Plus Therapeutics Inc (PSTV) 2017 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Cytori Therapeutics First Quarter 2017 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 report 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 when 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, and thank you, Ian, for that introduction. Welcome to our first quarter 2017 earnings call. As Ian said, my name is Marc Hedrick, President and CEO of Cytori, and joining me on today's call is our Chief Financial Officer, Mr. Tiago Girao, and also on the phone is our VP and General Manager of our Cell Therapy business, Mr. John Harris.

Here in brief is the agenda for today's call. First, I will discuss our overall business, clinical and regulatory progress, including key updates on our Cytori Cell Therapy and our Nanomedicine technology businesses, then I'll turn it over to John, who's going to discuss our commercial-related activities and performance, and then Tiago will update on financial performance. After that, we'll have time for Q&A, and then thereafter I'll update on forthcoming milestones.

So to start off, let's talk about Cytori Cell Therapy, and specifically our HABEO product, intended to treat patients with scleroderma. In June 2016, we randomized the 88-patient in the U.S. STAR trial for scleroderma of the hand. STAR is a randomized double-blind, placebo-controlled trial with a crossover arm to treatment for placebo recipients after 48 weeks.

The primary study endpoint for the trial is a Cochin Hand Function Score measured at 24 and 48 weeks after treatment. We have agreement on the statistical analysis plan with the FDA. And one note about that plan is that the Hochberg Procedure will be used as a multiplicity adjustment when reviewing the results from the ANCOVA for the Cochin Score at 24 and 48 weeks.

This approach may enable us to obtain approval on potentially either the 24- or 48-week time point without related alpha spend. The key secondary study endpoints are Raynaud's Condition Score at 48 weeks and the Scleroderma Health Assessment Questionnaire, or the SHAQ, at 48 weeks. There are a number of exploratory end points that we're also assessing as part of this trial.

In terms of the time line, the full 48-week data lock, statistical analysis and readout in STAR is on track and expected by early Q3 2017. The regulatory path in the U.S. for this product will be as a PMA, premarket approval, as a Class III device. One note I'd like to make, as we've been asked a number of times about various alternative regulatory pathways for this product, a regulatory path, we think, potentially may be available to us for HABEO is the FDA's new Expedited Access Program, or EAP.

The EAP eligibility extends to devices that treat life-threatening or debilitating diseases that currently have no effective alternative treatments. In its guidance documents for the program, the FDA notes that it may accept less certainty regarding the benefit to risk profile of EAP devices subject to a PMA at the time of premarket approval and a proven EAP device as long as the data still supports a reasonable assurance of safety and efficacy.

The first step will be to apply for and obtain the EAP designation from the FDA, which is currently under consideration here at Cytori. If we choose to pursue this pathway, and are successful, despite eligibility for early approval as compared to the standard PMA approval process, we would be subject to a post-market study requirement. And so ultimately, the data from the trial will ultimately drive our decision-making process regarding the appropriate path.

The commercial preparatory work for approval of this product is 100% on schedule, and actually, John will discuss this in the greater detail later in the call.

As I mentioned on the previous call, our clinical strategy to seek approval for secondary Raynaud's will be finalized based on the STAR data readout later in the year. In Europe, there's an ongoing trial called the SCLERADEC II trial, which is an investigator-initiated trial in France, and that trial is enrolling. This trial will provide supplementary data to the STAR data for a European or EMA filing for our -- and also support our Managed Access Program. The investigators from that trial report that they have passed the halfway point of enrollment in March and have the goal of completing enrollment with a total of 35 and perhaps up to 40 subjects by year-end.

SCLERADEC II follows an essentially identical treatment approach to our U.S. STAR trial. However, the primary endpoint is improvement in hand function is measured at 6 months of follow-up compared to the 24- and 48-week follow-up time points in STAR. Additionally, this trial has a crossover arm that includes a use of the cryopreserve version of HABEO, which actually attained orphan drug status here in the U.S.

And just a quick note about the utility and progress for HABEO in Japan. The clinical and regulatory planning for bringing that product potentially to Japan is ongoing, in conjunction with our Japanese clinical advisory board and PMDA, and we'll update as we have important things to say around -- for that in the future.

