over the year be increasing our resources toward planning for ultimate commercialization of the therapeutic, if and when approved.

Now flipping over to osteoarthritis, our US Phase IIb pilot trial in knee osteoarthritis -- the trial is termed ACT-OA -- is presently enrolling in a number of centers in the US. On our last call, I presented an overview of the disease and the clinical plant.

Unlike scleroderma, osteoarthritis is a very common disease, and it's our intention to seek a partnership to help carry this therapy through pivotal and to commercialization if the data is positive. We began enrolling that trial in February, and a number of sites are at this point screening, scheduling patients, and treating them.

Based on the early site activity we see -- and it is still early -- we believe it's possible to enroll this trial in 2015 and have data in 2016. Our plan is to update you directly when we obtain key milestones over the course of the trial.

Relatedly, data from European investigator-initiated pilot trial -- one for ACL repair -- the data is planned for presentation later this year. And a newly enrolling pilot trial for meniscus repair -- we hope both of those are going to help support our ability to obtain a partnership in this area.

Now to the urinary incontinence trial. Cytori, Nagoya University, the Japanese Ministry of Health, Labor and Welfare, plan to begin collectively as a group a pivotal trial in men with urinary continence in 2015. Pending PMDA approvals, which we are waiting for and that's anticipated to be forthcoming this year, enrollment should begin this year.

The trial will be a four-site, multicenter trial treating 45 men with urinary incontinence, funded almost completely by MHLW. Once we have PMDA approval, we will update you on the specifics of that trial, and then again once enrollment begins.

Now let me discuss our BARDA partnership in thermal and radiation injury. With the August 2014 BARDA decision and subsequent increase in financial support announced in December 2014, Cytori will receive approximately $14 million in development support over the next couple years and another $8.3 million earmarked during the same time frame for clinical support upon IDE approval for a thermal burn trial in the US. The bulk of the money is earmarked for activities needed to obtain FDA approval for the clinical trial in thermal burn, but also includes support activities for the next-gen solution system called CTX-2.

Based on the difference between the planned timing to receive the ramp-up in BARDA funding and the actual timing of receiving the finding, we now anticipate that the US clinical iteration of the new system, CTX-2, that that will be available late in 2015 or early 2016. But its availability will not hold up any other clinical or key commercial activities.

Now finally, just an update on our ATHENA trial. Since removing the safety concerns and the decision to truncate the trial to 31 patients, due to the delays in enrollment and assessment of the cost/benefits of the trial, we plan to have the raw data this quarter and, after a complete analysis of the data, make a decision as to the proper venue for presentation and its publication.

Now permit me to pivot from the clinical pipeline update and discuss more in conceptual mode our business development approach, and do so in context with our product and contract revenue picture. In terms of our current activities to date, we have managed our sales and marketing expenses as well as our overall expenses down significantly. As a result, we achieved the hoped-for breakeven milestone in our product revenue in Q4, and we feel comfortable forecasting a breakeven on sales and marketing for the whole year.

But remember, it's best to evaluate this on a yearly basis, not on a quarterly basis. There is potential upside, and that's going to rely on the performance of our current partners, such as Lorem Vascular, Bimini, and the performance of our KK on the heels of the announcement of the new regenerative medicine law there. In terms of contract revenue, we anticipate a greater share of BARDA revenue and contribution in 2015 and 2016 over 2014.

Now, as I mentioned on the last call we intend to target new business relationships in the following three broad categories: broad strategic partnerships with med tech or pharma; limited commercial partnerships that could result in some meaningful commercial revenue at favorable margins for the Company or access to expanded networks of patients, also resulting in increased revenue; and then finally, potential partnering around new technologies that could be synergistic or value-add with our current technology. In terms of how we think about the economics in these areas, we're looking specifically, on one hand, for balance sheet impact in terms of upfront fees and milestones, and perhaps shorter commercial impact in terms of opening orders and system sales; but we are also looking for longer growth opportunities that will more greatly impact the P&L over time.

So with that as a backdrop I'd like to turn the call over to our CFO, Tiago, to present the financials. Tiago?

Thank you, Marc, and good afternoon, everyone. I'm pleased to announce that our cost-reduction initiatives implemented over the past several months are showing significant results.

