Vericel Corp (VCEL) 2012 Q3 法說會逐字稿

Welcome to the Aastrom Biosciences third-quarter 2012 conference call. At this time all participants are in a listen-only mode. After opening remarks we will open up the call to your questions. Instructions for queue'ing up will be provided at that time. I would also like to remind you that this call is being recorded for replay. I would now like to turn the conference over to Brian Gibson, Aastrom's Vice President of Finance. Please go ahead.

Thank you, Pablo, and good afternoon, everyone. Thank you for joining us to discuss our most recent financial results and the progress of our development programs.

Before we begin let me remind you that on today's call we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995 and all of our projections and forward-looking statements represent our judgment as of today. These statements may involve 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 us on the call today are Aastrom's President and Chief Executive Officer, Tim Mayleben, and Dan Orlando, Aastrom's Chief Commercial Officer. Following our prepared remarks we will open the call to your questions. So let me start with a review of our financial results.

For the third quarter ended September 30, 2012 Aastrom had a net loss attributable to common shareholders of $7.3 million or $0.17 per share compared to $1.9 million or $0.05 per share for the third quarter of 2011. The increase in net loss attributable to common shareholders was driven substantially by two large non-cash items, the first of which is a change in the fair value of our outstanding warrants, which accounted for $3.3 million of the change in net loss.

As a reminder, early in the third quarter we completed the warrant exchange program for the December 2010 warrants which eliminated all but $300,000 of the $10 million in warrants from our capital structure. This reduced our warrant liability by over $10 million and will substantially reduce the impact of warrants on our income statement going forward.

The second non-cash item is the accretion of our Series B convertible preferred stock which increased our net loss by $1.2 million from the prior year. As a reminder, the shares were issued in March 2012 and thus did not impact prior year.

Our operating loss for the third quarter of 2012, which excludes both the impact of the warrants and preferred stock, was $8.3 million or $0.19 per share compared to $7.4 million or $0.19 per share a year ago.

R&D expenses for the quarter were $6.1 million versus $5.8 million in 2011. The increase in R&D expense was primarily attributable to the Phase III REVIVE-CLI clinical program and the start-up of the Phase IIb ixCELL-DCM program.

General and administrative expenses for the third quarter increased to $2.1 million from $1.7 million a year ago. The increase is primarily due to non-cash stock-based compensation expense and slightly higher legal and consulting costs.

Aastrom ended the third quarter with $21.1 million in cash and cash equivalents. Our cash used for operations was $7.6 million during the third quarter which was in line with our forecast of $7 million to $8 million.

Looking ahead we expect our cash spend for the fourth quarter to again be in the range of $7 million to $8 million as we continue to accelerate enrollment of the Phase III REVIVE-CLI study and begin enrollment for the Phase IIb ixCELL-DCM study. That completes my review of our financial results and I will now turn the call over to Tim.

Thanks, Brian. Since our last call we have made good progress on several key fronts. We launched the Phase IIb ixCELL-DCM clinical trial in patients with ischemic dilated cardiomyopathy, or DCM; we increased the number of patients, clinical investigators and sites participating in our Phase III REVIVE clinical study and patients with severe peripheral arterial disease, or CLI; and we reduced the number of fully diluted shares outstanding through the exchange of nearly 10 million warrants and we announced some important management changes.

First, for the Phase IIb ixCELL-DCM study, I want to remind you that we are enrolling 108 patients with ischemic DCM at 20 US clinical sites. Patients are going to be randomized to receive a single administration of ixmyelocel-T or placebo via a nova catheter with the primary efficacy measures being major adverse cardiac events at 12 months.

The secondary endpoints include imaging to assess heart structure and function as well as tests to look for improvements in quality of life and heart failure symptoms. We have initiated our first sites and expect to screen our first patients this month. And we expect enrollment will be completed next year with top-line results expected in 2014.

Now with respect to the pivotal Phase III REVIVE study, it is well underway now and we have 26 patients enrolled to date. So let me just say that again. In the REVIVE study we've got 26 patients enrolled to date. I am pleased to report that enrollment is accelerating, but I want to make clear that we are not nearly satisfied with our progress on enrollment in this pivotal trial.

