Vericel Corp (VCEL) 2007 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Aastrom Biosciences second quarter fiscal year 2007 Investors' conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer assumption will follow the formal presentation. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your moderator, Ms. Kris Maly, Director of Investor Relations at Aastrom. Thank you, you may begin.

Thanks, Jackie. Good morning, and welcome to our conference call. Before we continue, it's important that we review our Safe Harbor statement. This conference and webcast contain forward-looking statements including without limitation, statements concerning product development objectives and anticipated timing, clinical trial strategies, initiation, completion, results, and anticipated timing, revenue results, potential market opportunities, market development plans, projected cash burn rates, anticipated key milestones, and potential advantages and applications of tissue repair cells, which involve certain risks and uncertainties.

These and other significant factors are discussed in greater detail in Aastrom's Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission. Actual results may differ significantly from the expectations contained in these forward-looking statements.

Now, it's my pleasure to turn the call over to our CEO, George Dunbar.

Thanks, Kris. Good morning, everyone, thanks very much for participating on the call today. This morning we will highlight Aastrom's progress since our last quarterly call and review our financial highlights, then we will open up the call for questions from the audience. Most recently, we were pleased to announce the achievement of two critical clinical milestones.

First, announced last week that the FDA granted Orphan Drug Designation for our TRCs, tissue repair cells, for the treatment of Dilated Cardiomyopathy, or DCM, a severe chronic cardiac disease. The next step for the cardiac regeneration program is to initiate a clinical trial and utilize our TRCs as a therapeutic, to induce heart tissue regeneration in these patients.

We also announced during the quarter that the first two patients have been treated with TRCs in our pivotal Osteonecrosis clinical trial being conducted in Barcelona, Spain. We initiated patient enrollment and treatment after receiving written approval from the Spanish Drug Agency. Dr. Burchardt will provide further details on these clinical milestones in a few minutes.

Since October, we have also added two new senior management executives with the appointment of Dr. Ronnda Bartel and Dr. Sheldon Schaffer. As Vice President of Research and Development, Ronnda is responsible for accelerating our product development and manufacturing efforts for our TRC-based cell products, as well as for our Research and Discovery efforts. As Vice President of Corporate Development and Intellectual Property, a newly created position for Aastrom, Sheldon is responsible for pursuing the development of corporate partnering and technology licensing opportunities, as well as the expansion of our intellectual property portfolio.

Jerry Brennan will review our second quarter financial results. Jerry?

Thank you, George. We ended our second quarter on December 30th, 2006 with approximately 36.3 million in cash, cash equivalents, and short-term investments, compared to 43 million at June 30th, 2006. At December 30th, 2006, we continued to have no debt outstanding. Our average cash utilization during the second quarter was approximately $1.2 million per month. We expect the average cash spent to increase to approximately $1.5 million per month during the remainder of fiscal year 2007.

Our current estimated spending projections are lower than previously reported. However, these updated projections are now consistent with our current clinical plan and announced clinical milestones. It is expected that this increase in spending will result primarily from expansion in our clinical trial programs, future regulatory submissions, and the development of manufacturing facilities and related staffing additions.

Total revenues for the quarter ended December 31st, 2006 consisted of limited therapy kit sales for research by others, and grant funding, for a total of $158,000, compared to $117,000 for the same period in fiscal year 2006.

Research and development expenses for the quarter ended December 31st, 2006 increased to $2.6 million, from 2.2 million for the same period in fiscal year 2006. We also reported that our selling, general and administrative expenses for the quarter ended December 31st, 2006 remained flat at $2.3 million, compared to the same period in fiscal year 2006. The research and development expenses, and selling general and administrative expenses, include noncash charges related to principally to accounting standards, which require us to measure the fair value of all employee share-based payments, and recognize that value as an operating expense.

Now, Dr. Burchardt will review our clinical progress since the last conference call. Elmar?

Thank you, Jerry. As George mentioned earlier, the first two patients have been treated with TRCs for the treatment of osteonecrosis in a pivotal trial being conducted in Spain. Initially, 10 patients will be accrued into this trial, they will be followed for a total of 24 months post-treatment.

