Thermogenesis Holdings Inc (THMO) 2016 Q3 法說會逐字稿

Welcome to the Cesca Therapeutics third-quarter fiscal year 2016 financial results conference call and webcast. Please refer to the press release about this conference call on the Company's website, CescaTherapeutics.com, for further detail.

The Company has asked that I read the following statement. Management will make comments today that contain forward-looking statements. Forward-looking statements are any statements that are made that are not historical facts. These forward-looking statements are based on current expectations of the management team and there could be no assurance that such expectations will come to fruition. Because forward-looking statements involve risks and uncertainties, Cesca's actual results could differ materially from management's current expectations.

Please refer to the press release, the Company's Forms 10-K, 10-Q, S4 and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time-sensitive and is accurate only at this time. If any portion of this call is rebroadcast, retransmitted or redistributed at a later date, Cesca will not be reviewing or updating this material.

As a reminder all participants will be in a listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator Instructions). For your information this conference call is being recorded.

I would now like to turn the call over to Mr. Robin Stracey, President and Chief Executive Officer of Cesca Therapeutics. Please proceed, Mr. Stracey.

Thank you, Operator, and thank you to everyone on the call for joining us today. I have with me Mr. Mike Bruch, our Chief Financial Officer, and Dr. Dalip Sethi, our Director of Clinical Research here in the US. We plan to break down the discussion today if the five elements.

First, I want to remind listeners of the Company's overall direction and strategy. This has not changed since the formation of Cesca Therapeutics following the merger of Thermogenesis and Totipotent in February, and we are no less committed to it today than we were at the outset.

Second, Mike will walk you through our fiscal third-quarter financial results and give you an update on our overall financial condition.

Third, I will update you on the status of our clinical programs with a particular emphasis on the critical limb ischemia program for which we were granted FDA approval last year for a Phase III trial here in the United States.

, I'll touch on issues and concerns relating to our valuation and how it has evolved over the last couple of years since the merger; and before closing we will open up the call for any questions.

So first, with regard to our overall direction and strategy. We are as you all know pivoting from our historical position as a supplier of devices to the core blood banking industry, to a company that develops clinical protocols and delivery systems that advance the safe and effective practice of regenerative medicine. We intend to be a market-leading fully integrated autologous cell therapy company with unique and highly differentiated offerings that address significant unmet medical needs.

Our future path is a natural extension of, but goes way beyond, our historical focus. We are targeting what we see as large and growing market opportunities for autologous cell therapies.

In partnership with Fortis Healthcare, we have seven clinical protocols at various stages of development. Our leading protocols are for critical limb ischemia and acute myocardial infarction. But we also have human data from pilot studies for non-healing ulcers, osteoarthritis, nonunion fractures, spinal fusion and avascular necrosis. Collectively these treatments represent the potential addressable market opportunity that we estimate to be in excess of $16 billion. We have a substantial pipeline with multiple potential shots on goal and plenty of room to grow.

Our treatments are entirely autologous and our SurgWerks delivery system, which consists of a processing platform coupled with single-use indication-specific procedure kits, is broadly capable and designed to be used in a point of care setting in a single visit 90- to 120-minute procedure. We also have an active laboratory device-based bone marrow transplantation program consisting of two parts.

In conjunction with such partners as Memorial Sloan-Kettering and St. Jude's Children's Research Hospital in Memphis, Tennessee, we have in development the CellWerks system, our proprietary cell processing platform with associated analytics for intra-laboratory preparation of adult stem cells from bone marrow or blood. Then we have our haploidentical bone marrow transplantation service business, focused specifically on India where, again, leveraging our exclusive relationship with Fortis Healthcare we provide specialized bone marrow transplantation services through our licensed GMP facility to transplant centers throughout the country.

Our goal is to dramatically improve the probability of successful bone marrow transplants between patients and unmatched family donor member donors, an approach that is particularly compelling in a country that lacks a sophisticated network of public banks. All this is supported by a strong and growing portfolio of intellectual property.

Beyond the patents we've already been granted covering our existing products, we now have eight additional patent applications in process, covering the clinical methods we have in development. We believe these key elements of our strategy, coupled with our highly resource-efficient collaboration on clinical programs with Fortis healthcare, add up to a significant competitive advantage relative to peer group companies in our space, and therefore represent a compelling value creation opportunity for our customers.

With that, and before I get into further discussion on our anticipated path forward, I'll turn the call over to Mike for commentary on our quarterly financials. Mike?

Thank you, Robin, and good afternoon, everyone. This quarter's results can be summarized by two major themes. We continue to see the benefits of the restructuring that occurred in 2015 and we had several nonrecurring charges to our net loss, associated with retiring 30-year debentures and warrants with toxic special cashless exercise features.