We have a number of initiatives underway and we are working closely with existing and new study sites to continue to accelerate this momentum and we can certainly provide additional commentary on this during the Q&A.

And as a reminder, the primary objective of the study is to assess the effect of treatment with ixmyelocel-T in patients with severe peripheral arterial disease, or CLI, and also with existing tissue loss. And we are going to use amputation-free survival at 12 months post injection to measure the effectiveness of our therapy as compared to placebo.

So in addition to our ongoing clinical development work, we've also recently undertaken several activities to support the commercialization of ixmyelocel-T in patients with severe PAD. And on this front I want to highlight several market research initiatives which will support these commercialization efforts for ixmyelocel-T in patients with severe peripheral arterial disease, both in preparation for commercial launch when our pivotal studies are complete and successful and to facilitate discussions with potential partners.

Our new Chief Commercial officer, Dan Orlando, is managing these efforts and has brought valuable experience and perspective to these commercial activities. Dan joined us in August from Takeda Pharmaceuticals where he was Vice President of Business Development for the Americas after having led both marketing and sales. And of course previously he was with Abbott labs. I'd like to turn the call over to Dan now to review some of our recent market research findings.

Thanks, Tim. First, I want to say how excited I am to be at Aastrom and working on autologous cell therapy for patients with severe chronic ischemic vascular conditions. As each day passes I am more convinced about the impact ixmyelocel-T can have for patients with severe PAD and DCM. So to that vein, I am happy to be able to share with you the results of some market research studies that we recently conducted.

We initiated this market research to learn more about the clinical needs of patients with severe PAD, the interest of physicians who treat these patients and the willingness of payors to cover cell therapy for these conditions.

We interviewed over 30 physicians and a dozen payors. The physician groups that we included in the research were vascular surgeons, interventional cardiologists, podiatrists and endocrinologists. The payor group included medical directors of large managed care organizations.

Now having done hundreds of market research studies over my career, I found the results of this recent market research to be very encouraging and I would like to highlight the reasons why.

Our first finding was that vascular surgeons expressed a clear need for alternatives to standard of care revascularization options. As not all procedures are successful or are appropriate due to co-morbid conditions or are likely to have a positive outcome in refractory patients who have chronic non-healing wounds.

A second key finding was that per study protocol, which includes quality of life measurements, physicians and payors agree that ixmyelocel-T was well positioned as a logical, reimbursable therapy for patients who were unsuitable for revascularization.

A third significant finding was that there is clear interest in ixmyelocel-T's unique profile of M2 MSC cell therapy, which targets reducing inflammation while encouraging angiogenesis. And interestingly, it was these activities that spurred physicians in an unaided basis to express a desire to utilize ixmyelocel-T as an adjunct to revascularization.

And now this of course is beyond the REVIVE protocol, but it is an encouraging finding that once a target product profile for ixmyelocel-T is shared with target physicians that they envision expanded indications themselves.

Our final finding of significance is that there is an opportunity for Aastrom to take a leadership position in educating physicians about cell therapy, modes of action and differentiation as there is a fair amount of confusion in the marketplace about cell sources and utility of cell therapy.

So in summary, our findings validate the significance of our clinical endpoints for the REVIVE trial. They also indicate how important education about the MOA of ixmyelocel-T will be for physicians and patients, and how this unique product with a successful Phase III outcome will demonstrate a reduction in both amputations and improvements in survival, that these benefits confirm and translate into justifiable reimbursement from payors.

The market research also taught us a lot about the target physicians and those who are most likely to deliver ixmyelocel-T to our target patient or severe PAD patient. But for competitive reasons we would like to not disclose that at this time.

In closing I will say that, as someone who has conducted a lot of market research, I'm very encouraged by the findings and optimistic about the commercial opportunity for ixmyelocel-T in patients with severe chronic ischemic vascular conditions. Now I will turn it back to Tim.

Thanks, Dan. As Dan indicated, we are very excited that these early market research results confirm many of our anticipated value propositions for ixmyelocel-T and also reinforce our belief that we are very well positioned to deliver these messages through our marketing and other outreach activities.

Now these findings and the results of additional research will also help us prepare our marketing strategy and our clinical and patient education materials and programs and obviously also give potential partners a clear sense of the commercial opportunity available with ixmyelocel-T.