If successful, we expect the patient data from this trial will support future registration applications we plan to submit to the regulatory authorities in the European Union, as well as to the FDA in the U.S. The expected treatment approach is to remove the necrotic tissue from the interior of the patient's femoral head followed by the indentation of TRCs.

The expectation is that if the femoral head is [strengthened] by the regrowth of healthy bone, marrow, and vascular tissue, the need for a hip replacement should be delayed or eliminated for patients suffering from this disease. The primary efficacy endpoint of this trial is to prevent the progression of osteonecrosis, which will be measured by MRI and by X-ray. Our TRCs have received an Orphan Drug Designation from the FDA for this indication, and we are in the process of refining our clinical trial protocol in the United States. We expect to initiate a pivotal trial here during the first half of 2007.

Last week, we were pleased to be notified by the FDA that our TRCs have received an Orphan Drug Designation for Dilated Cardiomyopathy, or DCM. DCM is a disease that causes enlargement of the heart, and reduces the pump function to a critically low level. Typically, patients with DCM present with symptoms of congestive heart failure, including limitations in their physical activity and shortness of breath.

Patient prognosis depends on the stage of the disease, but is characterized by a high mortality rate. The New England Journal of Medicine estimates that in the U.S. alone 120,000 people suffer from this disease. Other than heart transplant, there are no effective long-term treatment options for end stage patients with this disease.

Scientific and early clinical evidence suggests that high doses of stem and progenitor cells could possibly slow down, or even reverse disease progression, in the heart muscle of DCM patients. It is our intention to utilize our TRCs as a therapeutic to induce heart tissue regeneration in patients with Dilated Cardiomyopathy. If successful, TRC intervention may improve the patient's condition, or may even eliminate or delay the need for a heart transplant.

The next anticipated milestone for our cardiac regeneration program is to initiate a clinical trial in the European Union that treats patients with Dilated Cardiomyopathy. This is a very exciting time for Aastrom as we anticipate the initiation of several new clinical trials in 2007. I look forward to the next opportunity to provide an update on our clinical programs.

I will now turn the call back over to George.

Thanks, Elmar. As we conclude our prepared remarks, before we open it up for questions, I hope you notice the momentum that Aastrom's progress through the clinical milestones that we are achieving so far this year.

Let me end by summarizing the milestones we expect to achieve by the end of the year. In the bone regeneration area, we intend to initiate a U.S. pivotal trial to evaluate TRCs in the treatment of osteonecrosis during the first half of the year. Secondly, complete enrollment in the pivotal trial in Spain for the treatment of Osteonecrosis, which we have already talked about. Third, report final results from the U.S. Phase I/II multi-center long bone non union fracture trial during the second half of 2007, and finally, complete enrollment in the U.S. Phase I/II spine fusion trials.

In the Cardiac regeneration area, our plan is to initiate a Phase I/II cardiac trial in the EU during the first quarter 2007, and in the vascular area, initiate a phase IIb trial in the United States using our TRCs to treat critical limb ischemia, two, to complete enrollment in the German critical limb ischemia trial, and finally in the neural regeneration, which is a new area for us, complete a clinical research program and initiate a Phase I/II spinal cord injury clinical trial by the end of 2007.

I'd now like to open this up to questions from the listeners, please.

Jackie, could you now recall the registration procedures for our listeners.

Thank you. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [OPERATOR INSTRUCTIONS] Our first question is coming from Stephen Dunn with Dawson James. Please proceed with your question.

Good morning everyone, and congratulations for a good Q2 for you.

Thanks, Steve.

Thank you.

2007 is shaping up to be very exciting for Aastrom. My question, are you able to give any guidance on your cash burn for the second half of calendar 2007?

Steve, we have not given any guidance on cash burn for the second half of the calendar year of 2007. But we do have sufficient cash to get through, in our Q we announced that we have sufficient cash to get through the end of FY 2008. So that is the only guidance we have really given on that.