Our Q4 operating cash burn decreased to $4.9 million, compared to $7.2 million in Q3 2014 and $9.5 million in Q4 2013. Overall, we continue to work on expense reductions and operating efficiencies, and we expect to deliver operating cash burn savings of approximately $10 million in 2015, or expected operating cash burn of approximately $25 million when compared to $35 million in 2013.

Our cost-reduction initiatives include the elimination and consolidation of certain commercial and development activities, and containment of outside professional services. Going forward, we are seeking additional reductions largely on changes to our fixed costs and physical locations.

With respect to our operating expenses, research and development expenses, excluding share-based compensation, were $2.8 million in Q4, compared to $3 million in the preceding quarter and $4.9 million in Q4 2013. The decrease was primarily driven by study-related expenses, including supplies, to the decreased activity of our ATHENA trials, offset by startup costs of our ACT-OA and STAR trials.

With our effort to turn ourselves into profitability, we continue to manage down sales and marketing costs which, excluding share-based compensation, were down to $1 million, when compared to $1.3 million in the preceding quarter and $2.4 million in Q4 2013. We are pleased to inform that our sales and marketing organization delivered a profit of $69,000 in Q4, compared to a loss of $0.8 million in Q4 2013.

G&A, excluding share-based compensation, decreased to $2.5 million, compared to $3.4 million in the preceding quarter and $3.2 million in Q4 2013. We experienced G&A expense decreases across-the-board, with the main drivers being headcount reduction and decreases in professional services.

With respect to our revenues, in Q4 we recognized $3.8 million in product and contract revenues compared to $3.5 million in Q4 2013. Product revenues were $2.5 million during this quarter compared to $2.7 million in Q4 of last year.

In 2014, we refined our revenue recognition policy, causing delay in timing for revenue recognition specific to new customers. At December 31, 2014, we had approximately $1.4 million of unrecognized shipments, the majority of which we expect to recognize upon cash collection in 2015.

Product revenues are driven mostly by research sales of solution equipment and have been heavily concentrated in Japan. As we have discussed, the Japanese government finalized new regulations for regenerative medicine that went into effect late last year. We believe that these regulations will provide clarity to our potential customers and could facilitate the sales process.

Contract revenues are driven by activities with BARDA, who recently amended the first contract option extension, resulting in a $14 million contract to continue to fund ongoing research and development activities required to enable a pilot clinical trial in thermal burn. We expect contract revenues to increase throughout 2015.

At December 31 we had approximately $14.6 million in cash and an outstanding debt balance of approximately $25 million. We are in need of additional cash to fund both operations and our debt obligations for the next 12 months and enable the Company to meet the important near-term objectives. Management is working closely with our lenders, and we are pursuing both financial and strategic opportunities that we believe have the ability to fund the Company to the near-term objectives and through targeted commercial and operation improvement in 2015 and beyond.

With that I would like to turn the call back to Marc for our 2015 forthcoming milestones.

Great, Tiago. Thank you very much. I'd like to finish up this afternoon with the prepared remarks by focusing some of our key forthcoming milestones over the ensuing year.

First of all, we've applied for Chinese FDA Class-I clearance as we promised to do. That's important to us because it triggers a contractually obligated purchase order from our partner, Lorem Vascular. I will update you when we know more about that.

We continue to work with EMA regarding the final opinion on orphan drug status for Cytori's therapeutic ECCS-50. That will create another cascade of events and potential milestones for us, and we will update you when we know more about that.

We intend to initiate enrollment of our STAR scleroderma trial here in the US sometime around midyear; doing a lot of planning and a lot of activity related to that. And potentially we can get the SCLERADEC II trial up and running, although we have less control over that; that's driven primarily by the French group involved. We intend to publish our SCLERADEC I 12-month data, which will assess the longevity of the clinical response in these patients and further explore whether there is a disease-modifying effect of the treatment, which would be very important to show.

We intend to complete a moment of the ACT-OA trial based on the current enrollment and expected data in 2016, assuming we can complete enrollment by 2015. Our hope is to begin a moment of the MHLW-funded Japanese urinary incontinence trial pending PMDA approval and will update you when we know more about that.

The increase in BARDA funding in August and then in December of 2014 was related to a lot of really great work that our team has performed over the last two or three years. We will have two presentations at the American Burn Association meeting in April 2015, and that data will be presented there as well.

ATHENA 6-month and 12-month data should be available to us this year. And as I mentioned, we'll put that out in the appropriate format when that's available and accepted.

