Vericel Corp (VCEL) 2007 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Aastrom Biosciences third quarter fiscal year 2007 investor conference call.

[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, Ms. Maly. You may begin.

Thank you, Diego.

Good morning, and welcome to our conference call.

Before we continue, it's important that we review our Safe Harbor Statement. This conference call 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 in applications of Tissue Repair Cell technology, which involve certain risks and uncertainties. These and other significant factors are discussed in greater details in Aastrom's Annual Report on Form 10-K and other filings with the SEC. 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. Thank you for participating in our call today.

This morning we will highlight Aastrom's progress since the last quarter and review our third quarter financial highlights. Then we will open the call up to questions from our audience.

We hope you saw the press release late yesterday announcing FDA approval of our Investigational New Drug, IND, application to initiate a Phase III 120-patient clinical trial for the treatment of osteonecrosis of the femoral head here in the United States. We intend for this to be a pivotal trial that demonstrates clinical safety and efficacy for the submission of a Biologicals License Application, or BLA. To do this, we may have to extend enrollment beyond the planned 120 patients during the course of the trial to generate additional patient safety data and support for our BLA submission.

Osteonecrosis is a progressive disease that currently has no established effective treatment. There are about 20,000 new patients per year diagnosed, and due to the lack of treatment options many of these cases eventually require total hip replacement. This is our first Phase III clinical trial for Aastrom focused on tissue regeneration and represents the achievement of a very important clinical milestone. Should the results of this trial meet our expectations, we intend to seek licensure and take our Bone Repair Cells products to market under our existing orphan drug designation.

Last week, we also announced the initiation of a U.S. Phase IIb clinical trial to treat critical limb ischemia in patients with peripheral arterial disease, or PAD, using our Vascular Repair Cells based upon our TRC technology. The primary objective of the clinical trial is to assess the safety for our TRC-based product. We will also be assessing amputation rates, wound closure and blood flow in the affected limbs, quality of life and the reduction of pain and the use of pain-reducing medications.

As noted on clinicaltrials.gov Web site, this trial is currently enrolling patients at a number of centers, including the Malcolm Randall Veterans Administration Medical Center in Gainesville, Florida; Southern Illinois University School of Medicine in Springfield, Illinois; the Michigan Vascular Research Center in Flint, Michigan; and at the Vanderbilt University Medical Center in Nashville, Tennessee. We intend to treat 120 patients at up to 20 different clinical sites. All the patients will be followed for a period of 12 months post-treatment.

FDA approval to initiate these trials and the beginning of patient recruitment represent major clinical milestones for the Company. We have now reported five clinical milestones since December of 2006. Dr. Burchardt will provide additional details on the clinical milestones later in the call.

We'd like now to talk to you about our financial results, and I'll turn the call over to Gerry Brennan, our CFO, for a review of last quarter's financials.

Thank you, George.

We ended our third quarter on March 31, 2007 with approximately $32.6 million in cash, cash equivalents and short-term investments, compared to $43 million at June 30, 2006. At March 31, 2007 we continued to have no debt outstanding. Our average cash utilization during the third quarter was approximately $1.3 million per month.

We expect the average cash spend to increase to approximately $1.5 to $1.6 million per month during the remainder of the fiscal year, depending on clinical trial accrual and the timing of certain spending related to a build-out of our facility. These projections are consistent with our current clinical plan and announced clinical milestones. It is expected that this increase will result primarily from expansion in our clinical trial programs, future regulatory submissions, the development of manufacturing facilities and related staffing additions.

Total revenue for the quarter ended March 31, 2007, consisting of limited sales and grant funding, were $258,000, compared to $238,000 for the same period in fiscal year 2006.

Research and development expenses for the quarter ended March 31, 2007 increased to $3.1 million, from $2.6 million for the same period in fiscal year 2006. We also reported that our selling, general and administrative expenses for the quarter ended March 31, 2007 decreased to $2.1 million, compared to $2.4 million for the same period in fiscal year 2006. The research and development expenses and selling, general and administrative expenses include non-cash charges related to an accounting standard which requires us to measure the fair value of all employee share-based payments and recognize that value as an operating expense.

Now, Dr. Burchardt, our VP of Medical Affairs, will review our clinical progress since the last conference call.

Elmar?

Thank you, Gerry.

