Vericel Corp (VCEL) 2011 Q1 法說會逐字稿

Welcome to Aastrom's First Quarter 2011 Investor Conference Call. At this time, all participants are in a listen only mode. (Operator Instructions) I would also like to remind you that this call is being recorded for replay. I will now turn the conference over to Aastrom's Chief Financial Officer, Scott Durbin

Thank you, Operator, and good afternoon everyone. Welcome to our First Quarter 2011 Conference Call to discuss our most recent financial results and progress. Before we begin, let me remind you that on today's call we will be making forward being statements covered under the Private Securities Litigation Reform Act of 1995 and all of our projections or forward-looking statements represent our judgment as of today. The statements made in all risks and uncertainties that are described more fully in our filings with the SEC which are also available on our website. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.

Joining me on the call today is Aastrom's President and Chief Executive Officer, Tim Mayleben and the following our prepared remarks we will open the call to your questions. I will begin the review of our financial results by reminding you that we are now reporting on a regular calendar year basis and the financial results we are reporting today are for the first quarter ended March 31, 2011.

At the end of March, the Company had $24.6 million in cash and cash equivalents versus $31.2 million as of December 31, 2010. This difference includes cash expenses for the quarter of $6.8 million which is in the range of the $6 million to $7 million projected on our year-end conference call. Further, the number shares of common stock outstanding as of March 31 was 38.6 million. Including our 7.7 million options and 15.3 million warrants we now have 61.6 million fully diluted shares outstanding.

Research and development expenses for the quarter were $4.4 million versus $2.9 million for the same period a year ago. The increase in R&D expenses was primarily attributable to advanced preparations of our Phase 3 clinical program for ixmyelocel-T including increased employee costs, clinical site identification and set up, as well as regulatory expenses.

General and administrative expenses for the quarter were $1.9 million compared to $1.4 million for the same period a year ago. The increase in G&A expenses was primarily due to costs associated with the previous restatement of the company's historical financial results as well as increased consulting and employee related expenses.

Total loss from operations for the quarter ended March 31, 2011 was up $6.3 million versus $4.3 million a year ago and includes $616,000 and $100,000 respectively in non-cash stock-based compensation expense related to options. Other income and expense for the quarter not related to operations was $1.3 million of income compared to $1.6 million of income for the same period a year ago. The majority of income for both quarters relates to non-cash changes in the fair value of our outstanding warrants. The change in the fair value of the warrants was primarily due to fluctuations in the market value of our common stock during these periods. As a reminder, in each reporting period we will carry the fair market value of our warrants on the balance sheet as a current liability and will incur non-cash income or expense related to the changing fair market value of the warrants which could have a large non-cash impact on our net loss.

Finally, for the quarter we had a net loss of $5 million or $0.13 per share compared to a net loss of $2.7 million or $0.10 per share for the same period a year ago. Excluding the change in the fair value of the warrants noted previously, net loss for the quarter was $6.2 million or $0.16 per share as compared to $4.2 million or $0.16 per share a year ago.

Now I'd like to provide some guidance on our projected second quarter financial results which will support our ongoing clinical programs and the preparation of our Phase 3 CLI program. For the second quarter of fiscal year 2011 we again expect to spend between $6 million and $7 million in cash. Approximately $2 million to $3 million of which is projected to support preparations for our Phase 3 CLI program. That completes our financial review. I'll now turn the call over to Tim.

Thank you Scott. Good afternoon everyone and thank you for listening in to our first quarter conference call. There are three topics I'd like to cover with you before we take your questions. First, I'll discuss the status of the special protocol assessments for our Phase 3 program in critical limb ischemia. Second, I'll review our key milestones for the remainder of the year. And third, I'll comment on our approach to business development and the partnering of our programs.