Now let me switch over to our BARDA program for thermal and radiation injury. The release trial is a safety and feasibility trial of a single intravenous administration of the DCCT-10 cellular therapeutic, rich in adipose-derived regenerative cells for the treatment of deep partial thickness and full thickness thermal wounds. We received FDA IDE trial approval for the RELIEF trial in April 2017.

The primary objective of the trial is to evaluate preliminary safety and feasibility of the DCCT-10 via intravenous delivery in the treatment of deep partial and full thickness thermal wounds. Preclinical studies previously completed indicate that intravenous delivery of the cell therapy is as effective as topical administration. But IV administration has the benefits of more seamless integration in the current thermal burn treatment protocols utilized in hospitals and also truncates OR time.

What's the trial design? It's actually a prospective open-label, parallel group, usual care controlled, multicenter, randomized safety and feasibility study targeting thermal burns. So the randomization is 2:1 active to usual care alone. Subject in the trial will have at least 1 partial, deep partial thickness or full thickness burn wound, of great or equal to 250 square centimeters, that has to be autografted with a split-thickness skin graft meshed at either 2 or 3 [torn].

Subjects randomized to usual care will not undergo the tissue harvest procedure. Up to 30 subjects will be enrolled. Each subject will be -- will contribute up to 3 qualified wound areas for the analysis. Randomization will be stratified to ensure that the numbers of wounds treated with 2:1 and 3:1 grafting are balanced across the treatment groups.

We plan to include up to 10 burn centers in the U.S., and as I mentioned, the primary endpoints are safety and feasibility. The key secondary endpoints, however, include: one, the percent epithelialization of the graft at day 5 to 4 weeks post grafting, which will be assessed by surgeon visual evaluation and blinded independent review of standardized photographs; two, percent take of the graft at day 5 through 4 weeks post grafting; and three, percent of the group with complete wound healing at weeks 2 through week 12 post grafting.

Regarding our BARDA contract, we are currently operating under a contract extension with BARDA that expires at the end of June, and negotiations with BARDA are ongoing for the clinical contract option that will provide the funds to support the RELIEF trial.

Now regarding investigator-initiated trials. In Japan, our urinary incontinence trial called ADRESU is a potential approval trial for a cellular therapeutic in male post-prostatectomy patients with SUI, or stress urinary incontinence. It's primarily funded by the Japanese government, MHLW, or AMED, and it continues to roll at all 4 sites.

The time line. The plan is to complete enrollment in 2017 with the 4 active sites, and we're well over halfway there. The completed study report is anticipated in 2018 and the regulatory path, similar to the U.S., we anticipate that this will be approved as a Class III medical device.

Earlier this week, in terms of a separate investigator-initiated trial, we issued a press release regarding a publicly available abstract reporting 12-month follow-up in this investigator-initiated study of patients with refractory erectile dysfunction. The trial was conducted by investigators at Odense University Hospital in Denmark, and the data will be presented at the American Urologic Association Meeting, starting tomorrow in Boston.

The abstract is now available online and a link can be found in that press release, which is available on our website. Based on the promising data found in the trial, the Danish investigators are planning a larger Phase II follow-on trial at the same center. We plan to provide our shareholders an update when we are made aware of that plan in more detail. As has been our practice in the past, we selectively support this and other high-quality investigator-initiated studies.

Now with respect to our Nanomedicine platform. As you recall, in February, we closed the acquisition of substantially all the assets of Texas-based Azaya Therapeutics. This acquisition bolstered our late and intermediate stage pipeline, added a new development platform to Cytori, and we obtained a fully built-out and scalable pharmaceutical manufacturing plant for nanoparticle pharmaceuticals.

The lead pharmacologic asset acquired through that acquisition is called ATI-0918, or just 0918, which is a nanoparticle or liposomal doxorubicin. We believe that data from a 60-patient completed European study of 0918 has met the statistical criteria for bioequivalence to the current reference listed drug in Europe.

The global market for this drug is large, is growing, and is chronically supply-constrained. What are the key milestones for this program that we can discuss on the call today? The key milestones include completing the facility validation in Texas; ramping up the in-house manufacturing activities; manufacturing those registration lot and preparing for EMA submission. Also, we're actively seeking commercial partners to go to market with this product in Europe upon approval.