As you remember, we implemented a restructuring at September 2015 to right size our business. We've successfully streamlined the Company with minimal disruption to our operations and have not impacted our ability to meet our customer's needs. We started to see the savings associated with the restructuring in our December -- our December 31, 2015 quarter and I'm happy to say that we continue to see those benefits in the current quarter.

As an example, our operating expenses for the March 2016 quarters were up only 5% compared to the December 2015 quarter, and most of the increase is related to a credit to stock compensation expense [over the] December 2015 quarter and a slight uptick in legal fees in the current quarter.

Now, turning to the March 2016 quarterly results. Revenue for the quarter ended March 31, 2016 were $2.8 million compared to $4 million for the quarter ended March 31, 2015, a decrease of $1.2 million. Primary contributors to the decline or AXP consumables as a result of an offset in the timing of scheduled orders between quarters this year compared to the corresponding quarters in the prior year for one of our customers -- one of the Company's major customers in Asia -- and ResQ BMC as a result of reduction in purchases by the country's largest distributor in the US following Cesca's decision in August 2015 to withdraw the product from the United States market on or before May 31, 2016. The Company's gross profit was $400,000 or 14% of net revenues for the quarter ended March 31, 2016, compared to $1.1 million or 28% for the corresponding quarter in 2015.

The decline in gross profit between the reporting periods was primarily attributable to changes in the mix of product sold and the establishment of the provision for losses on non-cancelable purchase commitments to a vendor. Operating expenses for the quarter ended March 2016 were $3.1 million compared to $6 million for the corresponding quarter in 2015.

General and administrative expenses decreased by nearly $1.6 million, attributable primarily to a reduction in legal expenses of approximately $1 million linked to a 2015 settlement patent in litigation cases. Research and development expenses decreased by just over $1 million primarily as a result of lower personnel cost following the Company's October 2015 restructuring initiatives and reduced spending associated with its clinical programs.

Due to the cost savings and operating expenses and despite a reduction in revenue and gross profit, the net loss from operations for the quarter ended March 31, 2016 was $2.7 million compared to $4.8 million in the quarter ended March 31, 2015, which represents an improvement year over year of over $2 million. However, reported net losses for the quarter ended March 31, 2016 was $10.9 million compared to $4.8 million for the same prior year period, an increase of $6.1 million.

The difference between the net loss from operations and the reported net loss is attributable to the inclusion of one-time charges of almost $7 million associated with refinancing of the Company's $5.5 million 30-year debentures and a loss of the cashless exercise of warrants.

Adjusted EBITDA loss was $2.3 million for the quarter ended March 31, 2016 compared to $4.1 million for the corresponding quarter in 2015. The decrease in the adjusted EBITDA loss was the result of a decreased loss from operations as already described.

Cash and cash equivalents were $7.2 million at March 31, 2016 and the Company believed that this is sufficient cash to sustain its operations for at least the next 12 months. Now I'll turn the call back over to Robin.

Thank you, Mike. I mentioned earlier that in conjunction with Fortis Healthcare we have seven clinical protocols at various stages of development. By far, the furthest along has been our protocol for the treatment of patients with late stage critical limb ischemia, or CLI, using our proprietary SurgWerks CLI system.

As a refresher, CLI is a severe form of peripheral artery disease fueled by the epidemic of diabetes and the aging of the population, whereby an affected limb is so deprived of blood flow and oxygen that it has visible signs of gangrenous ulceration. Approximately 70,000 patients undergo major limb amputataion as a result of late stage CLI each year in the US alone, and a further 135,000 patients undergo a minor amputation.

The goal of Cesca's CLI program is to preserve the limbs of infected patients and avoid the dismal outcomes associated with limb amputation. Target patients are those that have either exhausted or are poor candidates for all other available surgical options.

Those of you that have followed the Company for some time will be aware that we first reported the results of our 17 patient CLI feasibility trial using the SurgWerks CLI system conducted at Fortis in India in January of 2014. The results were, to say the least, remarkable.

A submission to the FDA followed in November 2014, seeking approval for a pivotal study to prove the safety and effectiveness of SurgWerks CLI in a larger patient population in the United States. And in June of 2015, the Company was granted investigational device exemption approval by the FDA for a 224-patient randomized double-blinded placebo-controlled pivotal study at up to 60 sites for the treatment of Rutherford category 5 CLI patients using Cesca's proprietary system.

That study has yet to begin. Four months after securing FDA approval for the trial, we elected to hit the pause button and delay the start of the trial. I elaborated on the background to that decision at the time, citing emerging concerns regarding the assumed rate of patient enrollment in the trial, the design of the statistical plan and the practicality of the overall timeline.