So to begin, I'm happy to say that we're making good progress with the FDA regarding our proposed protocols for Phase 3 clinical testing of the ixmyelocel-T. This is our patient specific expanded multicellular therapy for patients with critical limb ischemia. A number of outside advisors and clinicians have been supporting this effort and I believe we're on track to complete the SPA process for the first Phase 3 trial over the next several weeks for CLI patients who have no remaining therapeutic options. We refer to this as the no option study which will use amputation free survival at 12 months as the primary endpoint. The approximately 80 proposed US-only clinical sites for this Phase 3 study have been identified and should be ready to begin screening patients early after we finalize the S-P-A or SPA with the FDA.

And once we've completed our discussions with the FDA on the no option CLI clinical trial we plan to turn our attention to finalizing the primary endpoint for the second Phase 3 study in the so-called poor option patient population. The poor option CLI patients are those with limited options for surgical intervention and these patients are not expected to do well and thus have poor options. The determination of the primary endpoint is the only remaining issue we need to resolve for the design of this second Phase 3 clinical study which will be conducted at the same sites as the no option study. I remain confident that we can complete this process and launch the poor option study in a timely fashion as well.

We have a number of data presentations coming up what I'd like to review with you briefly now. Later this week our scientists are making 2 poster presentations and participating in an industry panel and an important scientific conference. It's called the International Society for Cellular Therapy meeting and it's being held in Rotterdam, the Netherlands. The first presentation characterizes our method of cell expansion and the second shows the role of our mesenchymal stromal cells in the repair of damaged tissues.

In early June we plan to report final top line results from the Restore CLI studies. As a reminder, this will be the final 12-month follow up report on all patients on this ground breaking Phase 2B study. This is the largest Phase 2 randomized controlled cellular therapy clinical study ever conducted and we plan to submit the complete results as an abstract for presentation later this year at a major scientific meeting. In September, we plan to report and present the final 12 month results from the Phase 2 dilated cardiomyopathy surgical study and also announce six month results from the Phase 2 DCM catheter study. We have already submitted an abstract with these results to scientific meeting and hope to hear by the end of the quarter that they have been accepted for presentation.

Now I'd like to turn to our business development activities where we think the outlook is encouraging. We have not commented on this much in the past, but we are seeing greater interest in the field of cell therapy among pharmaceutical and other healthcare companies and have initiated discussions with several of them. This rising level of interest is not surprising to us, the approval and successful launch of Provenge as well as encouraging reports of clinical progress from a number of regenerative medicine companies including Aastrom reflect the therapeutic potential of cell therapy. The progress exhibited by the cell therapy industry is gratifying and we believe bodes well for the future of our business.

Now, our approach to partnering is to find a corporate partner with commercial development capabilities and market reach who can complement our experienced manufacturing and clinical development teams, support our programs financially and accelerate the commercialization of our products. We've begun discussions with several companies about potential partnering arrangements, and have received positive feedback about Aastrom's technology, of course our clinical programs and progress there and our manufacturing capabilities.

Now, from experience, we know that it is risky to try to predict when these discussions will come to fruition and on what terms. So were not going to try to forecast the outcome. We believe that our progress in these discussions will largely depend upon our ability to confirm the positive results seen in our earlier studies and to launch our Phase 3 program successfully. We know we have the talent and resources to conduct our Phase 3 CLI clinical program on our own. But finding a corporate partner for commercialization of our program is a key company objective. In the interest of transparency I felt it was important very to understand our thinking and the reason for focusing on this important topic. Going forward, as with other important areas of her business we will provide you regular updates on our business development activities. We will be as transparent with you as possible about these activities, without compromising our ability to successfully complete one or more of these partnerships over time.

Before we take your questions, let me just summarize the key points from the call today. We are operating our business according to the financial plan that we laid out for you earlier this year. We are planning to announce this final 12 month top line results from the RESTORE-CLI study in early June. Were going to hold our annual meeting at our offices here in Ann Arbor on June 7. We expect to complete the negotiations with FDA on the no option SPA this quarter. We plan to resent our DCM surgical and catheter result at a major scientific meeting later this year. And we expect to finalize the protocol and determine the primary endpoint for the poor option CLI Phase 3 clinical study in Q3. So that concludes our prepared remarks and Matthew, we'd like to open the call to those on the call for their questions.