As George mentioned earlier, we just received approval from the FDA of our Investigational New Drug application to initiate a Phase III clinical trial for the treatment of osteonecrosis of the femoral head. This trial will enroll at least 120 patients, randomized into two patient groups, at up to 20 sites.

The planned treatment approach will include a core decompression surgery in all patients in which a hole is drilled into the femur head to release the internal pressure that builds up with this disease. The patients in the treatment group will receive Bone Repair Cells, or BRCs, mixed with a bone matrix carrier placed inside that hole. The patients in the control group will receive bone matrix carrier alone, without BRCs.

If healthy bone is successfully regenerated in the femoral head, it is our expectation that the need for a hip replacement could be delayed or ultimately prevented in these patients. All of the patients treated in this trial will be followed for a total of 24 months post-treatment. This is our second pivotal trial evaluating our TRC technology in patients with osteonecrosis of the femoral head.

In January, we have announced that the first two patients had been treated with TRC-based products for the treatment of osteonecrosis in a pivotal trial conducted in Spain. Initially, 10 patients will be accrued into this trial, and 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 hope to submit to the regulatory authorities in the European Union as well as to the FDA in the United States. The primary efficacy endpoint of this trial is to prevent the progression of osteonecrosis, which will be measured by x-ray, by CT and by MRI.

We also recently initiated a Phase IIb clinical trial to treat critical limb ischemia in patients suffering from peripheral arterial disease, or PAD. This is a chronic disease that progressively restricts blood flow in the limbs and can lead to serious medical complications. It is often associated with other clinical conditions such as hypertension, cardiovascular disease, hyperlipidemia, diabetes, obesity or stroke.

Of the 10 million patients affected by PAD, 900,000 suffer from the most severe form, called critical limb ischemia. These patients are extremely limited in their ambulatory capacity, experience constant and chronic ischemia-induced pain, ulcers, tissue loss or gangrene to the limbs, which lead to 100,000 amputations per year. We will only be treating the end-stage patients who have no other therapeutic options to address their critical limb ischemia.

This is the largest and most rigorously designed cell therapy trial for the treatment of this critically ill patient population. The trial is multicenter, prospective, controlled, randomized and double-blind, meaning that it is comparing patients in the treatment group and the control group at the same time with the same criteria. Neither the patient nor the treating physician knows which patients receive the TRC treatment or the control treatment.

This is our second trial addressing critical limb ischemia. The trial being conducted at the Center in Bad Oeynhausen, Germany, has enrolled a comparatively small number of patients yet. Safety concerns have not been observed, and, to date, all of the TRC-treated patients have exhibited during the course of the study a complete healing, although these data are considered largely anecdotal due to the small [cohort size].

The patients enrolled in this trial are critically ill, with a high risk of amputation, very similar to the patients we will enroll in the U.S. trial. The results we have seen of the German trial were encouraging and supported our decision to initiate this Phase IIb trial in the United States.

TRC-based products have also recently 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 intent 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 continue to enroll patients and generate a substantial body of clinical data in 2007. I look forward to the next opportunity to provide an update on our clinical progress.

I will now turn the call back over to George.

Thanks, Elmar.

I hope from what you've heard and what we've outlined you can see, and hopefully you are as excited as we are about the clinical progress that we're making.

I'd like to conclude my prepared remarks to add some business context here.

These programs, as well as the new ones that we are working on, including spinal cord injury, which we will talk to you about later in the year, all incorporate several very important strategic components.

Number one, it leverages our Tissue Repair Cell technology across multiple repair sites within the human body. Number two, we're targeting clinical indications where the current standard of care is not particularly good for the patient. And, if successful, three, each one individually has the potential to be a standalone business and not just a product line or a product line extension, and this has been the basis for defining and executing on a clear path to profitability and increasing shareholder value.

Diego, I'd like to open the call up to questions from our listeners now, please.

Thank you.

[OPERATOR INSTRUCTIONS]

Our first question comes from Ren Benjamin, with Rodman. Please state your question.

Hi, good morning, guys, and thanks for taking the question.

Good morning, Ren.

Can I -- regarding the clinical programs that are ongoing, can I get a sense as to the timing of each of the programs? So, for example, so we know that in the [inaudible] trial this is a small [inaudible]. Can you give us an idea as to how long you believe enrollment will take? And then we know that there'll be a 24-month follow-up after that, but can you give us an idea for both the osteonecrosis trial as well as the critical limb ischemia trial? And then when do you think the cardiac program -- I think Elmar mentioned that you're going to start a Phase I in Europe, but when exactly -- second quarter, second half? When do you want to do that?