With Dan's arrival and the recent appointment of Bob Zerby as our Chairman, I believe that Aastrom is in very good hands with a bright future as we search for an executive to succeed me as President and CEO. Of course I am going to continue to serve in this position until we find a successor and I am going to remain a Director of the Company thereafter.

But I think this is a natural step in our Company's evolution and I am confident that we are going to find a very talented CEO with the requisite skills and experience to guide Aastrom to the next level of clinical, regulatory and commercial success. So that concludes our prepared remarks. Now I would like the operator, Pablo, to open the call to your questions.

(Operator Instructions). Steve Brozak, WBB Securities.

Look, with the addition of a commercial officer, we are not talking about a transition into something that obviously all companies want, and that obviously is how do you go out there and provide for the transition from a research development firm to an actual commercial operations firm?

Can you guide us through what some of the differences are that we can -- and I'm not going to obviously hold this to you -- but that we can start to expect? And I've got a follow-up question after that. Because obviously this is something that most companies want but a lot of them never achieve.

Sure. Dan, do you want to provide some -- do you have comments on that?

Sure. Steve, thank you. First of all we are taking the information that we have from science and -- the initiation of market research is a good example of that where we want to take that great science, especially the cell therapy science which is not very well articulated in the market, and figure out how to best translate that to physicians, patients and payors.

And although we are just initiating Phase III now, there is a lot of investment that needs to take place to complete this program and to talk to potential partners, et cetera. So a lot of it is just packaging for -- specifically for CLI, packaging what we have and translating that into what will be commercial success. So that is a lot of the activity that we are doing today for CLI.

For DCM it's more of a forecasting and competitive nature. As you know, there is much more activity in Phase II and a little bit in Phase III or not necessarily in DCM but tangential to it. So there is a bit more forecasting competitive description which patients are going to be most likely to be on our therapy versus others. And again, that is just kind of groundwork for commercial investment as well as partnerships and things like that. So that is our thoughts right now.

And, Steve, I would just add a couple of things to what Dan said. I think the emphasis at Aastrom has been from a development standpoint to do things what we have described as the right way. And so as Dan said, we started a Phase III trial, it's an incredibly robust design for a Phase III study. It's a large study. We have negotiated a special protocol assessment with the FDA to significantly reduce any regulatory risk associated with the study.

So part of the emphasis on, as Dan said, translating our science and clinical data into commercial activities is pretty high confidence in the way that we are doing things. And we are going to do the same thing from a commercial standpoint, that is to do things the right way so that by the time our product, our therapy is through development that -- and through regulatory approval that we have already laid the groundwork for physicians to understand what the benefits are to them and their patients.

Actually that leads me into the follow-up question and I will jump back in the queue after that. You are talking about your future commercial product versus current technology, current standard of care. I just want to highlight the fact that how robust your system would be versus current standard of care and I will hop back in the queue after that, and what kind of potential you might have with potential partners on that. Could you just briefly touch on that?

So really for the target patient that we are talking about there isn't a clear definition of standard of care. These patients have -- other than they have been through a series often of either bypass or Endovascular procedures. And they have been on therapies, but they -- a lot of these patients started therapies for claudication, cholesterol, hypertension, et cetera, before they even got to the vascular surgeon.

What is motivating a lot of these patients to get to advanced I will say procedures more so than therapies is the wounds, right, that won't heal. So they end up going from a wound care center where they have made several attempts. And if you call that a current therapy, I guess it would be, but really these patients are running out options and are looking for a cure.

So we are a new modality, if you will, that has got a fit into this wound therapy as well as to the intervention, the vascular procedure as well. So defining that in both the vascular surgeon's mind as well as the wound care center's approach is what we have to best define as how we are going to be executing commercially.

Fortunately as we talk to both of those treatment groups, they are frustrated, they are looking for new solutions. And it is not a big leap of faith for them to picture how they would implement how they would utilize this therapy.

In fact, we were really impressed during market research how easily, once they figured out the MOH and how the product works, et cetera, how easily and readily they found patient types or how it could be executed within their current paradigm. So we felt good about that. Tim, do you have anything?

No, I think that it's great, Dan.

Pablo, do you want to go to the next question?