However, there's an opportunity outside Europe. And in the U.S., FDA discussions are planned as we complete rolling the FDA regulatory documentation to Cytori from Azaya, and that will be going on relatively shortly. In the rest of the world, an assessment of commercial and regulatory opportunities are also ongoing, and we'll report more when we have more to say about that.

And so now, I'm going to turn the call over to John Harris, who'll update on commercial performance and also on the marketing work that's been going on in the background. John?

Thanks, Marc. It's a pleasure to be here today. We have 2 primary goals for the commercial team in 2017. One is preparatory activities for 2 product launches that include, HABEO Cell Therapy, which we anticipate FDA approval in late 2018. Our intention is to commercialize this product ourselves in the U.S. and seek partnerships elsewhere; and two, the ATI-0918, and as Marc mentioned, the EU approval is anticipated in 2019, and we'll be seeking a commercial partnership there. The other area of emphasis is continued focus on sales growth and double-digit utilization growth, led primarily by Japan. I will address these 2 items in more detail later in my remarks, but first, allow me to highlight our results for the first quarter.

2017 Q1 product revenues were $591,000, $700,000 less than 2016. The primary reason is that capital equipment sales were behind our internal target as 2 planned installations were delayed in Q1. I will address this later in the call. However, consumable utilization is -- was on target relative to our growth objective for the quarter.

Notably, Japan's Q1 consumable utilization was up 21% year-on-year. We anticipate this trend to continue in 2017. While revenue is our key metric, consumable utilization and maintenance of ASPs, or average selling prices, are important metrics that we track as they leverage our installed base of systems, and the resulting contribution margin is important to our overall operation. We anticipate achieving our full year product revenue growth, mostly from Japan, with continued double-digit consumable utilization growth.

Next, I will provide some more color regarding our commercial activities in Japan, Europe and ROW for both Cytori Cell Therapy and Cytori Nanomedicine. First, Cytori Cell Therapy. We have elected to focus our current commercial efforts in Japan, where the market and regulatory dynamics are most favorable and the immediate growth opportunity is the greatest.

In Japan, our annual forecasted product mix is approximately 50% capital equipment and 50% consumables. This is up from 3 years ago when it was 90% capital equipment and 10% consumables. Our existing installed base of capital equipment grew 17% last year. Most of that growth came from new installations at existing customers who expanded the use of our technology in multiple locations.

For example, our largest customer has installed solution systems in 9 of its 50 nationwide locations. We continue to cultivate new customers, but there is opportunity for growth with existing customers. The challenge with the product mix that includes large capital equipment is that sales can be choppy from quarter-to-quarter. This is further complicated with novel technology without reimbursement and on small numbers. Despite the anticipated quarter-to-quarter choppiness, we anticipate meeting or exceeding our internal targets in 2017.

Shifting to consumables for Japan. As we indicated previously that utilization is the important metric that we track because it's the best indicator of customer satisfaction, of procedural efficacy and also confirmatory of our business model. In Japan in the first quarter alone, we experienced 21% year-on-year consumable utilization growth. And since 2014, we've experienced 67% compounded annual growth rate in consumable utilization. We are on track this year to achieve our all-time highest consumable utilization forecast and at least double-digit consumable utilization growth.

Outside of Japan, and in parallel to positioning ourselves for the eventual commercial launch of HABEO, we are pursuing opportunistic regional distribution, supporting direct customers who have made investments in our technology such as Okyanos, and facilitating an investigator-initiated study such as the work being done in Denmark with erectile dysfunction.

Our Managed Access Program in Europe, or MAP, has the goal of helping us educate the market in providing early access to our technology. We are in the process of making important changes to the program so it can expand once STAR data is available.

For the balance of the year, Cytori will attend key scleroderma meetings such as the Annual European Congress of Rheumatology in Madrid next month, and in July, the Scleroderma Foundation National Patient Education Conference, to be held in Phoenix. And then later in the year, in November, we will attend the American College of Rheumatology's Annual Meeting in San Diego.

Now I want to shift gears and give you an update on Cytori Nanomedicine. As Marc indicated, our lead Nanomedicine drug is ATI-0918, a complex, generic nanoparticle doxorubicin, which data suggests that is bioequivalent to the EU reference drug. Current European market size for liposomal doxorubicin is in excess of $300 million and anticipated to be about $450 million by 2024, currently growing at 5.7% CAGR. Currently, there are no generics on the market for the reference drug in Europe.