And then we intend to complete the key development activities for the next-generation solution system over the course of the year. We have prototypes in-house that we are in the process of doing the biological testing and the software testing on those, and we should by the end of the year have the development work completed.

So with that, Doris, I'll turn the call back over to you and we will commence with the question and answers.

(Operator Instructions) Joe Pantginis, ROTH Capital Partners.

Good afternoon and, really, thank you for all the detail. Marc, I think I want to ask a couple more broad-based questions, but it's obviously focused on the scleroderma study to start.

Can you really go into a little more color with regard to your FDA discussions? Because I mean, it seemed to really rapidly progress with regard to the FDA's openness, being able to have a pivotal study with really what I consider to be a very small amount of patients.

Joe, thank you. Yes, you know, we have been in really constant communication with the FDA going back to 2004. As I mentioned in my prepared remarks the regulatory path, although still the same, still is a device, there are things that -- because our technology is so new, so innovative, and it wasn't originally contemplated in the 1271 regulations that govern (technical difficulty) area, so we've had to work some of those out in an iterative way. But it became clear to us over the last year or two that, while there wasn't a specific orphan drug pathway in the US that's available to a device that manufactures a cell therapy in the OR, the FDA would effectively -- if the data was right, the indication was right, and we could make that rare disease argument -- that the FDA would be permissive to greenlight us through to a pivotal Phase III.

And that is indeed what happened. I think we worked well with the FDA in overcoming some of the challenges with ATHENA. I think they have a lot of comfort with the quality of our products and our technology and our regulatory filings. So I think it really sets up a nice precedent for us to pursue similar indications in the same way.

No, that's helpful, Marc. Thank you. Then if I could just switch quickly to the other side of the Pacific, thank you for the quick update on Lorem Vascular.

I guess the broader question is on the Japanese side with regard to the regulations. They're still evolving, but over the last few months since your, say, early 2015 update with investors, are there any anecdotes or updates you can share with regard to the regulatory environment in Japan?

I'll tell you, Joe, I'll actually be in Japan next week and at the Japanese Society of Regenerative Medicine, presenting there. I'll be able to meet with our physicians that are involved in using our technology, meeting with the key point person at MHLW regarding the regenerative medicine. He is actually speaking at a Cytori off-site conference, so -- he and I are both the two speakers there. So I'll have some dedicated time with him and our physicians, and I'll have a greater insight.

I think nothing's really changed since our last update, both the call and the release around the new regenerative medicine model. We think it's a net positive. But as you implied by your question, we'll have to play that out; and once we know more I'll be happy to update everyone and update you specifically.

No, that's great. Thanks so much.

Steve Brozak, WBB Securities.

Yes. Hi, gents. Quick question. On your next-generation device, you've obviously been talking about the current device and obviously it's robust. Can you tell us what are some of the differences with the next-generation device?

And who's paying for the development on that? So how does it affect your operations? And one follow-up after that.

Hi, Steve. Thank you. From a big-picture perspective, the new device will be smaller, less expensive, with a much lower cost of goods both on the system and on the consumable. It appears that it will substantially increase the efficiency of extracting cells from patients, so that you can take the same number of cells with less tissue, or reformulating that with the same amount of tissue you can take a lot more cells.

So that allows for now taking 25, 50 cc of tissue from a patient and generating the types of cells that we were getting with higher volumes. So it really lowers the patient impact related to that.

The viability looks good, and the user-friendliness of the system will be substantially improved. It will be cloud connected. We will know what's going on with every system around the world in real time.

We will be able to seamlessly control the software that's in the device, patient-related data from that. It will have online real-time diagnostic capability. It will have sensory functions that will allow it to recognize specific consumable lots and only ones that are made by us or those that we deem appropriate to make those.

And then the time of processing will go substantially down, so that we can realize -- what we've always said is these cells in about an hour or less. So it's just almost hard to compare to previous systems, which were really geared towards the research capability.

In terms of paying for the system, our relationship with BARDA is great on a number of levels. It helps us offset our overall burn, part of my salary and part of our overhead and so forth.

It's allowing us to do more basic R&D projects that would be difficult to fund on our own, potentially creates a commercial path to market that is funded, and opens up the potential of the government as an acquisition customer. They are paying for some of that, the technology that's going into the CTX-2, and some of the testing related to that. It's a not insignificant percentage, but Cytori is still funding a good component of those development dollars.