(Operator Instructions)

Mark Monane of Needham & Company.

It's a foggy day in New York City and it's a little bit hard to see far way. So maybe you could help me with some themes on the call related to that issue. The first, not so far way, the FDA application. Maybe could talk a little bit about what the rate limiting steps, and since we are in New York City, a very concrete question, after you finish the discussions do you need to resend in the application to the FDA, and does that start a new time clock?

Great questions, Mark. This is Tim. I'll start. So the rate limiting step with the FDA we think is simply the fact that the FDA moves on FDA time, not on business time. I think, as you probably know, they have relatively well-defined and prescribed timeline's for getting back to sponsors such as Aastrom. And they are simply moving on that timeline. We have been -- just to take you back, we had filed our initial SPAs with them back in mid-October of 2010. We received initial responses from them in December.

We followed up with a subsequent, very detailed filing in mid-February; subsequently, the agency came back to us with very few questions in early April. And we responded back very quickly. Literally within a week. And so were down to just a couple of very -- what we think of as minor issues. And so we are literally just waiting for the FDA's response to our response. And expect to conclude that shortly.

And then to answer the second part of your question, once we have concurrence with the agency, then I think our understanding, and again we will get confirmation of that shortly, but our understanding is that to have a truly final special protocol assessment, it would require us to resubmit the protocol with the final edits. And then the agency has up to, again, our understanding, they have up to then 45 days to respond to that.

Another question, in the looking at the presentation of the 12 month follow-up data, without telling us what the data is of course, what can we expect to learn from this data? You've already been pretty generous with updates until now. What do you expect that we could learn, or what should we pay particular attention to, when we see the 12 month data?

So I think Mark that's a very good question. I won't tell you the data, because I don't know what the date is. And won't know until surely before the release of the data. But we have a team of folks here that are obviously pulling that together, logging the database and things of that nature. I think that's what we're looking at in this final data is simply the final results from the last 10 patients, if you recall that we hadn't seen the results of at the last interim analysis, or the second interim analysis last November. There were five control and five treated patients as you remember, that had not got to the 12 month endpoint.

So I think what we'll see is obviously the final data in combination with the balance of the patient data that we've seen previously, and as you said, we've been very generous and transparent with that information before. As I said in our prepared comments, we are planning to submit the full or complete results for presentation at a major scientific meeting later this year. And so while we'll get some information in the top line release, it will really be at the major medical meeting where we'll see the full and complete results and obviously a comprehensive analysis of all of the patients from that study.

(Operator Instructions)

Joe Pantginis of Roth Capital Partners.

When you were designing this Phase 3 and you were basically accumulating a lot of physician feedback, presumably from multiple physicians that took part on the to Tomaris study for the Sanofi Aventis, can you maybe share with us a few anecdotes regarding commentary that these physicians shared with you, regarding the international nature of the Tomaris study, versus white you've decided to conduct a Phase 3 study in the US? And then finishing up with then, why the central adjudication committee is so important then in the first Phase 3 for no options. Thanks a lot.

Yes, sure, thanks for your questions Joe. Just to take everybody back, the Tomaris study that was study that was conducted by Sanofi Aventis, as Joe referred to, was the results of that, it was a 500 patient international study, in no option CLI patients that was initially announced in September of last year, and then the results were presented at the AHA meeting last November. As Joe alluded it was not a successful study. It was, as I mentioned, an international study. I think it was about 170 sites, in 30 different countries, on five continents.

And I think some of the comments that have been both published, and as a Joe indicated, just anecdotal comment that were made at the AHA meeting last year, and then subsequently we've heard from others as well, that the international nature of that study, perhaps may have compromised the results. The issue is it is that there is a different standard of care for these no option CLI patients, there is a geographic difference, if you will, between treatment of these no option CLI patients in the US versus Eastern Europe versus Asia or South America.