This is George. I'll make a preliminary comment and then let Elmar fill in the details. As we're just getting started with site and patient recruitment for both of these areas, you know, we have our internal plans for what we're projecting, but until we actually get into it and focus on the patients and the track record, it's going to be difficult for us to really give you any prediction at this time. I think in a few months we'll be able to give you better guidance based upon what we're seeing.

Okay. Was Elmar going to say anything else regarding these programs?

Yes, I think potentially we are, of course, aiming at really getting the accrual up there. We have 20 sites per trial, essentially. So this means if you're taking 120 patients, we would have essentially six patients per center. So there is a good chance that the [inaudible] can be [inaudible].

Are these sites all in the U.S., or is it around the world?

It's just U.S. sites for these trials.

Okay. Let's see, regarding the -- regarding upcoming data, talk to us -- will we be able -- will we ever take a look at the German limb ischemia data? Will that get published somewhere or presented at a conference? And then regarding sort of the final long bone?

Okay. With regard to the German trial data, these have in fact been covered at a couple of conferences so far. This is actually an open label study, so there are constantly results coming out of this study, and they are reporting on this. So this is actually expected to be an ongoing effort. We are constantly expanding our database coming out of this trial, and we are actually following these patients.

And then the long bone data, Elmar?

Long bone data will be reported by the end of this year.

Calendar year.

Calendar year.

Okay. Next question, please.

The next question comes from Jose Haresco, with Merriman. Please state your question.

Good morning, gentlemen, and congratulations on a lot of progress in the last year, when you think about where we were a year ago. It's amazing that you guys have moved into this late stage in the clinic, especially in orphan drug indication.

Thank you.

Could you give us a little bit further clarification as to what you're doing on the manufacturing side? I think, Gerry, you mentioned that you're building out some manufacturing capacity. Is that to scale products for commercial -- for, sorry, these larger clinical trials, or is it just general expansion of the R&D facilities?

We've built a completely new clean room at our site here in Ann Arbor. We're currently in the process of validating that site. It's intended to be able to handle all of the production requirements that are anticipated in our clinical trial milestones for the next three to four years.

We have -- Jose, this is George. We have enough installed capacity even without the expansion into the new clean room to really cover all the clinical activities that we are anticipating from these trials, and also including the spinal cord injury trial, which we haven't started, which we hope to tee up later in the year. In parallel and behind this, we have a very active program to address cost and throughput with the system that we have, so that when we get beyond the clinicals we will be able to merge that into a platform that will drive cost down and throughput up and gross profit up.

Okay. On the -- excuse me, on the avascular necrosis trial, you had mentioned that there might be a need to, at some point, add more patients to get more safety data for the pivotal study. Can you give me some sense of when that might be or how far in the process it might be before you decide that you need to extend the trial? Is that after enrollment or during enrollment? Can you give us some kind of timing there?

We'll let Elmar answer that.

At least what's going to drive that answer.

Sure.

That's an excellent question. The answer is this is an open label study, again, so we're continuously going to monitor the study progress and also the efficacy and safety data from the patients. And we also have the open clinical trial at this point in Europe is also accruing patients. And we can basically decide as we go along whether we feel the patient data that we have at this point is adequate to address the safety and efficacy questions surrounding our therapy. So there is ample opportunity, essentially, as we go along, to generate additional clinical data in the U.S. in our multicenter trial as well as in our European trial activities.

Okay. And on the -- you mentioned that they would be followed up for 24 months. At which time points will we be monitoring or taking snapshots of the healing process using the imaging technologies?

It's a continuous process. It starts basically three months after the patient is enrolled, or actually at the enrollment, but the first follow-up is at three months. And then it extends in intervals up to one year, and then again after two years. The final endpoint is after two years. So it's pretty continuous coverage, with multiple intermediate time points.

Okay. And I guess my last question then is out of the proportion of people who would normally get -- I guess [inaudible] say out of a hundred people or so, how many of those would you imagine would normally have to get a hip replacement over the course of two years?

The [inaudible] modify the question a little bit with regard to our endpoints. How many of these would have progressed into fracture?

Okay.

And the answer is this exactly. This is between 60 and 80% of the patients would be expected to progress into fracture, and they will shortly thereafter, typically in a time frame of a couple of months up to a year, go on to require hip replacement.