Jason Napodano, Zacks.

So, Tim, just listening or looking back at your transcript from the second quarter call and I saw there was about 10 patients enrolled in REVIVE at that time, we are up to 26 now. 16 patients over three months, like you said, I know you guys aren't happy with that pace.

But maybe you can give us a sense of how many centers are active now versus centers that were active back in August. And then how many more centers you expect to come online in the next few months and then maybe we can -- I have got some kind of follow-ups after that.

Yes, so maybe I can give you sort of an overall sense. So we -- when we put this study together we worked with the leading [KOLs] and sites out there to develop an estimate for what -- how many patients per site per month we should expect. And I think we also had an expectation of going into the study of how long it would take to ramp up to that.

I think as we talked about both in May and in August, we said there is a natural ramp to these clinical trials that they are not -- they don't start out at a 45 degree angle from the start thinking about an upward sloping line, that they tend to be asymptotic in the sense that they start out low and then ramp up quite steeply, that the slope of the line of the enrollment graph, if you will, gets steeper over time, both as these sites get more familiar with the protocol and identifying patients as well as, I think as you highlighted, the increase of the number of sites.

So we continue to add sites, to answer that question, I think we've got about another dozen sites that we have added over the last three months or so that are working with us and we expect that to continue to increase.

And then from there, again, we won't get into all the specifics because, I think as we mentioned on the last call, there is a level of granularity here for competitive reasons that we don't want to give to other folks that either are or may have ambitions to get into the space and to compete for patients if that is their desire over time.

So there is some information that we won't be disclosing, despite the fact that I know, Jason, I know you and certainly others, you guys are data hogs as much as we are data hogs. We love the data and we want to know more, we always want to know more.

But having said that, we set a goal for the sites on an average basis, again, so many patients per site per month to enroll in this trial. And that target which, again, I won't mention the specific number, but I can say that we have a handful of sites that are at or above that number. But most of the sites have yet to achieve that target site per patient per month goal that we established. And that is really the key to the success of this trial.

So most of our efforts over the last two or three months and over the next several months will really be devoted to taking the sites that are active and getting them to that goal, getting them at or above that goal of enrolling patients. Because we can continue to add sites -- just to help you understand the logic, we can continue to add sites forever. There is a cost to that. But unless those sites are performing at goal then we are not getting a good return on our investment there and we are certainly not making the progress on the site that we would like to see.

So I think the guidance that we have gotten -- as you probably know there haven't been a lot of CLI trials that have been done. The guidance that we have gotten from those that have participated or led some of the prior CLI trials is that it takes nine months or so to get these studies performing or the sites in these studies performing at a high level. And we hope and expect the next time that we are talking to you and that we are talking about a hell of a lot more patients enrolled in this study than what we are seeing now.

But it's -- again, we are -- as I said, we are not satisfied, we are disappointed in the level of enrollment so far. And -- but we are also trying to make sure that there is a whole lot of things that we could be doing but we really have the team here focused on doing those things that are going to yield the best results.

And again, because we don't want to confuse activity with results, we want to make sure that any activity that we are undertaking actually produces a result. The result being -- the desired result being a significant and dramatic improvement in enrollment and that is where we are focused.

Got you. This may be something that you are not willing to get into, but can you give us a sense of the screening of patients versus the actual enrolling of patients? And how many patients are you screening versus enrolling and whether or not your independent adjudication committee is accomplishing the things that you want to accomplish or is there adjustments that you can kind of make on the sly to that?

Yes. No, so those are good questions and I think from our standpoint let me just answer the last part of your question first. So the eligibility review committee is working very well with the sites. We haven't had a whole lot of issues either with transferring images or -- not to say we haven't had some, but we haven't had many.

And we are also not seeing the eligibility review committee really getting in the way of the sites actively screening and enrolling patients. Again, there have been some issues here and there but not anything that we would say that's really a concern for us.

I think the things that with respect to the screening versus randomization, we are continuing to see that improve. And again, without getting into specific numbers, what we had expected is that it would start out -- that fraction would start out relatively low and improve as the sites gained experience with the protocol. And that is exactly what we are seeing.