And so it's -- we think it's vitally important for our Phase 3 study, that we conduct our study in the US only. Where we can, we think, better manage the variability and the standard of care just in the US. We think that there's enough variability in the US that we can manage that. It's much more difficult to manage that internationally.

The other element that I want to emphasize is, again Joe commented on, is that we have established a central adjudication committee or central review committee, and this is a group of approximately five very experienced physicians that will be responsible for adjudicating, or determining, whether the patient at the different sites, and we've got 80 different sites across the US that we will be using; whether those sites have appropriately identified a patient for inclusion in the study, based on the inclusion exclusion criteria.

And so we will be able to consistently identify those patients that truly meet the definition of no option patients. And if you recall, one of the other criteria that were using for this study, is that for the no option study, were looking for patients that are Rutherford Five, or to translate that, that means patients with existing tissue loss. So the central review committee, the use of US sites only to manage the variability -- better manage the variability and standard of care. And then the enhancement of the study by including only those patients with existing tissue loss or Rutherford Five in the no option.

And of course as I mentioned in my comments we are planning to use the same sites for the second poor option study, and so those that do not qualify for the no-option study for example are likely to be good candidates for the poor option study. So we think we'll get some efficiencies in enrollment as a result of using the same site, using the central adjudication committee, both for the no-option and the poor option study; and then again the consistent identification of these patients by the central adjudication committee.

Stephen Willey from Stifel Nicolaus .

On the centralized review board that you guys will be instituting, have you determined what the time delta is going to be, between a patient showing up at a trial site, getting adjudicated by the individual investigator, and then having that information flow to the central review board, and then back to the trial investigator?

That's a great question. You may recall my background -- I was previously President of a company called Nighthawk Radiology. It was a teller radiology business. We were really expert, at Nighthawk, in transmitting large images and image sets around the world. And so I knew the technology existed, and so one of the things that we've done here is insist with our outside CRO, and with the adjudication committee, that we use the state-of-the-art image transmission capabilities that are out there.

And so we believe that we can get between 24 hour and 48 hour turnaround because we are going to be transmitting large amounts of information from the sites to the central adjudication committee electronically, as opposed to having to use either FedEx or some other courier service, we're actually going to be using electronic delivery of these images and other information about these patients.

So were quite excited about that. The good news is that technology has been used now professionally for more than 10 years. It's been used in other clinical studies like this for other purposes. More oncology studies than others. But the technology is pretty well tested and we did some vendor selection that we're quite happy with the outcome.

Great. And then on the partnership, I appreciate the insight into how you guys are thinking there. But, would it be safe to assume that you would also be looking at a partner that would potentially be getting on board with the DCM market as well? And do you think there's any chance where you could potentially partner up with a CLI part of this, and keep that separate from DCM, given that they are essentially the same product?

Thanks. Yes, that's a good question Steve, this it Scott. With respect to either other programs, I think our dialogue has been relatively open with the folks that we've talked to. We have obviously, given the late stage nature of the CLI program have probably had more of a focus on that area. But we have been having discussions about both indications.

George Zavoico from MLV.

Regarding ATech, and your relationship with ATech and your development of additional capacity. With 80 sites, and potentially a lot of samples coming in, are you confident that between the Ann Arbor site and ATech, that you have the capacity to take care of all of the samples that presumably will be coming in?

The relationship with ATech is one that we continue to be very pleased with. Their capacity is actually substantially above where our needs are right now. And so we've got a lot of headroom in that relationship. And even going forward, as we sort of envision our early commercial volumes several years out, they have very nice capacity available. And obviously the experience, they are very experienced medical device manufacturer. And so they know about ramping up, and understand how to do that, and how to do it in a controlled way.

Yes. You mentioned you have the capacity for right now. You will have the capacity next year when you have DCM, presumably DCM and the CLI trials going simultaneously? Part -- that's the first part, the second part is I remember you telling me that they made some modifications and some of the cassettes, or some of the technology. Is that now going to be uniform going forward through all of Phase 3, and through hopefully approval? At which point you won't be able to really change it, unless you make some adjustments or protocol changes right?