Do we anticipate an increase in capital expenditures and manufacturing?

Our manufacturing capital expenditures are all built into our cash burn for this fiscal year.

Okay. And I guess this might be for Elmar, the 10 patients for the osteonecrosis, is that just the EU trial, or is that the combined EU and the planned U.S.?

No, just in the European Union we are planning to conduct another pivotal U.S.-based trial.

Would it be basically the same inclusion and exclusion criteria that you have for EU, or do you anticipate it to go slightly different?

We are actually constructing the trial so that we are performing the same surgical procedure to get data on this, and to get our clinical experience with it, so that when we initiate our big pivotal U.S. clinical trial, really start with the optimal surgical approach, and with the optimal patient selection.

Okay. And now my final question, and I will jump back in the queue here, one of the other publicly traded players for the adult stem cell space announced that they began using adipose stem cells for cardiac regeneration, specifically myocardial ischemia, I was wondering if you could compare and contrast the adipose cells for the TRC's?

I would rather not. I will let Elmar take that one, but we are pursuing a different indication using a different technology. So to some extent it is sort of apples and oranges.

I think you know it is really hard to compare the two approaches, and but I think you know that our product has some really unique characteristics, it's well-defined and in particular, we have extremely high doses of cell types in our product, that we think would make it very amenable to the cardiac approaches we are pursuing at this point.

All right. Well, I look forward to 2007, it's going to be a very good year for Aastrom. Thank you.

Thanks, Steve.

Thank you.

Our next question is coming from Ren Benjamin with Rodman & Renshaw.

Good morning everyone, congratulations on the quarter. A couple questions regarding the clinical development plan. Let's talk about the osteonecrosis trial. Can you guys hear me?

Yes.

Okay, great. The trial that's going on in Spain, the last update that we had was the two patients had been treated. Have any more patients been treated since then?

We can't comment on the progress of the trial at this point, but it's making good progress.

Okay. And I think George had said that enrollment was going to complete in 2007 which makes sense. Can you be any more specific in 2007, do you think it's going to be in the first half, second half?

No, we wouldn't go into more detail at this point.

Okay.

I think the guidance we have given for the U.S. trial is that we will start the trial during the first half of the year, but we haven't given any guidance on the trial, the Spanish trial that you are talking about.

Got it. You had mentioned that early on, Elmar, that this would support a European approval. Yet it's considered a pivotal trial. Can you give us a little bit more color as to what this trial is actually designed to do? So for example, can you seek approval in Spain with this trial, or would you have to run a larger trial in Europe as well, and this would just be a supporting trial to the larger trial?

Well, remember, Ren, we have a substantial body of clinical evidence already that the TRCs are aiding in the, or could aid in the healing process. And we think that the pathology in osteonecrosis is not very different from the pathology you would see in other bone applications. So there is a lot of clinical information out at this point. So we expect to be able to receive marketing approval in Spain on the basis of the information we will be able to submit.

Okay. And then what about the rest of the, let's say the rest of Europe, outside of Spain, how would that work?

Europe is a very, at this point, it's a very fractionated landscape, in terms of the approval process. In fact, we are able to market our product in certain European countries at this point already. But I won't go into more detail at this point.

This is George. I think another way of casting this is that we have manufacturing sites in Spain and in Germany, so I think you can predict those are the two countries that we will be making the first initiatives in.

As we move forward in both of these markets, we can then make decisions about what the entry strategy might be in a country that has less rigorous regulatory and reimbursement requirements, but we haven't sorted that out yet. And sort of back to Steve Dunn's question on manufacturing and spending, we have capacity in place today to cover all the clinical trials that we have announced and advertised.

Okay. And if I remember correctly, this trial is going to require about a 24-month follow-up, however, it's open label so there will be the, I guess the potential for some sort of analysis at different months, like at months 3, 6, 9, things like that. Is that still the case?

That's correct.

Okay. Regarding the U.S. osteonecrosis trial, can you comment at all, if possible, about what the design, or how large the trial could be, whether or not you might seek an SPA with the FDA? Any additional color regarding this?