Our plan is to complete in-house manufacturing activities this year before going on to execute sterile fill and stability testing such that we are able to file for EU approval in mid-2018 with earliest potential approval in 2019.

Our go-to-market strategy in Europe for ATI-0918 will be to work together with a partner, and this outreach has already begun. Globally, the market for this product has been constrained and we anticipate this trend to continue. Third-party forecast for the global market is approximately $1.4 billion by 2024. Opportunities for ATI-0918 in the U.S., Japan and China are also actively being pursued.

Our other Nanomedicine drug, ATI-1123, is a novel liposomal formulation of docetaxel. With preliminary clinical results suggesting superiority to docetaxel, we are evaluating the market potential and engaging in targeted partner outreach and anticipate having more detail regarding our plan later this year.

Now we continue to prepare for the U.S. market launch of HABEO. I will now provide some select details surrounding these activities and our overall strategy, noting that our EU strategy will mirror the U.S., but we will seek a partner there as opposed to a direct business model.

Pending STAR data, Cytori intends to file for an FDA PMA approval as soon as possible. Our technology will be regulated as a Class III medical device. This would position HABEO Cell Therapy as one of the first FDA-approved cell therapies and offer health care providers with an unlabeled treatment option to potentially improve hand function in patients with scleroderma.

The EU pilot trial data thus far have shown safety, feasibility and up to 3 years of clinical benefit in published and presented data. As previously mentioned, we feel the market in the U.S. is comprised of approximately 50,000 patients suffering from scleroderma, and over 90% of those patients have hand involvement. There is nothing approved in the U.S., and first- and second-line therapies to treat scleroderma-related hand dysfunction are not effective or well-tolerated. Third-line therapy used off-label are very expensive despite being poorly tolerated and provide only limited symptomatic relief.

Our market estimations indicate that there is an opportunity to achieve peak annual worldwide sales of $600 million with this product. Our experience with the STAR trial has confirmed the viability of the procedure in various health care facility settings. HABEO is uniquely focused on treating hand dysfunction, a major source of disability and socioeconomic impact for these patients. Pending positive STAR trial data, we anticipate potential approval approximately a year after PMA filing.

Our overarching commercial strategy is to take HABEO direct in the U.S. and look for partnerships outside of the U.S. Market research and validation activities are largely completed. Some of the key completed activities include: in-depth interviews with a number of U.S. and EU payers, hospital administrators, physicians, KOLs and patients to analyze and understand the scleroderma patient population, current treatments, unmet needs and the patient journey, and of course, the reimbursement landscape and potential pathways.

We have further tested these -- with these key stakeholders the HABEO target product profile, annual pricing models and market potential, product adoption, reimbursement coding strategy and the clinical evidence portfolio in support of coverage. HABEO Cell Therapy pricing is anticipated to be similar of those biologic therapies when launched that were targeted to hand dysfunction in rheumatic or inflammatory disease.

Working with the STAR principal investigators and specialty societies for plastic surgery, rheumatology and hand surgery, Cytori has already submitted an application to the AMA for Category III CPT codes that would cover the comprehensive procedure. We anticipate these Category III CPT codes may be published in January of 2018 followed -- or following up CPT coding and activities are also planned post data.

The activities that we have planned for Q3 and Q4 include: health economics evaluation, a burden of illness study, payer budget impact, cost-effectiveness analysis with leading experts, and expansion of our existing relationship with patients in rare disease advocates on national, regional and local levels.

Based on our experience in treating over 100 patients in our pilot and pivotal trials, rapid enrollment in our U.S. trial and the understanding of the referral pattern, market evaluation results and coupled with our long-standing commercial experience in Japan with this technology, our U.S. go-to-market strategy is as follows: we anticipate deploying a highly-focused, specialty sales force and key specialists concentrated in high-population centers of the U.S., with immediate coverage of the approximately 40 scleroderma centers of excellence. Note that nearly half of these centers have already successfully used our technology, understand how to establish the internal referral process, and most importantly, have already implemented the simple bedside procedure as a part of the STAR trial. These STAR trial sites will serve as our beachhead for our commercialization activities surrounding our planned launch. Our plan is to place a solution system at each one of these centers and provide procedural support to the facility.