Okay. Going back to your -- I'm not going to say switch but on accentuating the scleroderma part, since it is an orphan indication -- and by definition orphan indications obviously have a more robust, how shall I put it, patient population, because obviously in this case there is nothing that these people can do. What kind of feedback are you getting, obviously, now having gone out there and stated that you are in the field?

What are you seeing from the clinicians? What are you seeing as far as feedback? And I'll hop in the queue. Thank you.

Thanks, Steve. As soon as we reviewed the data, and published it, and recognized that there was a meaningful late-stage clinical and potential commercial opportunity, we reached out to the societies and some of the key opinion leading doctors in the US, formulated a scientific advisory board, brought them together, looked more deeply at the indication and the viability of the therapy. The feedback was extremely positive by both rheumatologists and surgeons.

And then we increased our communications with the patient advocacy groups in the US, which there -- a couple of main ones that are more national presence, but they also have local affiliates, as well as those beyond the US. We've been featured in newsletters and other communications from them thus far.

I think there is a lot of excitement around this trial, because it's specifically dedicated to the number-one cause of disability in these patients, which is the hand dysfunction. And that appears to be worse in rheumatoid arthritis which is a much, much more prevalent disease.

So I think part of our ability to enroll this trial quickly will be predicated on getting the support of those societies, and it's our intention to work very closely with them as we get the trial ramped up.

Great. Thank you again. Looking forward to the news in 2015.

Thank you, Steve.

Jason Kolbert, Maxim.

Hi, guys; this is actually Jason McCarthy for Jason Kolbert. It sounds like all the restructuring and the refocusing of the financing is just looking great for the scleroderma and the osteoarthritis trial going forward. I have a question going back to the FDA discussions, and it's related to how they are viewing adipose-derived stem cells.

We just think it's important to understand how they view, I guess, manipulated versus unmanipulated. Because we keep emphasizing that Cytori is really far ahead of everybody else, and they can put one up on the cell therapy scoreboard with the FDA this year. So we just wanted to get a little more clarity on how that discussion went.

Jason, I would say it's not your lucky day, because my intention was to have Ken Kleinhenz, our regulatory guru, here with us today; and he's got the flu, unfortunately. But we'll try to bring him back on the next call, because he's really the expert in this and has really been working hand in glove behind the scenes with the FDA -- and with the Japan and the European regulators, for that matter.

You rightly mentioned that the FDA guidance documents that came out recently helped clarify to a great degree in a public manner what we've understood privately. And that is, that the FDA doesn't view anything that unpacks adipose tissue -- whether it's via an enzyme or via some other physical force, ultrasound, pick your thing -- whatever creates a cell population from adipose tissue is beyond minimal manipulation and therefore is an important regulatory -- or regulated event.

It doesn't qualify for 510(k) approval; we learned that a long time ago -- perhaps the hard way. But they are willing to consider device-based approaches when appropriate. But by and large our view is the default pathway will be through a BLA, and it would be regulated as a biologic.

So the ability to be regulated in the OR as a device, which is the most appropriate pathway for us, and we have an RFD from the FDA -- Request For Designation from the ombudsman -- saying that we are a device. And that -- we don't anticipate that changing anywhere around the world, US. We think that's ironclad.

But they will look at us differently, and we will get the benefits of the device path, but -- and our therapeutic gets captured under the device path. So hence my comments earlier in the call to help clarify the fact that the FDA, I think they get the safety of the device; they have our 12-foot tall stack of paper that shows the -- details the performance of the device.

Their focus is really on the therapeutic and the outcome, and that's why I think we are going to over time increasingly focus on the therapeutic, its name, its safety profile, its mechanism of action, its clinical effect and the claims around that. It all backs up into the fact that adipose tissue, if you release the cell, it's beyond minimal manipulation and you're creating a cellular therapeutic.

Great. Thank you.

David Musket, ProMed.

Hey, guys. Great job, I think, reviewing the changes here. Just to expose, I don't know if we've fully appreciated this change in the business model when we've gone from counting number of disposal sets to being able to charge for an end product that I think you said you might be able to charge something on the order of $50,000 a year in the scleroderma market. Is this something that you've been fleshing out with respect to the commercial effort, to be able to orchestrate that?