Those concerns were driven by an analysis of disappointing outcomes in similar studies experienced by other industry players such as Astrim, Anges, Juventus, Terumo Harvest and Zimmer Biomet. Our objective has been not only to start an FDA-approved pivotal trial but to maximize the probability of successful trial outcome and the ultimate delivery of a compelling commercial therapy. After almost six months of detailed analysis and then, we expect to submit an IDE supplement detailing a range of changes to our trial design and amendments to our protocol at the end of this month.

The supplement will touch on, among other things, study endpoints, the statistical analysis plan, the required patient numbers for both the treatment arm and the control arm, the patient inclusion-exclusion criteria, and a series of protocol changes that have the potential to enhance patient enrollment. The effort has been a substantial undertaking. The supplement amended protocol, dependencies and references collectively add up to a submission well north of 1,000 pages.

Realistically, we anticipate there may be several rounds of dialogue with the Agency to follow, but we are cautiously optimistic that we will have FDA approval of our supplement and revised protocol in such a timeframe that we will be in a position to begin enrolling patients towards the end of the year. Meanwhile we continue to work closely with our partners at Fortis to further develop our understanding of SurgWerks potential.

Earlier this week we made public results of a study involving six late stage critical limb ischemia patients treated with the SurgWerks CLI system by Dr. Suhail Bukhari at the Fortis Escorts Heart Institute and Research Center in New Delhi on a compassionate use basis. All six were considered no option CLI patients. Four had been classified at baseline as category 5 on the Rutherford scale, one as category 4, and one as category 6. The mean age was 51 years and all six had failed all prior standard revascularization therapies.

Each patient in the study was treated with autologous bone marrow cell concentrate, prepared using Cesca SurgWerks CLI kit under the direct supervision of Dr. Bukhari in the operating room. Each had 120 milliliters of his or her bone marrow harvested, inclusive of anticoagulant. The bone marrow was then immediately processed at the point of care in the operating room, using SurgWerks' processing platform before the prepared concentrate was transferred aseptically back into the sterile field and injected intramuscularly into multiple sites of the affected limb of the patient in each case.

All six patients tolerated the procedure well. The average therapeutic cell dose in the final bone marrow concentrate product was over 10 to the 8 total nucleated cells.

At six months, follow-up was carried out with all six patients to assess safety, major amputation-free survival rate, improvement in pain at rest, the clinical status of ulcers, gangrene and open wounds, and improvements in quality of life.

Dr. Bukhari reported the pain scores fell from an average of 7.6 before treatment to 0.67, with four of the six patients reporting no pain. Foot ulcers and open wounds appearing on five of the six patients had healed, and five of the six were amputation-free after six months.

One patient underwent a major limb amputation at four months following treatment due to disease progression and development of gangrene in the affected limb.

These results reinforce our conviction that stem cell therapy, using autologous bone marrow concentrate derived using the SurgWerks CLI system, is a compelling and viable option for patients who would otherwise have no surgical alternative but a debilitating amputation. A short video montage describing these compassionate use cases including a couple of patient interviews can be viewed on Cesca's website, at www.CescaTherapeutics.com.

With regard to our acute myocardial infarction program, we've been gearing up for some time for a Phase II study focused on patients who have experienced an acute myocardial infarction and do not adequately respond to reperfusion therapy. It is a 40 patient study with a 1 to 1 randomization, meaning that 50% of enrollees who received the SurgWerks AMI system intervention and 50% will receive an active control, which is the standard of care.

The primary endpoint will be six months' safety and the study will be conducted in conjunction with Fortis Healthcare in India with Dr. Ashok Seth as the principal investigator.

We received institutional ethics committee approval to initiate the trial in India last year but the start of that trial is pending a submission for formal approval from the Drug Controller General in India. Meanwhile, we are excited to report that we have had a submission of our single-subject AMI pilot study, a submission entitled Autologous Bone Marrow Concentrate Enriched in Progenitor Cells, An Adjuvant in The Treatment of Acute Myocardial Infarction, accepted for publication in the peer-reviewed journal, International Journal of The Cardiovascular Academy. We expect it to be published in the June 2016 edition.

We have similarly had a manuscript on our learning and fractures program entitled Enhancement of Atrophic (inaudible) Fracture Healing Using Autologous Progenitor Cell Rich Bone Marrow, accepted for publication in the peer-reviewed journal Stem Cell Research Developments in Therapy. That one should also be published in June.

At this point I'd like to switch gears and touch on issues and concerns relating to the decline in the valuation of our Company. As you might imagine, I get asked about this a lot.

I mentioned earlier that we first reported the results of our 17-patient feasibility trial using the SurgWerks CLI System conducted at Fortis in India in January of 2014. At the time that news was released, our valuation jumped north of $75 million before settling in at the $50 million to $60 million range, at which it stayed for most of the following eight or nine months.