We will be able to broaden our outreach to the remaining centers of excellence in the U.S., and ultimately, the EU. This center of excellence approach, which is a manageable number, will position Cytori to address the needs of the majority of the market and then our -- and then we will extend our outreach to the rest of the rheumatology community.

In conclusion, our focus is on preparing for 2 key product launches: one, HABEO, with peak worldwide annual revenue estimated to be $600 million, and we're on track with the key commercial preparation activities; and two, ATI-0918 via a partner in Europe. The current annual market for this product is in excess of $300 million and forecasted to grow. Partner outreach is ongoing in 2017. Concurrently, we will continue to focus commercial efforts in Japan to both increase the number of active systems and drive continued utilization growth.

Now let me hand it off to Tiago. Tiago?

Thank you, John, and good afternoon, everyone. Our primary focus is on the development of our late-stage clinical pipeline and related commercial preparatory activities, which should drive shareholder value.

In parallel, we seek to wisely manage our resources and improve our operating performance. Despite the recent acquisition of the Azaya assets, we reduced our operating cash burn to $4.8 million in Q1 2017 from $5.1 million in Q1 2016. The reduction in cash burn was mostly related to working capital improvement.

Net losses, when adjusted for noncash charge of $1.7 million associated with an IP R&D charge, part of the Azaya asset acquisition, was $5.9 million in Q1 or $0.26 per share as compared to $5.3 million or $0.41 per share in Q1 2016.

For research and development expenses, in Q1, our R&D expenses excluding share-based compensation, were $3.2 million versus a $4 million spend in Q1 2016. The decreased R&D spend is related to a completion of the enrollment in the Phase III STAR clinical trial, offset by our initial investment in the -- into the ATI-0918 or nanoparticle doxorubicin. As a percentage of overall expense, our R&D spend for Q1 was 53% of total operating expenses. When excluding share-based compensation, this is in line with our plans and support our focus in late-stage clinical programs.

Further, to clarify, following the accounting literature, we accounted for a noncash charge of $1.7 million related to in-process R&D intangibles acquired as part of the Azaya asset acquisition. Such intangibles would otherwise have been capitalized on our balance sheet if we had determined the transaction was to be accounted for as a business combination. And to be clear, this is a onetime noncash R&D charge.

Now on our sales and marketing. Our sales and marketing activities and related expenses slightly decreased in Q1 2017 to $0.9 million as compared to $1 million in Q1 2016. The decrease is mostly related to lower revenue performance in Japan, offset by ongoing precommercial activity, mostly in the U.S., as outlined by John earlier on this call.

G&A expense, excluding share-based compensation, was $2 million this quarter as compared to $2.2 million in Q1 2016. The continuing tightening of G&A expenses was related principally to reductions in salaries and benefits, professional services and discretionary spend.

Now with respect to our revenues. Q1 total revenues were $1.6 million as compared to $2.9 million in Q1 2016. Product revenues were $0.6 million in Q1 compared to $1.3 million in Q1 a year ago. Japan revenues continues to show substantial growth in consumable utilization, up over 20% from Q1 2016. However, this growth was offset by deferred capital equipment sales placement, and that significantly impacted the results for the quarter, which was earlier explained by John.

Government contract revenues relate to our activities supported by BARDA and resulted in $1 million in Q1 of 2017 compared to $1.6 million in Q1 2016. The decrease is attributed to the completion of the RELIEF IDE activities as we anticipate transition to the clinical phase of this contract. As mentioned earlier by Marc, the FDA approved the IDE for the RELIEF trial earlier in April, and we are negotiating with BARDA our next contract option execution, which we expect to be completed soon. Note that the current contract, which would originally expire last month, has been extended until the end of June while we work through these negotiations.

Turning to the balance sheet. At March 31, we had $6.3 million of cash, approximately $50 million pro forma when including the recent proceeds of the financing in April 2017, and $15.9 million of principal amount of debt. The equity facility we recently put in place with Lincoln Park Capital, which allows us to draw up to $20 million, has now been made effective. And this, coupled with our ATM facility and partnership discussions ongoing, are part of our strategy to increase our optionality and raise funds in a less dilutive way.

We plan to balance ongoing capital requirements through a number of targeted activities that include revenue growth, business development opportunities, accessing the capital markets, operational efficiency measures and working capital management.