So the number of patients that we're screening to get patients randomized over this last three months or so has improved nicely. So, and again, I know that doesn't help you a lot because I am not giving you quantitative numbers, but we are having to screen fewer patients to get the 16 additional patients that we enrolled in the study.

No, that is helpful, Tim, thank you (multiple speakers).

And again, I think we may have talked off-line a few weeks ago and -- I can't recall, I think we did -- and we were just saying that we know it is a little bit frustrating for everybody at this point because we are at a relative inflection point for the study.

Everybody in the market is from Missouri, as we like to say, and so we've got to show people that we are actually being effective in enrolling these patients. And we understand that. We are measured by -- we are going to be measured by how well we enroll this study and so we have got a lot of focus on that. But until we show folks we understand that folks want to know that, they want to see the results.

Thanks, Tim.

Megan Dow, MLV & Company.

We've got a little bit more along the same vein here. Are you kind of experiencing a disconnect, if you will, between how the ixmyelocel-T was presented in the marketing study which sounded like adoption would have gone very nicely, docs were excited about the product? And are they experiencing more difficulty than you were expecting in actual enrollments? Are you getting any feedback from them on the frustrations they are experiencing or not experiencing?

You know, I don't know, Dan, if you want to make a few comments. I am looking at Dan across the table here. So I will have him start on that question, Megan, and then maybe add a few things after he comments.

Yes, so, back to that earlier discussion of standard of care, Megan, the trial defines a standard of care that isn't consistent in the marketplace at all. But via the FDA criteria, et cetera, it is wound size, it's how many days they have had the wound, it's a litany of criteria that a patient in essence has to walk through a window and qualify to be screened and randomized.

In the marketplace when we talk to physicians about it, again, these aren't necessarily the academic vascular surgeons that we went to, their opinion was it is much different, right. That first of all they don't all use the same techniques, nor do they have all of the same techniques available to them. So it is very interesting when you even try to apply a concept of standard of care to Endovascular procedures or to wound healing, per se.

So in the marketplace the physicians kind of got there a lot faster because they say, yes, you described this patient who I have attempted a procedure and they are back within a short period of time or their wound didn't heal, et cetera. They very readily say, yes, I know these patients; I do everything I can. They are very motivated to win, if you will, and not send the patient off for amputation.

In the clinical trial it is a bit different though, because they have to meet a variety of parameters to be able to walk through that window. So it is not like to say in diabetes, which is a background that I'm familiar with where there is very well known established criteria for what control looks like, or what a patient type is and what standard of care therapies and some things like that are extremely to me relatively well-defined versus the surgical world where it is so dependent on the physician's capacity, what is available to them in their center and what the individual patient presents with.

So I feel that's a fairly accurate description. Is that is what you are -- consistent with your question, Megan?

Kind of. We were more just curious as to the marketing study that you were doing. Was it presenting with the same restrictions that the docs are experiencing in real life during the clinical trial? And would those restrictions be almost a little too restrictive to be able to keep enrollment going?

Yes, so in the market research we used a target product profile that would be consistent with the label. However, the physicians don't necessarily apply all of those diagnostic criteria at all. Even the description of what is Critical Limb Ischemia, a lot of physicians just use well, I look at the wound, how long have you had it, what is your history?

And based on the severity of the wound and the chronic nature of it they just assume CLI. They are not doing ankle pressure, toe pressure, the oxygen pressure as well. So they are just making an observation diagnosis. So that is a much broader population than how strictly we are defined in our clinical trial.

Okay, great. And then as a follow-up, obviously these rate limiting steps continue to make an impact on enrollment. Are you going to give us some updated guidance on when you expect full patient enrollment?

Yes, that is -- I am glad you asked that question because I think we have been talking about it internally and we feel like we are not quite ready at this point to give updated guidance on the enrollment for -- that is projected enrollment for the study. But by the one-year anniversary, which will be late February/early March that -- so, I think probably by the time we have our Q4 call we may be in a position -- not maybe, we will be in a position to give some guidance on where we think the estimates are going to be for the trial.

Great. Thanks so much.

(Operator Instructions). Boris Peaker, Oppenheimer.

I just wanted to follow up a little more on the patient recruiting process, specifically can you comment what recruiting criteria is causing the most exclusions?

That is a good question, I don't have it at my fingertips.

