Vericel Corp (VCEL) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Aastrom Bioscience's fourth-quarter 2012 conference call. At this time, all participants are in a listen-only mode. After opening remarks, we will open up the call for your questions. Instructions for queueing up will be provided at that time. I would also like to remind you that today's call is being recorded for replay.

I will now turn the conference call over to Brian Gibson, Aastrom's Vice President of Finance.

Thank you, Jonathan, and good afternoon, everyone. Welcome to our fourth-quarter 2012 conference call 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. With us on today's call are Aastrom's President and Chief Executive Officer, Nick Colangelo, and our Chief Commercialization Officer, Dan Orlando. Following our prepared remarks, we will open the call to your questions.

And I would now turn the call over to Nick.

Thank you, Brian, and good afternoon, everyone. Given that this is my first conference call as Aastrom's President and CEO, I would like to begin with a few comments regarding the exceptional opportunities that I see for Aastrom, the current challenges we face, and my near-term priorities. As you might imagine, I did a significant amount of due diligence on Aastrom before joining the Company. It quickly became apparent to me that Aastrom's multicell therapy, ixmyelocel-T, is a highly differentiated product with unique biological activities that promote tissue repair and enormous therapeutic potential to treat severe ischemic cardiovascular diseases. It also was evident that ixmyelocel-T has potential therapeutic application in additional disease indications, which is a very exciting prospect. Aastrom has developed a world-class manufacturing technology, which is highly scalable to reach future product demand and can be utilized to develop additional cell therapy products.

Finally, Aastrom is working with many of the world's leading cardiologists, who are extremely enthusiastic about the clinical potential of ixmyelocel-T. It was clear to me that there was a substantial unmet medical need and commercial opportunity for Aastrom's products, and that Aastrom's patient-specific cell therapy business model is a robust one. These attributes are a testament to the vision and hard work of my predecessors and new colleagues, who have created a very powerful therapeutic platform, a highly promising clinical pipeline, and an extremely exciting Company. My goals are to build on their achievements by accelerating the clinical development and commercialization of ixmyelocel-T, and ultimately to broaden Aastrom's product portfolio by applying our technology platform to new areas of unmet medical need. All of these goals are achievable. But they will take some time to accomplish.

My near-term priorities are to enhance the execution of our current clinical studies and to address the capital needs of the Company. As you know, we are currently evaluating ixmyelocel-T in two severe cardiovascular diseases; critical limb ischemia and ischemic dilated myopathy. The patients in these clinical trials are in urgent need of new treatment alternatives. I am pleased to announce that we are scheduled to enroll our first patients in the ixCELL-DCM trial within the next couple of weeks. As Dan will describe, we have expanded the target number of clinical sites in the study, momentum is picking up nicely, and we expect to complete enrollment of this study within the year. With respect to the revised CLI study, one of my immediate priorities is to enhance the enrollment trajectory of the study. The initial start-up and enrollment phase has been slower than anticipated, and we have not yet hit an inflection point in study enrollment.

However, as Dan will describe in a moment, we are in the process of implementing new strategies and initiatives to drive enrollment. Over the coming weeks, I will be thoroughly evaluating study enrollment to date, working closely with our clinical team and sites to assess the impact of new enrollment initiatives, and working to identify and implement additional initiatives to improve the pace of enrollment. Upon completion of this assessment, we will then be in a position to provide an update on the overall study timelines. While we are not satisfied with the pace of our clinical activity to date, I am confident that the studies are well-designed, that they are being conducted to the highest industry standards, and that the recently implemented initiatives will improve enrollment rates going forward. Importantly, these clinical trials have the potential to change the standard of care in severe ischemic cardiovascular diseases, which ultimately will drive value for patients, the medical community and our investors.