Well, we have announced that previously that we hope to initiate the trial during the first half of the year. So I think you can conclude from that we are very engaged in discussions with the Agency now about the trial, about the size, about the protocol, and all the various aspects of it. And so I don't want to be presumptuous and tell you exactly where we're going to come out on that, but I think we're tracking to these timelines. You'll hear more on it later.

Okay. Regarding the cardiac program, you mentioned and I think I have this right, that you'll be starting the cardiomyopathy trial in Europe in the first quarter of '07, is that correct?

That's correct.

Can you give us anymore color as to how this trial is going to be run? Is it going to be, start off with a fairly small trial, maybe another 10 patients? How long would the trial last? And when, would you need to wait for data to be available from that trial before coming to the U.S. or would you start in the U.S. earlier than when you get data?

I think you know we already talked about this in previous communications, so we are planning to conduct a pilot trial, it's a pilot phase in the European Union at this point. And it's primary purpose is to establish the safety of the procedure, and but we will in these patients, of course, be able to get their efficacy data as we go along. So we are planning to use these kinds of data to complete our package and to make it stronger. The ultimate goal is, of course, to take it here into the United States, and to conduct a clinical trial here. And this is actually underway at this point.

The basic strategy that we are pursuing because we have so many potential clinical indications that we can go after, is we find a country in this case we are doing this within the EU, and we will disclose more about it later, where we can do a very efficient, sort of Phase I study, also to give us some indication of efficacy, it's very cost-effective to do it that way, and then based upon the results of that, we can decide whether we want to double down, and pilot the trial somewhere else, whether it's in that same country, or whether it's in multiple countries.

So this will give us the first indication of what we are hoping to achieve in the cardiac area, and you will be hearing more about that in the coming talks. But obviously our plan is to initiate the trial, if you can count the days before the end of next month.

Right. Can you give us an idea, and if you have mentioned this already, I apologize, but it's a pilot trial. How long do you think a trial like this could last?

Say that again? How long what?

How long do you think a trial like this could last?

I think there are actually long lists of patients who don't have any option, especially for this kind of disease, so we are in fact, being approached by patients and by the centers, by some of the leading centers in Europe at this point. If we can make these TRCs available for them to use them clinically.

And let me also tell you, based on other cell therapy-based trials, that typically, if you see efficacy, this efficacy is typically observed within three to six months after the procedure is performed. So we expect, since this is an open [navel] trial, to get some indication of clinical efficacy fairly soon. This is expected to run really smoothly.

Okay. Okay. Moving on to the vascular trial, you said that you were going to complete enrollment in Germany. Can you tell us how many patients have been enrolled in Germany so far?

This clinical trial there involves a total of 30 patients in this phase, and we're well underway.

Okay. And so it will be complete, the enrollment will be completed sometime in 2007, correct?

That's what we expect, yes.

Okay. And can you give us a little bit more color, let's say on this trial. And again, I apologize if these details have been given. But just how long of a follow-up, like you were very good in saying that in three to six months with the cardio trial, we can start to see some results. How does that translate into the critical limb ischemia trial?

Let me comment on this really generally here in this case again. We are targeting the most severe fraction kind of the patients here, we're targeting patients with critical limb ischemia. Their prognosis is really not very good. So typically there are data out there that suggest that up to 50% of these patients will have to undergo major amputation within a year. So I guess we are targeting this kind of patient population, so you can kind of extrapolate from this, which kind of follow-up time would be needed to show meaningful clinical results.

Got it. How is this going to compare to the U.S. trial that you plan on starting this year?

Basically, a very similar strategy to the strategy we are also pursuing in osteonecrosis, we are very privileged to have access to quality centers in Europe, and to countries where we can easily do these kinds of clinical studies.

So this is very important for us to optimize our design for the studies that we are conducting in the United States. And it is very valuable experience that we're gathering there, very rigorously and keenly actually looking at all of the data that are coming out of these clinical efforts to optimize our program.