However, as many of you know the Company ran into a perfect storm of merger-related issues in late 2014, and frankly has been dealing with the fallout ever since. There been management changes and order to change, delays in quarterly filings, delays in raising capital, cash conservation initiatives, a restructuring of debt and most recently a reverse stock split.

During that 18-month period we've seen the value of our Company decline from the $50 million to $60 million range in late 2014 to a valuation today of less than $7 million. Needless to say, we do not believe the current valuation does justice to the inherent value of the Company or its potential.

Arguably, the prospects for the Company are at least as good, if not better today than they were in late 2014. Consider that in October of 2014 we had not yet even submitted our IDE for the pivotal CLI trial to the FDA, let alone had it approved. That approval, arguably a strong validation of our scientific approach and the clinical data we generated in our feasibility work, came in June of 2015.

We have since refined that study design and the protocol to further enhance the probability of a successful and statistically significant outcome, culminating in the IDE supplement we plan to submit later this month as discussed earlier. Our relationship with Fortis remain strong and is getting stronger. We reported in March that we were expanding the core blood banking services that we provide to them across a wider network of Fortis facilities and we continue to work closely with them on refining and optimizing our groundbreaking haploidentical bone marrow transplantation program in support of transplant centers across the country.

Our clinical programs continue to look very promising. Beyond the evident success of the compassionate use cases for low option CLI patients described earlier, we continue to advance our other programs and enhance our scientific standing as evidenced by the AMI and nonunion fracture manuscripts we have recently had accepted for publication in peer-reviewed journals also described earlier.

And in Boyalife, we have a -- we've secured a robust well-funded and strategically oriented investment partner. Boyalife, whose activity spans stem cell banking, commercial cloning, healthcare services, drug discovery and translational medicine, clearly sees great value creation potential and our clinical programs and has already invested heavily in our future success.

So in closing, let me just say that although the path over the last couple of years has been bumpy, we remain bullish on the Company's prospects and are optimistic for the future. Our biggest near-term milestone will be the submission to the FDA later this month of our IDE supplement for the CLI pivotal trial, hopefully followed before the year end by approval from the agency to commence the study.

With that I'd like to open the call up for any questions.

(Operator Instructions). Jason Kolbert, Maxim.

Robin, thanks for the clear update, and you have enough operating capital now to get through the end of the year. Just walk me through the financing strategy that we can get, what sounds like it will be a well -- what we say properly design CLI trial underway. By the way, I do commend you both the proof concept cases in India as well as the rigorous design of the CLI trial is a differentiating factor for you versus some of the other companies you mentioned as well as others you didn't mention that have been claiming to have CLI studies.

But with that said, walk me through the strategy either with your existing partner or raising capital on how you plan to fund that trial. Thank you so much.

Thank you, Jason, appreciate that. So I don't have a definitive black-and-white answer for you on the financing. Clearly we have enough cash to last the Company through 12 months but that will be insufficient to fund the clinical trial. Interestingly we had teed up the clinical trial as a $20 million to $25 million investment as we had originally designed it, and when our IDE supplement detail becomes known, we think that the new price tag for this will be somewhere in the range of $15 million to $20 million. So it may actually be a less expensive trial than we had originally anticipated.

In order to fund that activity, step one, obviously, I think, will be to get the IDE supplement approved by the FDA. We anticipate there will be several rounds of dialogue with the Agency. Hopefully we'll have the green light back from them before the end of the year. And then at that point I think funding the trial will boil down to probably one of three different alternatives.

The first is Boyalife. We have active dialogue underway with Boyalife on a variety of different potential synergistic and collaborative efforts and they may be well potential for funding the clinical trial through activities involving Boyalife.

The second is the activity we have underway with Mavericks capital. We talked about this before, and there will be some people on the call I'm sure who are most interested to know how that is evolving. We have nothing to report specifically at this point in time, but Mavericks, as you may recall, has been working with us on trying to identify prospective partners for licensing agreements for commercial rights to the CLI protocol once it's approved in select geographies. So those conversations continue, we just don't have anything definitive to report on that front as yet.

And beyond that, of course, we continue to monitor the Capital Markets but we are acutely aware of the challenge associated with raising capital and the Capital Markets giving out current valuation. But that remains a possibility and obviously as things evolve over the next several months we will be keeping a close eye on what that potential might be.

Thank you, Robin.

(Operator Instructions). Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Robin Stracey for any closing remarks.

So, thank you all once again for joining the call today and for your continued interest in and support of the Company. I'm very much looking forward to talking with you further about the IDE supplement as and when it goes in. Jason, I will see you in early June, we will be attending the marketing conference. I'm looking forward to giving you a thorough briefing at that time along with other investors. Thank you again for joining the call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.