That's right. So it's important to point out, some of the changes that we've been making and will continue to make, do not -- are changes that do not touch the actual cells, and do not impact the biology, if you will, that's happening during the cell manufacturing process, or the cell processing and growing. The changes that had been made are ones for efficiency and assembly. Just better manufacturing -- better design for manufacturing if you will.

That will create some increased efficiencies as we actually process the cells, or process multiple cell types. So the kind of changes that we have made, and will continue to make, will not impact the actual biology, or the biological processing. They are changes to the -- to some of the features around the actual cell cassettes if you will.

So that won't require discussions with the FDA then?

Just good documentation, obviously, and validation. But not I think a change in processing, which is, I think where your question and concerns might be. That we have frozen the design of the actual cell manufacturing cassettes. But the --

There are other ways to increase efficiencies, is what you're implying, that you've done that.

Exactly. With elements around that.

You mentioned your -- in the no option trial, it's just Rutherford Five. In the poor option patients, what is the spread in the Rutherford score that you are going to be accepting?

Mostly four, George. We think that, obviously these are patients that, again by definition, have poor options. And I think generally speaking the Rutherford Four patients are fitting that classification.

When you present your final results of the restored CLI trial. Are you also planning to do a subset analysis to split the Rutherford Four and Rutherford Five patients, so that we get an idea when we see the data as to what the changes were, in both of the patients?

You can count on it.

(Operator Instructions)

Mark Monane from Needham & Company .

Could you help us with the numbers please? How many people currently at the Aastrom Biosciences, and what's the optimal number for 2011?

We are currently roughly about 60 people, we would expect to hire roughly 10 more people by the end of the year.

And then you talked about -- I gleaned from your conversation on your potential partners that the focus would be mostly on their commercial expertise? Adding expertise and saying implicitly that the manufacturing and the science area you believe may have pretty well covered at the Aastrom's, but the commercialization success and lessons learned would be important for Aastrom. I'm wondering if you're going -- of those 10 people are you planning to hire a commercial team to start thinking about what is the optimal strategy going forward for payment and reimbursement?

Mark, this is Tim. So we are now already -- we've been for the last five or six months now, working with some outside consultants on commercial strategy. We have not identified a leader for our internal efforts yet. But as you're suggesting, we do recognize that it's never too early to start planning what our commercial strategy is going to be. So it is an area of active work. We do have a very experienced person that we are working with on a consulting basis.

And over time, I would expect that we would identify a leader to bring on. I don't think it will be before the end of the year, given the good work that were getting with an outside consultant. But we will be opportunistic as we think about that going forward.

Scott Greenbaum, a private investor.

On the topic of commercialization, and a little bit as an aside, I'm sure you're all aware of the national and international press that Bartolo Colon is getting right now from his autologous stem cell injections in his arm. I think it's a very good --

I'm sorry, Scott, who's that?

That's a Yankees pitcher. He was out of major league baseball for a year. Two years prior the Red Sox tried to turn him around, and he was washed up. Now he got a autologous stem cell injection in his shoulder. He's got a under four ERA, and he's pitched 45 innings for the Yankees. And doing unbelievably well. And it's a great word for autologous stem cells.

People think allogeneic stem cells may have a, for some reason, an inside track on potency. But this is an incredible add, that Sports Illustrated and Bryant Gumbel and everybody's going to be talking about. I just thought the Company should, I don't know do something with that or put it on the back burner to discuss -- (technical difficulty)

Scott, your comment is an interesting one. I wasn't aware, I don't think we were aware, of the Yankee pitcher. The one thing that I think your comments do highlight, is one, the treatment that he's receiving it sounds like it's autologous.

It is. Bone marrow, autologous bone marrow.

Yes so what we like about that, and I think we've been consistent in saying. It sounds like others are also supportive and like that as well. Is when you're using a patient's own cells, and you're using bone marrow, there is generally recognized bone marrow has been used therapeutically now for more than 30 years or three decades. It's been known for more than half a century and is incredibly well characterized. So there's lots to like about a bone marrow derived therapy like Aastrom's.