I can share it. By far the number one is end stage renal disease. And I will say that we went back to the steering committee, we had discussion, we looked at all of the epidemiology data we could find on patients who are in these trials who were potentially in these trials or could be and what is the likelihood of being able to delineate the impact of the trial, the drug versus control versus the complications associated with ESRD.

And unfortunately every one we have gone to has reached the same conclusion that if you -- you should study that patient at some time because they are at need for this therapy. Clearly it is a strong need, but they shouldn't be included in the trial and it should be on its own study population, a smaller trial for safety on its own. So that has been number one.

And is there a close second or third or is it -- that is primarily the reason?

I would say that is the number one and the others are more variety.

And just then a question in terms of market research. Could you specify exactly what product profile you were using, the key criteria that you gave to these market research participants?

Sure. So we kept the product profile consistent with what we projected to be the label which is in patients who are -- really have three things, they are refractory for an Endovascular procedure because they have recently failed one; they have a co-morbid condition that limits their access to one; or in the physician's judgment they lack confidence that the next Endovascular procedure will be effective. And that is where there is a bit of this gray what is standard of care and what applies there.

So the -- some of the terminology that they were challenged with were terms like no option. These physicians are very proud of their ability to correct the issues, the Endovascular issues in these patients. So some of them said that I have never met a no option patient, if you will. So we defined it very specifically as those three criteria and then we started to gain some momentum in the dialogue and physicians are pretty quick to readily identify that group of patients.

By far the motivator that gets the patient into the vascular surgeon's purview is that non-healing wound. They are either referred to the physician from the wound care center, they are referred from surrounding recommendations of physicians. But that target profile also consisted of our introduction of autologous therapy safe, which they really reacted to very positively, as well as M2 MSC therapy, the idea of reducing inflammation and promoting angiogenesis.

Earlier on I talked about how quickly they jumped to can I use this with my Endovascular procedure, because they immediately put the MOA together with what -- the correction that they are doing, right, they are improving profusion, but yet sometimes it fails.

So in these difficult patients they assume it is not the corrective action they took that failed, it is what is going on, the inflammation, the angiogenesis that's not occurring even though they've improved circulation to the limb. So they immediately put those two together which we were a bit surprised by. So that's the description of the target product profile and the reaction we got to it. Was there anything else that you had questions about?

And, Boris, I was just going to emphasize something that Dan said. I think probably the -- what surprised us from an expectation standpoint is when physicians were reviewing this target product profile, they immediately recognized the safety and the preferability of an autologous cell therapy. Again this is from a physician standpoint.

I think you know, you cover the space and you cover both autologous and allogeneic companies, so I don't want to make too much of this other than we hear a lot about the convenience of allogeneic therapy. But I think the important thing that -- just to differentiate, the important thing that we discovered by talking to the actual docs that will treat these patients is they saw the value of the autologous therapy because it comes from the patient and the perception of safety is just really high. And of course in these frail patients that is really important.

And in your product profile you described very clearly, and I appreciate that, in terms of the patients that would be targeted. I am just curious what you have discussed with them in terms of efficacy or perhaps you learned from them what would be meaningfully from a clinical perspective?

Yes, basically they said about 25% to 30% improvement over placebo was acceptable, as well as payors. 50% improvement they considered to be a home run and we heard that from both physicians and payors.

And if you remember, Boris, I think the -- if we go back to the Phase IIb RESTORE results, we saw -- in the patients with tissue loss we saw a 60% reduction in amputation-free survival. And so, we felt pretty good about the comments from the physicians and payors with respect to what would be meaningful here because obviously that is well below what we saw in the Phase II. And of course the objective of our Phase III study here is to demonstrate that in a larger patient population for approval purposes.

Okay, well thank you very much for these qualifying comments. It's very helpful.

I am showing no further questions in queue. I would like to turn it back to Tim Mayleben for any further comments.

Yes, thank you, Pablo. And I just want to take a moment to thank all of our callers and listeners for -- callers for your questions and everybody that was on the call for listening and your continued interest in the Company. And of course we look forward to updating you on our next call, which will be in the first quarter. Thanks so much.

Thank you. And again, we wanted to thank you, ladies and gentlemen, for joining today's conference. You may now disconnect. Have a great day.