Okay. And the majority of those 60 to 80% would require -- actually maybe I missed that, but did you say a majority of those 60 to 80% would require hip replacement [inaudible]?

Eventually all of the patients who really go on and progress into fracture will require hip replacement.

Okay.

So 60 and 80%, essentially, will get worse, go on to fractures, that's 80 out of the 100 people, and essentially all of them at some point are going to require hip replacement.

Okay. Great. Thank you very much. Congratulations again on all the progress you've made.

Thanks, Jose.

Next question from Diego, please?

Our next question comes from Ben Renjamin, with -- Ren Benjamin, excuse me, with Rodman. Please state your question.

Hi, thanks for taking the follow-up. Elmar, can you tell me -- can you tell me regarding the properties of the bone matrix carrier, does it degrade? How long do you expect it to [inaudible] in the femoral head, and what sort of effect it may have on those patients obtaining the control? Can you also tell me the -- what is the control in the CLS trial that's -- in the critical limb ischemia trial that's ongoing? And then, finally, can you just review for us what data has been reported from the ongoing German trial? Thanks.

So that was three questions.

Right.

First one --

Getting your money's worth, right?

First one dealt with matrix.

Yeah.

The matrix question. So we are going to be using what they call a [demineralized] bone matrix in the U.S. trial. That's a standard of care filling material for the core track. And during the course of the treatment, we expect this material to be gradually replaced with functional bone. So it's initially a filling and a carrier material that will eventually be replaced with the fully functional bone matrix.

About the time frame, we have some data about this from our other trials that have been going on before for our long bone fracture studies as well as from our dental studies going on in Spain. Typically, the replacement process starts pretty early, a couple of months after the implantation of the material, and there is substantial replacement of the matrix at approximately one year after the material is placed into the surgical [inaudible].

[Inaudible].

The second question is the CLI question about the control group. The control group will just get the injections with electrolyte solution. And please remember what's important for these patients is this is a double-blinded trial, so the physician who will actually administer these preparations to the patient, either the TRC product suspended in the solution or the solution alone in the control group, doesn't know what's actually administered to the patient, because it's a blinded trial. And this is very important. So there is no way for the patient or for the treating doctor to know what is -- how the patient is -- how the patient's treated. The code is just broken two years after the patient has completed follow-up.

The third question was about the ongoing German trial, and here we have reported some anecdotal data that you can also find on our Web page. We have seen that over a follow-up period of one year, all of the patients who have received our TRC product have had healing of the wounds and also had improvement in the local blood flow to the limbs. But, again, this is a small number of patients. Not all patients have completed the follow-up [period] at this point. And we consider this anecdotal but promising.

Perfect. Thank you guys very much, and good luck.

Thanks.

Thanks, Ren.

Any other questions from Diego?

[OPERATOR INSTRUCTIONS]

It sounds like there aren't any other follow-up questions. Are there one -- is there one more coming? Okay, good.

Our next question comes from Jeff Weingarten. Please state your question.

Hi, there. Congratulations on everything. Question, what's Doug Armstrong's, Dr. Armstrong's, position these days with the Company?

I believe he is CEO -- he's not here.

He's not affiliated with Aastrom anymore.

He's a consultant.

He's not on the Board?

No, he's not. He's taken another job, I believe, but I can't recall the name of the Company.

He's still a consultant with us.

All right. Thank you.

Are there any other questions?

Our next question comes from Jose Haresco, with Merriman. Please state your question.

Hi, Gerry. I just have a quick follow -- housekeeping question. Is it fair to assume that the number of clinical trials that we're ramping up in the second half of calendar '07 as well as '08 that -- would it be appropriate to model any sort of SG&A expense for hiring more people, or is that mostly R&D that's going to go up?

Well, if you notice, our SG&A went down last quarter even though we're ramping up clinical trials, so we're not planning on increasing SG&A much if at all next year. Just clinical and research.

Okay. Thank you very much.

Thank you. There are no further questions at this time. I will now turn the conference back to George Dunbar to wrap it up.

Yes, Diego, thank you.

Thank you for the listeners and also the questions that did come in. We'd like to thank you for joining us today, and we look forward to updating you on additional Aastrom progress throughout the year. Thanks very much.

This concludes today's conference. Thank you all for your participation. All parties may disconnect.