Vericel Corp (VCEL) 2008 Q3 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Aastrom BioSciences' third quarter fiscal year 2008 investor conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your moderator, Miss Kris Maly, Director of Investor Relations at Aastrom.

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This afternoon we will highlight the clinical progress since the last call, review our third quarter financial highlights then we'll (inaudible) the call for Q&A from the audience. Our most exciting news since last quarter lists the encouraging clinical data we reported from the first two patients treated with our autologous stem cell therapy for DCM dilated cardiomyopathy, a type of severe chronic heart failure. This significant milestone marked the first human application of our cardiac repair cell or CRC product to regenerate damaged heart tissue in patients with severely impaired cardiac function. We (inaudible) use of CRC is ongoing and we expect to report clinical data from these [hedges] during 2008.

We also (inaudible) be reporting our submission of our cardiac IND to the FDA and an IMPDH to the necessary European repertory authorities (inaudible).

(inaudible) will provide more information on the cardiac regeneration program and the rest of our program during the clinical update section of the call. In addition to begin our cardiac regeneration programs in the European Union, we also continued to recruit patients for our U.S. RESTORE-CLI base to the clinical trial to treat critical limb ischemia or CLI and also our U.S. Encore Phase III clinical trial to treat osteonecrosis of the femoral head and actively recruiting patience.

I would like to turn the call over to Julie Caudill, our Controller and Corporate Secretary, for a review of our third quarter financials. Julie?

Thank you, George. We ended our third quarter on March 31st, 2008, with approximately (technical difficulty) compared to $28.3 million at June 30th, 2007. Our projected average cash utilization is $1.8 million per month for the remainder of fiscal year 2008. If we continue to utilize cash at this rate, our available cash would support operations for approximately 15 months.

Total revenues for the quarter ended March 31st, 2008, consisting of grant funding and limited product sales [for] $202,000 compared to $258,000 for the same period in fiscal year 2007. As a result of the continued expansion of research and development, and manufacturing activities to support regulatory submissions in ongoing and planned tissue regeneration clinical trials and activities in the U.S. and EU, research and development expenses for the quarter ended March 31st, 2008 increased to $4 million from $3.1 million for the same period in fiscal 2007.

We also reported that our selling, general, and administrative expenses for the quarter ended March 31st, 2008 decreased to $1.4 million from $2.1 million for the same period in fiscal year 2007. The research and development expenses and selling, general, and administration administrative expenses include a non-cash charge relating 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 I will turn the call back over to George Dunbar.

Thanks, Julie.

The other issue for discussion today is the recent decision taken by our Board of Directors to withdraw the proposal to our shareholders to grant discretionary authority to the Board to amend our restated Articles of Incorporation to effect a reverse stock split. We were very pleased that all of the votes that were cast, over 75% of them were in favor of the proposal.

However due to the large amount of outstanding shares that were not voted at all, we did not achieve approval of two-thirds or 66 2/3 of all of our outstanding shares that is required by the Aastrom Company Charter. So many of you are probably wondering where do we go from here?

Well, for the past six to 10 months, as you know, the global economy and the capital markets have been very challenging for everyone; but the small cap biotech sector has been hit especially hard. This situation makes the timing and potential for future equity financings unpredictable. We are taking action to reprioritize our development in clinical programs by redirecting our primary focus to our cardiac regeneration program; and we will be more definitive on what this prioritization actually means once we've completed discussions about our cardiac programs with the FDA and with and with the EU regulatory authorities.

We also made the very tough decision to reduce our employee headcount about 25 to 25 people. With these changes, as well as the program reprioritizations that are planned, we intend to reduce our average cash utilization to approximately $1.2 million per month for fiscal year ending June 2009. Our management team and the Board of Directors will continue to evaluate options to [preserve] our current NASDAQ capital market listings and to fund our regenitive medicine clinical programs.

I would like to turn the program over to Dr. Burchardt to give a clinical update, please.

Thank you, George. Today I would like to review the tentative program [accomplishments] we have achieved in the last several months cardiac. As George mentioned earlier, Aastrom achieved its first significant clinical milestone in the cardiac regeneration area. In April, we reported encouraging clinical data from our first European compassionate youth cases using CRCs to (technical difficulty).