And while anecdotal and compassionate use cases, like it sounds like this Yankee picture is experiencing, are encouraging, we also have to keep in mind, and this is where Aastrom is headed, we've got to run the fully controlled clinical studies that we are really focused on. Because at the end of the day we have to have FDA approve our therapies, and they really require these fully controlled, randomized controlled clinical studies, that we've not only run, but will continue to execute on going forward to make sure that the therapy is available to a much broader population of patients like these no option CLI patients who don't have treatment options today. So I think your point is a great one. We love anecdotal stories like that.

One more thing I'll let you get off. It's more than anecdotal because Sports Illustrated said online that microfracture knee surgery, where holes are made in the knee bone so that the bone marrow can seep into these holes, has been done on maybe 20 NBA players, and that's basically autologous bone marrow.

Yes.

So there's something to it.

Great point of emphasis.

(Operator Instructions)

Next question is a follow-up from George Zavoico from MLV.

Hi again. That reminded me about the Eastern European study they came up a couple months ago. I believe it was on paralysis, correct me if I'm wrong. Any follow-on that?

No. And just for everybody's benefit, a gentleman -- a physician, in fact we've had two, I think recent publications, George, of physicians in, one and Eastern Europe one in Spain, that have run a couple of open label clinical studies. One in paralysis, spinal paralysis, as you note. And the second one in facial reconstruction. That have shown demonstrably positive and favorable results from these 3 and 10 patient studies, respectively.

I think the way that we've been trying to put those very positive studies in context is, they continue to point out the power of a patient specific, or autologous bone marrow derived cell therapy product, like ixmyelocel-T, our product. And consistently we've seen very consistent results, both pre-clinically and clinically with the use of our products. And that's just very encouraging. We see positive results, physicians rave about the product, they are able to get their results published in very well accepted peer-reviewed journals, I think that all bodes well for the direction that were headed.

Of course the last step now, in this journey towards getting a therapy like this approved, is to run this Phase 3 clinical program, and to focus on a particular indication. We are very encouraged by the spinal paralysis results, and were very encouraged by the facial reconstruction results. But we also realize that as a small company we really have to focus our efforts in a particular therapeutic area, get the therapy approved by FDA, if we're successful in our Phase 3 program, and then branch out into some of these other indications as we move this other program forward. Our chief program forward in CLI.

I'm glad you brought that up. It is -- it continues to be very encouraging. And I think very supportive of our efforts at CLI.

Well to that end, your trial so far have really been, as you alluded to -- actually, not as you as you alluded to, but actually as you said in the beginning of your prepared remarks, that these are the largest trials in autologous stem cell therapy that have ever been done. So no argument with that strategy. But just to be really clear. These two trials and Eastern Europe and Spain, the 3 and 10 patient trial. These were cells that were sent to Ann Arbor, prepared there, and sent back right? This isn't just like the Bartolo Colon story, where somebody just took bone marrow cells out and put them back in?

No, that's right. And the only changes that is at the time the studies were run, we actually had cell therapy processing units, or ARS systems in Europe, so I think they were actually, the cells were actually prepared in Europe, as opposed to shipping from Ann Arbor. Because at the time we had a small manufacturing facility in Germany.

Thank you. I'm showing no further questions on the phone. I'll now turn the call back over to Mr. Mayleben.

Thank you Matthew. I just want to thank all of you for listening to our first-quarter 2011 Conference Call. This continues to be very exciting and rewarding time for our company, and we look forward to continuing to update you on our progress in the weeks and months ahead. Thanks again, Matthew.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. A replay of the call will be available 7.30 PM Eastern time on May 16, 2011, until 11.59 PM Eastern time on March 26, 2011, by calling 800-642-1687, or from outside the US at 706-645-9291. The pass code for the replay is 64380457. A replay of the webcast, along with a podcast will be available after the live event on the company's website, until 11,59 AM Eastern time on August 10, 2011. Thank you for joining today's conference. You may now disconnect.