Hi, David; yes, it is. I definitely want to be careful that -- we are playing catch-up in the sense that we've gone relatively rapidly from Phase I/II to Phase III; but we have some very experienced voices in the orphan field in the US that have been in companies that have brought orphan drugs to market and have been active in the M&A side when it comes to orphan pharmaceuticals. So I'm happy with the advice we are getting.

We are spending a lot of time and effort looking at disease-based analogs to scleroderma, therapeutic analogs, their pricing and the clinical data regarding performance, as we look at potentially making a more premium-based pricing argument for the therapeutic, based on its imputed clinical benefit and the fact that we actually may be modifying the disease progress in the key lifestyle-related issue in these patients.

So I would say we're up to our shoulders in that work. We have more to go; but thus far, based on our language -- we're being careful. We think there is an opportunity to convert the business model to more of a drug-based model.

That's very exciting. I assume that you have started to compile a list beyond scleroderma that fits this model.

We have. One of our key clinical deliverables and commercial deliverables, it's mixed, with our Board of Directors is now that we have what seems to be a clear path to bridge Phase I/II data that, if promising in a relatively small group of patients, could be fast-tracked directly to Phase III, what other diseases might the hand manifestation in scleroderma -- is there a real clinical need and a real opportunity to build a sound, rapid-to-market pathway for those indications?

We're going to look at those. And based on funding and other issues, our intention is to bring more than one of those to the clinic and potentially to the market downstream, using the same core technology and leveraging the same investment that we made over the last 10 years.

That's very exciting. I look forward to hearing more about that.

I couldn't help but notice in your first paragraph you highlighted the fact that you are hoping to extend your agreement with your lenders. Obviously the shorts have been having a field day with that coming due here in the not-so-distant future.

I know you probably can't say anything specific about that, but can you give us some idea about why you are so optimistic about that? And what will you be looking for here? Like, what are you looking for -- 6 months more, like last time, or a year, or something along those lines?

Yes, I appreciate the question. You're right. It's tough to be specific when a lot of this is going on behind the scenes.

Maybe at the risk of being too simplistic, but answering the question hopefully in some detail: what's our philosophy regarding repairing what I had mentioned are the two big weaknesses in the Company, in my view, the balance sheet and the debt?

When I took the job over, as we thought about it, the first thing we have to do is stop spending; and I think we've made substantial changes. Tiago has been fantastic in helping rein that in, which we have done.

We also took some time to really clarify what's important to us; and the flip side of that, which is what's not important and what are we going to quit doing. And we just quit doing that.

So we quit spending; we stopped doing the things that we decided weren't important. And then really more recently, in the last month or so, we've really been focusing on increasing the number of tools in our capital toolbox.

On the inflow side, we wanted to protect our NASDAQ listing -- which, by golly, we've done. We've had a lot of volume and some appreciation of the stock price.

We are expanding our partner outreach, and we're looking very specifically at sources of capital. We have ones that are well in the money; we have an ATM, $40 million; we have the ability to raise capital. I think in a very different position than we've been in the past in terms of our tools to address capital inflow issue.

Then we have looked at tools on the capital outflow side. That gets to your specific question about restructuring the debt. I would look to do something. Might be one step, it might be two steps, but to significantly push out the debt but also pay some of the debt down.

We paid some of it down, and I think there is an opportunity to do that. The lenders have been great, and I anticipate that we'll be able to continue to do what we've done in the past, which is to work with them to make that not an issue for us, or not a significant issue.

Then just in terms of completeness, on the sales side let's make what we are doing with BARDA and with our revenue positive contribution margin. And let's be wise about how we manage that.

So to sum it all up, we've worked like dogs to do all three of those things at once: stop spending, get to what's important, stop doing what's not important, increase our toolbox. I think all those things in different measure, but take them all together, that we are confident with the tools that we now have in place that we can fix this issue, not in a Band-Aid style, but once and for all.

No, I appreciate that. Last, I know you can't really predict exactly -- nobody has that much experience with the timetable in the Chinese approvals. But do you have any feel whatsoever? Is that months away, is that next quarter, or is it second half? What should we be --? Set our expectations here on what you are thinking right now with respect to the Chinese approval.

Look, it is sort of okay to us, but the good news in this is we have a partner that's fogging our glasses on getting that regulatory approval. They are extremely interested. They are like a coiled spring in terms of getting out to the market; they are working behind the scenes.