More patients are being evaluated for compassionate youth treatment with CRCs at the University of Dusseldorf where the first two patients were traded. We expect to initiate clinical activity at other leading cardiac centers throughout Europe in the course of this calendar year. In addition, we expect that compassionate youth of CRCs will provide useful experience for the development of clinical protocols and future regulatory submissions targeting DCM.

We are preparing U.S. IND and EU IMPDH submissions to evaluate our CRCs and DCMs for which we have received a U.S. orphan drug designation from the FDA. That means we are starting or we are planning to start formal clinical trial activities, both in the EU and in the United States.

Now I would like to take a moment to remind listeners about our two ongoing late-stage U.S. clinical trial programs. RESTORE-CLI, our RESTORE-CLI trial is a U.S. Phase IIb clinical trial enrolling patients suffering from critical limb ischemia or CLI, the most severe form of PAD, peripheral artery disease. All patients in this trial are critically ill with a high risk of amputation. These patients are extremely limited in their ambulatory (inaudible), experience, constant and chronic ischemia induced pain, ulcers, tissue loss, or gangrene to the limb which lead to approximately 160,000 amputations per year in the United States.

We currently assist in clinical trials initiated and we will update our website (inaudible) open for patient enrollment. If you are interested in learning more, we invite you to visit the clinical trial website at www.RESTORE-CLI.com. This website has been developed to provide more information on CLI, the most severe form of Peripheral Arterial Disease and how Aastrom's (inaudible) repair sales are being clinically evaluated in the treatment of these patients.

ON-CORE, our ON-CORE trial is a U.S. Phase III clinical trial enrolling patients suffering from osteonecrosis of the femoral head and is ongoing. This is a very exciting time for us as we continue to move forward with our trials and into our new clinical programs. I look forward to the next opportunity I have to provide you with an update on our clinical progress.

I will now turn the call back over to George again.

Thanks, Elmar.

In summary, I think we are pleased, very pleased about the progress that we have made in the clinic so far this fiscal year. The team at Aastrom here is working hard every day to ensure that we are meeting these clinical and operational milestones. Our goal is to move our [TRC base], sell products through the clinical trial and regulatory processes, and into the market as quickly as possible while continuing to maintain our very strong safety record.

We hope that you will continue to follow Aastrom and we appreciate your support as we close out the year fiscal 2008.

Chris, I'll be happy to open it up for questions from the audience at this time.

(OPERATOR INSTRUCTIONS). [Rennie Benjamin] with Rodman & Renshaw.

(inaudible) on behalf of Ren. Good afternoon. Thank you for taking my question. A couple of questions. First one regarding the clinical data you reported for the first two patients with DCM. I was wondering whether those two patients received concurrent treatment or medicine or treatment or other treatment beyond getting CRC?

I will let Elmar answer that.

First, (inaudible) they had ICDs implanted. They also were on typical drug medication for heart failure, including (inaudible), including ACE inhibitors and major one receptor blockers and whatsoever. Very, very complicated patients that were on optimal medical care, that had exhausted all of their options.

: So those medicines have not been approved, their clinical outcome? Is that right?

Yes they were beyond it. I mean these -- especially the second patient had already undergone interventions and other [CABG] surgery. There was no option for further revascularization and again they had received optimum medical drug treatment.

And then with regard to the R&D, you are going to submit it to the FDA and also the application to the EU agency. What would be the, I guess you know the Phase I trial will have safety as a primary endpoint or you also are going to look at the efficacy?

It is going to be a Phase I-II clinical trial in severely ill patients. So we are. The primary endpoint is safety, but we are also going to evaluate efficacy parameters.

I caution you because that's the discussions that we have underway with the FDA. I think until we come out the other side of the tunnel, we won't be able to definitively say. But that's the dialogue we are having right now.

Okay. And also for the critical limb ischemia program. Can you give us an update as regard to how many centers are already active, how many patients have been involved in the trial?

I can tell you that we have opened up 15 centers so far and we are actively accruing patience.

Okay. And I guess you know how long do you expect the trial to complete enrollment?

We don't give guidance on the expected enrollment, but I can tell you it's -- centers are actively participating. We are enrolling and securely gathering momentum as well.

I see. And how about the ON-CORE trial? Can you give an update on the enrollment and the centers?