On 2017 financial guidance. We are reiterating our operating cash burn guidance at a range from $26 million to $29 million for the year. A sizable number of planned activities and related expenses as part of our anticipated 2017 operating burn will be triggered by a positive STAR data readout in early Q3 2017.

Further, revenues for the balance of 2017 will result from a product mix -- a mix of contract and product revenues. We have elected to not give revenue guidance in 2017, pending negotiations and final contract with BARDA for funding of the RELIEF trial. We continue to expect product revenues to reflect at least a double-digit growth of consumables in Japan.

And with that, I'll turn over the call back to Dr. Hedrick.

Great, Tiago. Thank you. Ian, do we have any questions queued up?

(Operator Instructions) Our first question is coming from Andrew D'Silva from B. Riley & Co.

Just got a few here. You answered most of them on the call. As far as just gross margins go for your product sales, what should we kind of figure is an appropriate gross margin level, meaning, negative with the amortization this period? Obviously, revenues were far less than, I think, anybody anticipated. Where would you expect it to shake out for the full year based on your guidance?

Thanks, Andy, for the call. This is Tiago here. I expect gross profit to be in the 50-plus percent, 50% to 70% range. As you noted, we did have a very small revenue base this quarter that significantly impacts our capacity in the idle capacity of the manufacturing, so the COGS is overloaded. And as you mentioned, it does include an amortization of intangibles in the tune of $300,000 that caused the margin to be negative. But for the full year, we expect a 50-plus percent gross profit. Most of that comes from Japan, which has a very healthy gross profit history.

Okay. And then related to product revenue, consumables more specifically, is there any sort of seasonality there that we should be made aware of? I think just back of the envelope, looking at the fourth quarter, product consumable revenue versus the first quarter was a pretty steep decline. Is there a way that we should think about that?

Andy, it's Marc. I would say it is variable. Fourth quarter oftentimes is pretty strong. Q3, because of the summer, can be weak. Quarters 1 and 2 are a little bit up and down. So that's some guidance that's sort of imprecise. But I think it's so related to capital equipment and that can kind of come in waves, and it's hard to predict.

Okay, fair enough. And then moving over to the U.S. pivotal trial for HABEO. When you start thinking about potential hiccups or risks related to positive data, is the biggest one just the potential for placebo effect that didn't exist in the European pilot trial? Or is there something else that maybe keeps you up at night related that we should be thinking about as potential overhangs?

I think we're blinded to the outcome. We don't know what the data will show. We think we're sufficiently, if not overpowered, to show an effect, even effect half the size seen in the pilot trial. There could be some placebo effect, although other scleroderma trials have really not shown too much of a placebo effect. So I think it'd be naive to think that there won't be any, but we think we're sufficiently powered to show that. Actually, the trial was originally powered for 80 patients. We actually over-enrolled by 10%. And we feel like we're going to lose very few patients as part of the trial. So I think having said that, we always worry about the outcome of the data. But I think we -- we're very optimistic about the result. We think that there are a lot of patients out there that want this, are rooting for it, doctors are rooting for it. We know shareholders are rooting for it. So I think we're just -- we're planning for success. And as John mentioned, we are absolutely 100% on track with our commercial plan, and we're going to be ready to execute once we have data.

Okay, great. Great to hear that. And then, that $1.7 million noncash R&D charge that you recognized in the first quarter, Tiago, was that the same working capital, approximately $2 million hit that we were supposed to be expecting? Or are those 2 separate things?

They are 2 separate completely different things, Andy. The $1.7 million charge relates to an allocation of value that we pay as consideration to Azaya for the valuation of intangibles. So that's what the $1.7 million relates to. Think about it, if we were doing a business combination, we would capitalize that charge into the balance sheet. That would be evaluated for impairment every year. But because this is still in process in R&D phase, we have, following the accounting guidance for asset acquisitions, we had to charge that to the P&L. With respect to the assumed obligations or the liabilities that you and I discussed, and we talked about it on our previous call in, I believe, at the end of March, that $2 million is, actually, the number is $1.8 million, to be precise, and is mostly related to assets that Azaya, prior to our acquisition, had acquired manufacturing equipment and other type of assets that we assumed the liabilities because we wanted the facility that we acquired, the manufacturing facility that we acquired.

So those -- that $2 million in working capital changes, that's already -- was that effective last quarter?