So it's fair to say that the program per se, you haven't defined let's say what the exact trial and protocol is going to be in the U.S., but you feel fairly confident that in 2007 you will start a trial in critical limb ischemia?

That's the plan.

That's the plan, okay. Okay. Let's see. Oh, final question, George, for you regarding upcoming milestones. I was under the impression that we might get some updated data from the long bone fracture trial at the upcoming American Academy of Orthopedic Surgeons Annual Meeting, unless I have mixed it. Is that still the case?

Well, I think that's a pretty good prediction.

All right. And then final data, we were saying, I think you mentioned some time in the second half of this year?

That's correct.

Okay. Terrific, guys, thank you very much.

Thanks, Ren.

[OPERATOR INSTRUCTIONS] Our next question is coming from Tom Schrader with BMO Capital Markets.

Good morning, the last questioner asked every conceivable question except the one I wanted answered so --

Go ahead.

One more on the osteonecrosis trial, when are the scans for that trial, and kind of what you said about the cardiac trial, when is a reasonable amount of time to see some sort of an effect, and do you expect to have some look at some data before you start a U.S. trial?

Again, I will be very general in my answer here. It appears that the progression to a fracture which is our primary endpoint, happens most of the time between 6 months and 12 months. So that's where the patients typically do progress when they're diagnosed at this particular stage.

And in this critical time period, it is still possible to prevent [inaudible] from progression into fracturing. And we hope to be able to get this process going in these patients. So you would, again, look at a time period between probably of about a year here.

So you think the first scan would be at a year?

No, we are following these patients continuously actually. This is a very sophisticated study, and it looks at all kind of aspects. Remember, we are not just trying to do something mechanical here, we are trying to regenerate tissue, and we are doing quite a sophisticated scan program here for these patients that includes CT, it also includes MRI to basically show if there is survival tissue developing, and how the --

Right, that's my question, when are the first scans, or is that something you're not talking about?

I can't go into much detail but basically I've told you that the progression takes place typically between 6 and 12 months. So it's you know, you can guess from this, that most of the imaging procedures will be around this time period.

Okay. And how often is osteonecrosis in both hips, specifically, how often are you going to have an internally controlled patient, where you can look at both hips?

It's fairly frequent, actually you have about idiopathic osteonecrosis, about 70% sooner or later you're going to have an infection of both hips.

But they don't necessarily progress at the same rate.

Exactly. It can be a very different course of the disease. So actually the trial we are looking at the pivotal trial, will involve a control group, so you don't have to use internal controls. We will have the internal controls, but we are also looking at a formal control.

Did you expect in most cases to do only one hip of the patient?

Yes.

And do you expect to stratify your trials, based on some sort of chronic osteonecrosis, versus some people who have had one traumatic event, and maybe don't have underlying issues with circulation to the area?

I think we definitely plan to look at our patients really carefully and to stratify them, but this is also something that is an ongoing discussion.

Okay. Thanks for all the extra details.

Thanks, Tom.

Our next question is coming from Sherry Grisewood with Jesup & Lamont.

Hi, good morning. Congratulations on really moving forward with the clinical trials, I have followed Aastrom from way back, so I know the Company quite well. I have a simple question. Will you be doing presenting any abstracts or posters at the ORS next week?

I don't believe so.

Okay. Thank you.

At this time, there are no further questions. I would like to hand the floor back over to George Dunbar.

You say there are no further questions?

There are no further questions at this time.

Thanks very much for your attention, and your interest in following the Company. If you have any follow-up questions, we are available obviously to take them and answer them the best we can.

We have got a very aggressive and broad clinical trial strategy, which we have laid out in some detail over the last few quarters, and during our Investor presentations, covering not only the bone area, which has been Aastrom's traditional area of focus, but also breaking out now into the cardiac area, vascular area, and also the neural in the case of spinal cord injury.

So we appreciate you following the Company, and look forward to giving you an update in the future. Thanks very much.

Thank you.

Thank you.

This concludes today's conference. Thank you for your participation.