Yes. I can tell you that we have five centers up and running at this point and are also actively enrolling.

Okay. All right, thank you for taking my questions.

Jose Haresco with Merriman.

Couple of questions here. Elmar, on the first patient that you had mentioned, can you give us a little bit more data on what happened when the NYHA score -- you said you had seen some improvement there. Was that a single (technical difficulty) class or a two class improvement?

Yes, essentially the cases where you can tell what happened to these patients. This patient was not able to walk when he came in. He was essentially had shortness of breath when he was -- even when lying in bed.

Yes of course (multiple speakers) --.

And he was fully ambulatory upon discharge. So that tells you something about the heart or the heart failure's gauge. So there was completely -- was a completely different patient essentially.

Do you have a sense of to -- I don't know from a prognosis perspective, you would think that they would be able to do some of the other classic tests like a six-minute walk or something like that or shortness of breath with regards to resting? Those types of parameters?

Yes, we have information on those. It all goes in this direction but the most telling test is actually the ejection fraction that has improved so far. But all the other tests that were done were also pointing in this direction. We don't have direct six-minute walk data because the patient wasn't walking when he came in.

And then, you are saying he was able to walk on the way out?

Yes.

Okay. You said both patients had ICD. Were they still -- were they on similar antiarrhythmic doses between both of them or were they different? I guess, just an (inaudible) of two, but do you have a sense for what they were on before and afterwards?

Since the -- you mean with regards to the [firing] reagents along? Is that what you are asking?

Yes, were there any changes in (multiple speakers) --?

This is for chronic patients. They [weren't] in this stable situation when they were admitted. So there were no acute arrhythmias to these patients. (inaudible) when they were operated on.

Any incidences of AF or any other forms of fibrillation after the procedure?

No.

On the -- I know that the (inaudible) you have drawn the request to do the reverse. Granted that there are -- no decisions have been made, can you give us a sense of the kind of options that you either (technical difficulty) maintain (inaudible) listing?

Sure, this is George. Let me talk a little bit about that. I think the headlines for me is that the shareholders who did vote overwhelmingly voted to support it. The problem we had was that there was a high number of shareholders who just simply didn't bother to vote at all in this matter is such that it requires a vote, a supermajority of all of the outstanding shares to be voted. And over the years, Aastrom has added lots of shareholders.

So we are where we are. I think in terms of process, our first checkpoint is going to be mid-June; and right now, I believe that the only deficiency that we are not in compliance with is the bid price. If that were to change, that might change the view that we take.

But right now we believe that that will remain the case and therefore we will get a continuance for another 180 days through sort of mid December, which is more or less crunch time as far is that goes. I think some of the questions that we had from shareholders who were not inclined to favor voting for the split -- sort of what I call the vocal minority -- it was, "Well geez, why don't you do this closer to the December date rather than as early as it is?"

What I tried to point out was with the capital markets being as uncertain as they remain, and with our need to reload sometimes during the next 12 months relative to funding this very exciting cardiac program, we wanted to try and get this delisting issue behind us so we could go forward.

The fact of the matter is that that now is still unfinished business and therefore I think the risk and uncertainty still remains.

Got it. Thank you very much.

Scott Smith, a private investor.

I have a couple of questions here that I wanted to bring forth. As you just discussed with Jose, regarding the reverse split that you withdrew, the proposal, if you couldn't get enough shareholders to vote for this particular verse split proposal, if you take in money or capital, and you issue new shares which will increase the number of outstanding shares of the Company, how do you plan on fixing the corporate structure later on if you can't get enough shareholders to vote now?

Thanks for asking that question. I think that you put your finger on sort of the circular argument for not doing anything at all. The fact of the matter is, we need to raise money to fund our clinical programs. The fact of the matter is the cardiac data that we've just talked about is extremely compelling.

So this issue is going to compel us to rethink the priority of our various programs, so we can fund this very exciting cardiac program. We can go forward and fund all three with the level of uncertainty that this has established. I think the issue is that if you look at the number of shares that were voted both for and against the split, and as you and others have heard me say before, the vote count was in excess of 75% voted for it.

The institutions that and albeit a small number of institutions were overwhelmingly in favor of it. The minority group that did not vote for it, I don't think would have made any difference at all. What the real issue was was the number of shares that simply were not voted at all and the inability to reach those shareholders is not Aastrom unique. I think it's just generic to a high percentage of retail shareholders.