I'm sorry, I did not understand that point.

Were all the cash flow from operations impacts related to that recognized last quarter?

The majority of that was -- I believe we paid $1.5 million of the $1.8 million. That was paid out in Q1.

Okay, great. And then just last couple of questions more related to your financing efforts. Are you -- what's the current principal paydown on the debt at this point? And then just based on where you are right now, where do you feel is an appropriate time for us to start thinking about maybe a follow-on offering to the one that you just did in April?

Sure. I'm going to address, first, the amortization of the debt, and I'll give it back to Marc with respect to our plans and you probably heard from my remarks. But with respect to the amortization of debt, it's a flat $590,000 a month that we are bringing that principal down. And with that, I'll turn it over to Marc to address the cash runway and what to expect.

Andy, I know that's an important question. So part of the reason we went to the capital markets recently is they gave us more flexibility and gave us more insurance as we tried to move forward as fast as possible with the nanoparticle asset and get that drug filed with EMA as soon as possible. Tiago answered, I think, the question sort of very generally in his comments but thoroughly. We do have current equity facilities that give us buffer. And then Tiago also mentioned that a lot of the spend that we anticipate related to commercial efforts come after data. And we do have some wiggle room in terms of the timing with respect to that. As I mentioned on the last call, we've been very active on the business development front on a couple of tracks and we continue to be very active. We spend a lot of time on that. And I think that's something that we're hoping will pay off in the interim that will forgo need to go back to the capital markets in a significant way. We have a lot of potential milestones coming up, which could be great catalysts for a number of positive things for us. So we're just focusing on executing those.

And our next question is from the line of Kenneth Grutman from Bio High Tech.

I'm just wondering if you guys have quantified the amount of market cap that's been eroded over the past decade in your company. And if you have any -- what your immediate plans are to improve the stock price. Nice thing now that it's again under $1, looks like it's getting set up for a reverse split again potentially and another 50% haircut, if you wouldn't mind. And finally, is anyone going to resign over it?

Well, I can answer some of your questions. Thank you. In terms of how do we create shareholder value, I think that's right upfront in our press release and very clear. In the biotech space, the way to create value is clinical data. And so this company is now at a place where it's never been before, where it's been -- it's to a point where we have a fully enrolled potential approval trial in the U.S. for a relatively large unmet medical need in the U.S. And so I think that data comes forward. If it looks good, I think that will be a positive outcome for the company and I think will change the environment and the value for shareholders.

I heard you say, though, that -- or it sounded like all the reagent sales were down across the board. And I thought we had hired a new guy from the -- from maybe working in Asia or something like that. He sounded like he was very good. I'm surprised to hear that the reagents were down this quarter. Why?

Not sure what you're talking about, but consumable utilization is up in Japan. John, you want to comment on consumable utilization there?

Yes, I'm happy to, Marc, and thanks for the question. As mentioned in the call, consumable utilization is a very important metric for us to track. And our performance for the quarter were spot-on where we had anticipated to be. And in fact, in Japan, the year-on-year growth was at 21%. And so -- and to be clear, when we refer to consumable utilization, that also includes the reagents. And so rest assured that the consumable utilization, including reagents, is on track and growing.

(Operator Instructions) Our next question is from the line of Jason Kolbert from Maxim.

I promise I won't ask any accounting questions. But in all seriousness, what I'd like to understand a little bit better is the expedited access program. It seems to me a little bit like a double-edged sword, something that I hadn't considered in the past. And I think what I hear you saying is that it might be just as expeditious to go through the Class III device pathway versus the EAP. Am I reading that correctly?

So Jason, I appreciate the question. The reason I brought it up is because we've been asked repeatedly as we've gotten closer and closer, the data about the regulatory path. And people have asked about orphan status, Humanitarian Device Exemption, breakthrough status and so forth. And none of those really applied particularly in this case, but there is a new program called this EAP that I mentioned. And I think we're actively looking at it. We think we potentially apply -- this potentially applies to our technology. The benefits would be that it might allow us to get to the market more quickly, the downside being that we would likely be -- would have to do a Phase IV trial, a post-marketing trial, but it may actually get us to market more quickly. So depending on what the data shows. We think this may be an option for us. And we have a number of secondary endpoints that might come into play in terms of the effect on Raynaud's and so forth. And this might provide a pathway that we could potentially expand the claims. So I bring it up only so that we're -- we've been asked about it. And to be complete, it's something we're looking at. But we're going to wait until we have the data until we decide whether this is going to be better for the company or whether to proceed directly to the PMA route as a Class III product is actually the more -- the better approach.