We have a consulting group that's Asia Pacific-based that's dealing directly with Chinese FDA. All the feedback from that is good.

I don't anticipate it to take very long. It's hard to -- I really don't want to put it weeks, days, months, on that. But we feel pretty confident it's coming, and we don't see any reason why it shouldn't come in relative short order.

But it is the first time we've done that with them, so I just hesitate to be more specific than that.

I appreciate the time. I'll get back in the queue.

Thanks, David. I think we have time for one more question.

Greg Huston, Oppenheimer.

Good afternoon, gentlemen. Thank you for the call. I have to say from the onset it's one of the more gratifying calls we've had in quite a while. The level of detail that you are going into, and the fact that you're making not just incremental changes but real changes I'm sure is well received by most people on this call.

The question I have has been -- you addressed it; it was asked by one other person. But I am wondering if you would expand a little bit on the effects of the clarification that the FDA made on the regulatory pathway for your product.

It seems to me, on the one hand it eliminates a lot of other people who were tinkering around in the area and not doing high-quality work. On the other hand, I am wondering to what extent it diminishes some of the greater institutions. I know Mayo here in Jacksonville and others are doing lots of work using adipose-derived stem cells for treatment.

Wondering the balance there, the good. Is there any negative to the kind of anecdotal information we may have been getting from some of these major institutions? Thank you.

No, Greg, I really appreciate those comments. It's a good question.

There is some benefit in some of the more preliminary Phase I type of clinical work that's gone on around the world. Notwithstanding any discussion about our intellectual property, which is very robust in terms of numbers of patents and the geographical coverage of our patent portfolio -- and that's a discussion that we can have downstream, when we have lots of revenue and market presence, and we'll talk about that.

But specifically related to your question, you can only go so far with that preliminary data. What we hear from FDA and, frankly, what we hear from a litany of partnership discussions is: show us really robust Phase II or late-stage clinical data that shows separation of the curves between treated and placebo-controlled patients. And there is just no substitute for doing that.

It's very difficult to compare what one guy is doing in his garage with what's going on at the Mayo Clinic or at UCLA. I can tell you there are a number of approaches that people are utilizing to take adipose tissue out of patients and do something to it, and then put it back into that patient or someone else. And it's very difficult to compare.

You have to pick an approach, and you have to build the regulatory file around that, show that it's safe. People have died by rogue doctors and clinics putting adipose-related products back into patients, even autologously. The FDA is mindful of that and, by golly, they are going to regulate it.

But they're trying to do that in a way that doesn't stifle what -- the positive side of getting treatments to patients, but also trying to protect patients. I see the struggle that the FDA has had, and I think they've done a tremendous job, to be perfectly honest, with wrestling with those two issues.

Has this driven -- has this caused your phone to ring with people who are trying to advance this science, but now recognizing that perhaps they need to work in a framework that might be viewed more favorably by the FDA?

I think that's a fair statement. I think that really positions us nicely, given all the work we've done and where we are with the field. If we can get clinical approval -- or get through our Phase III, get FDA approval on a clinical indication, that will just take us from a position of leadership to whatever that next level is.

Right, right. Well, thank you again for a very, very good call.

Great. Well, Greg, thank you.

And as always to everyone that participated on the call, I would like to thank everyone for their thoughtful questions. For those of you that have been actively following us over the years, we're just very appreciative for your continued interest.

There've been a lot of shares turned over in the last couple of weeks. And for those of you that are new to the Company and the technology, we really welcome you aboard.

Going back to the last two quarterly calls, as I was reviewing those, I noted that I very clearly told you that our focus was going to narrow; and indeed it has. We are going to continue to narrow and maintain a laser focus on what we think is going to drive shareholder value.

I also told you that our expenses are going to be reduced, and they have. And we are going to continue to put emphasis on that area, be good stewards of our resources.

I also told you that we are going to be substantially on track with regard to our forecasting milestones. And thus far we have, and our goal is to continue delivering on those.

So we'll keep you updated. We have recently updated corporate presentations on our websites that are available from our recent conferences. Please feel free to take a look at those. Reach out to myself or Tiago or Shawn Richardson in Investor Relations. And once again, thank you for your interest and continued support. Have a good evening.

Thank you. This concludes today's teleconference. Please disconnect your lines at this time and have a wonderful day.