So the remedy if at the end of the day, fundamentally, is to change the charter of the Company back to a simple majority. This charter was put in place in 1989 and since then, groups like the New York Stock Exchange, the ISS and others have weighed pretty heavily and said, "Look, good corporate government does not support supermajorities," and they are recommending that companies get to a simple majority and that is clearly something that Aastrom needs to do to follow that. And I think the evidence suggests from this exercise we've been through during the last couple of months that shareholder democracy has stalled and just simply is not working.

The will of the shareholders that have bothered to vote support doing this and it's simply the nonvotes that have kept this from happening.

Now with regard to this, you said you scaled back 26 employees and you've reprioritized cardiac over your chronic limb ischemia trial and your osteonecrosis trial. Why would you do that? Why would you keep the trial that's closest to getting out the door, what you stated before you've said you've talked to other folks that they want to see a product hit the market first.

Why would you keep going with osteonecrosis as your prime focus? Get that thing out the door. Start to pull in some revenues, drive up share price, fix the compliance issue, bring in more shareholders and then pull in your capital at that point in time by minimizing your dilution?

Well, you've asked a lot of questions. I think the big point is that of the three programs that we've talked to you about, the cardiac program is clearly the most compelling because it saves lives. The people who are suffering from dilated cardiomyopathy and chronic heart failure, they will die. There is no question about that.

The question from one of the earlier callers asked about whether these two patients were on any special drug therapy or any other thing that might have affected the outcome. And the answer was they were on a standard of care to try to keep these patients as comfortable as they can.

So I think the changes and then the improvement that you'll see from the cardiac program will be faster, simply because if you look at what nature does, bone takes a very long time to grow. It's much slower. So changes in bone, osteonecrosis, or [long bone] which we as you know that we decided to not take forward unless and until we partnered it is because those clinical trials are very, very long and are very very expensive. So I think the rate of change that people will see from even a Phase III program in osteonecrosis which is still a very exciting program because there is no good -- there is no good alternative other than hip replacement still will continue on.

But in the interest of where we spread our limited resources against the risk, reward ratio of a higher potential, we are putting our money behind cardiac.

So you think that is going to be a better plan than escalating the chronic limb ischemia trial?

I didn't say that. I just said we were putting our priority behind cardiac and we will be clear on the prioritization impact once we know where we end up with the FDA and the European regulators.

But osteonecrosis was supposed to be what a four- or five-year run time on the trial, is a rough guess? What does this -- what does your cardiac trial look like in terms of timeframe? Is it expected to beat out osteonecrosis getting completed in all the data calculated, patients accrued, all that stuff? Is cardiac expected to beat it out because of the time that you can evaluate data and --?

I'm going to sidestep your question. Because until we've had our final discussions with the FDA, I really can't say. I mean, as an example, in osteonecrosis when we were negotiating with the FDA, we said that what we thought was appropriate was a one-year follow-up with patients. They said that they were more comfortable with a two-year follow-up.

So that has added considerable time to what we assumed was going to be a program of about the duration you've talked about. I think once we know where we are with the FDA and the European regulators we will be able to talk more about that, specifically.

I would like to take another question, please, since we've had a couple of follow-ups from you, Scott. Thank you very much.

(OPERATOR INSTRUCTIONS) Mr. Dunbar, there are no further questions at this time. I'd like to turn the floor back over to you for any closing comments.

Scott, if you had one or two more since nobody else is on the line, I'd be happy to take them again.

Our next question comes from the line of Scott Smith, private investor.

So continuing on with the cardiac. Since you don't know when you anticipate the cardiac to get out, would it not be a safer route to put your resources behind the chronic limb ischemia trial? I'm trying to figure out why can't you step all way back to square one.

You said it before in your prior conferences that people are saying when are you going to get a product out the door? Just get anything through the FDA and here you are, you've got two trials, one is in the Phase IIb -- that's the chronic limb ischemia -- and the other is the osteonecrosis and the Phase III.

I can understand that the Phase III of osteonecrosis takes a longer time because bone takes a longer time to heal. Comparing cardiac to chronic limb ischemia can't you tell me, honestly, that chronic limb ischemia is going to heal any faster or slower than the cardiac? Give me some (multiple speakers) -- .