And can you talk a little bit about what the secret's going to be to unlocking value around the Azaya acquisition? How active has BD been? What kind of inbound interest are you seeing? And I know you've been focusing a lot on being manufacturing-ready. So just give me an update on kind of what your sense is in terms of timing for a potential partnership there.

Partnerships are always difficult to time. And -- however, with respect to the 0918 product, and the 1123, I'll set aside for a moment, where there's a real market today, we've already shown to our satisfaction that we're bioequivalent to the reference product. We need to have a partner in place in Europe by the time that we hopefully have approval. So that's a more systematic outreach, but there's been inbound interest as well. There's been press coverage of the acquisition. But there's also some potential opportunities outside of Europe and the U.S., including China in particular, which is undergoing quite a change in terms of the CFDA related to similar products, and we think there may be an opportunity there. And in the U.S., the U.S. is a little bit -- there's work to be done with the FDA because of the relatively recent change in the reference drug and J&J's product being off the market, now back on, and Sun Pharma's, the reference drug, but the RLD is now Doxil, which is J&J's product. So we have some work to do with the FDA to better understand what the regulatory path is. And I think that'll clarify the partnering situation in the U.S. as well. Under no circumstances are we planning on taking this direct. We will commercialize with partners and likely it will be regionally-based partners. And it's, as I mentioned, it's an area of focus.

And at this time, I'm showing no further audio questions. I'll now turn the call back to you, Dr. Marc Hedrick.

Thank you, Ian. We actually have 2 e-mail questions that I'll address. The first question is about the precise timing with respect to the readout on the STAR trial, and can I be more specific about that other than Q3.

And what I can tell you about the timing is that, as I mentioned in the call, the 48-week or the last follow-up period is approaching soon, the 88-patient was randomized in June 2016. So you can do the math. And if the patients are on time to their appointments and there's been strong patient commitment to the trial and follow-up, as I've mentioned before, then as we've gotten closer and closer to data readout, we've narrowed the focus from Q3 down to early Q3. It could be before Q3 and it just depends on the mechanics of when that last patient comes in, how quickly we can clean the data, lock it, turn it and assess the statistical analysis. So we'll try to be conservative with an early Q3 date, but our goal would be to have that data in our hands as fast as possible, and then at that point, we'll get it out.

There is one more question. So the other question is that it's asking about Kerastem and their clinical trial and its related results.

So this question is about, to remind those of you on the call, we, a while back, licensed the rights for Alopecia to a private company called Kerastem. They have the worldwide rights to Alopecia. Then in the fall of 2016, I believe we announced that they have completed enrollment in a Phase II randomized 4-group, double-blind trial here in the U.S., investigating early female and male pattern baldness. So that trial is fully enrolled. I think the target enrollment was 70 patients here in the U.S. And the primary endpoint is safety and tolerability at 6 months, and subjects were being followed for out to 12 months for hair growth. And I believe that the company has received top line results and is analyzing those now. And at such time that we get those results from Kerastem, we'll communicate that appropriately. But no specific update on that data is available at this time.

So no further questions. So once again, everyone, thank you for joining the call. I want to just mention and recap what those forward-looking milestones are for the remainder of 2017. As I mentioned, and Tiago mentioned, our plan is to extend our option with BARDA. We plan on reading out the top line results from the STAR pivotal trial. We're in the process of completing the facility validation, the manufacturing and related activities for nanoparticle 0918 chemotherapeutic and preparing for EMA filing and then seeking potential partners. We also intend to complete enrollment in the Japanese SUI pivotal trial and then the EU scleroderma II -- SCLERADEC II trial.

So as always, I want to thank you on behalf of the board and management for participating in this call. And the company is also very appreciative to the patients that have trusted us throughout the course of these trials and our various commercial endeavors, our advisers and analysts that follow us, and of course, always to our hard-working and dedicated employees. Thank you, and have a good evening.

Thank you. This does conclude today's conference call. Please disconnect your lines at this time, and have a wonderful day.