Sure. That it's a fair question to ask and it's a complicated answer because we know where we are with FDA on critical limb ischemia and we don't know we where we are yet and so we can't really compare apples with oranges until we know where we have come out with the FDA. I will say this to you, though, relative to the news that you would like to see and hear as other shareholders do. The critical limb ischemia clinical trial is a double blinded trial. So we really will not know how those patients are doing for some time.

In the case of the cardiac trial we are hoping -- and again until we get through with the FDA, that will not necessarily be a double blinded type study so we will be able to see and share with you on a regular basis just how that program is going. I think that is less risk adverse and actually adds to news flow and shareholder value as we go forward.

Elmar, did you have any other comment to go after that?

Can I kind of take over the complicated part a little and maybe comment a little on the science to make this a little -- maybe a little clearer to you?

I think you know with cardiac there are not -- there is a number of tests you can do that are really predictors of how these patients are faring. There is very good imaging data and very good imaging technology, for example, available that gives you very early indications how these patients are faring.

For example just in these first two patients you've seen a significant change in the injection [fracture] of these patients within three months. Now with critical limb ischemia, you have to wait a little longer. It's also what we're seeing and what we have seen, for example, (inaudible) both in our -- also, hopefully, in our American patients, it's very impressive as well, but it takes longer because you have to wait for the end clinical outcome. You have to see or you have to wait for an amputation, for example.

And this is a much longer path than to -- to take, so to speak, last pictures of the heart and to see it improving as you see blood flow and the heart picking up and other parameters improve.

Okay. So I guess that answers -- you know I wanted just understand the rationale behind this move. I mean clearly your Company is starving for cash. Aastrom needs to pull in more capital here and when you go back to square one with the Phase I, Phase II, you have to ask, "Well does that make -- is that the right decision?"

[I don't think so.] I think the answer at the end of the day is you may be right, but you may not be. When we come out of the FDA process we will see where we are and then it will be clearer, but I think what the guidance that we are giving our investors today is that we are bringing our sort of annual running burn rate down from about $1.8 million per month which was the guidance during this year to a level of $1.2 million going into the new fiscal year, which starts July 1st.

Is there is a possibility for the FDA to leapfrog this trial through any of these phases, speeding things up? In other words could they skip right into a Phase II or even to a Phase III for that matter?

I don't think we want to speculate at this stage what the FDA is going to do, but I think the more compelling the data is, the fact that it's an orphan drug indication and the fact that people will die without this therapy will all be very compelling reasons that we can put forward to the FDA, after we've treated enough patients to be able to give them some meaningful data and input. And I think the -- as many of you have heard me say in the past, we have a very good relationship with the agency and I think they would be open within reason to discuss these sorts of things.

Okay. Now some other issues. Had you made any progress -- I know it's a short time since the Outreach program, but have you made any progress with any partnerships or larger companies looking to work any deals with Aastrom to move any of these programs through the clinic?

Not that I'm prepared to comment on at this juncture.

And the next question I have for you if we are -- or if Aastrom is not in compliance by the cutoff date, I believe it's December assuming you do get an extension with the NASDAQ, what are your options?

We will cross that bridge when we get to it. I'm really not prepared to go into that at this juncture. I think we are optimistic that the activities that we are generating now, the things that we are doing and the discussion we have with NASDAQ, when we get to that point, we have to sit down with them and see where we are, then, in real-time and make our case.

So I don't want to speculate ahead six or seven months to see where we are, because I don't think we will know. I think what -- the action that we are taking is in part due to allow us to have the greater runway so that we can get to that point without being in trouble.

And I wouldn't go so far as to say we are starving for cash; I think the action we are taking is the prudent thing to do under the consequences of this vote, as well as the uncertainty that is hanging over the market generally. And if we believe what we are hearing in the -- from our bankers and analyst friends, things may get better around the election time. We hope that is the case.

We see a couple of companies try to test the water with public offerings. We hope they are successful with that, but people were wrong three or four months ago when they said the market reached the bottom and clearly had not.

So I'd like to stop right there and thank everyone for calling in. If there are any follow-up questions later, we'd be happy to take those and thank you very much for joining us on the call today. Chris.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation. May you all have a great day.