My second near-term priority is to address the capital needs of the Company. I have already spoken with many of you about our need to raise additional capital in the near future through financing and/or partnering activities. Of course, our financing and partnering strategies are interrelated. And while I cannot provide specifics on the possible timing of either of these efforts at this time, I can assure you that we are actively engaged in several initiatives and focused on financing the Company in a manner that serves the best interest of our shareholders and the Company. In the meantime, we will continue to manage our resources carefully and execute our programs as efficiently as possible. In closing, let me say that I appreciate the warm welcome that I have received from Aastrom's employees, shareholders and analysts. And I'm excited about the opportunities before us. I am also grateful to Dan for his contributions in serving as Interim President and CEO prior to my arrival. He has been enormously helpful during this transition period for me and the Company.

I would like to turn the call over to Dan to review our recent clinical activities before we have Brian review the year-end financials. Dan?

Thank you, Nick. I will begin with the Phase III REVIVE-CLI study. Primary objective of the REVIVE study, as many of you know, is to assess the efficacy of treatment with ixmyelocel-T in patients with critical limb ischemia and existing tissue loss. The primary endpoint is amputation-free survival at 12 months following treatment, compared to placebo. We began this trial last year, and we have now enrolled 40 patients, which is below expected enrollment phase. However, we have taken several important steps to increase enrollment, including adding new study sites and amending our protocol. The sites we have added are screening patients quickly, which is encouraging, and a protocol amendment was submitted to the FDA in January. And just last week we received a letter of concurrence from the FDA approving the amendment and confirming that it is special protocol assessment, or SPA, compliant.

Let me share a few of the highlights from the amendment. The first of the modifications to note is a nomenclature change in the entry criteria language to fit prevailing terminology. This is helpful for physicians in identifying the appropriate patients for this study. For example, the use of the term no option in the protocol was limiting the selection of eligible patients for bivascular surgeons. We have changed the protocol language to refer to patients who have a low likelihood of successful revascularization, which is a broader and more accurate definition. We have also identified and modified the protocol to include patients with larger wound sizes and more significant aortic iliac disease. We have established broader immune therapy allowances. And we have improved screening efficiency by allowing parallel cancer screening and allowance for higher TcP02 at baseline.

We have just initiated the rollout of the amendment changes to the study site, and we expect that IRBs will review and approve these changes quickly. We expect this SPA-compliant amendment will improve enrollment. And as Nick mentioned, we will be working closely with our clinical team and sites to assess the impact of the changes and their impact on overall study timeline. To wrap up the CLI program, we have done our homework, made changes, and these changes have been done with FDA agreement that will help enrollment without putting a great study design at risk. This, along with improved study site selection and ongoing recruitment efforts, demonstrate Aastrom's determination to help patients with CLI prevent limb amputation.

I will turn now to the DCM program. Enrollment in our Phase IIb dilated cardiomyopathy trial has begun and is proceeding well. The goal of this study is to enroll 108 patients with ischemic DCM at approximately 30 US clinical trial sites. Previously, we targeted 20 sites, but to ensure timely enrollment and to meet the demand we received from interested investigators, we have expanded the number of target sites by almost 50%. The study is targeting DCM patients with advanced heart failure who have failed other treatments and devices, and are now considering an LVAD or awaiting transplant. These patients are being randomized to receive a single administration of ixmyelocel-T or a placebo via a Myostar catheter with Noga mapping, with the primary efficacy endpoint measure being major adverse cardiac events at 12 months. Approximately 10 sites are now up and running and screening patients, and with a handful of patients in screening, we expect the first patient to be enrolled within the next couple of weeks. Additional sites are coming online quickly and we anticipate enrollment will be completed within a year and top-line results available in early 2015.

Many of you have asked about upcoming data presentations, so I am pleased to report that we will be presenting several abstracts for ixmyelocel-T this spring. Several will be at the International Society for Cell Therapy meeting, which is in Auckland, New Zealand, in April and the Arteriosclerosis, Thrombosis and Vascular Biology meeting in Buena Vista, Florida, in May. We will provide more details about these presentations as the data is released. But suffice it to say that these are exciting pre-clinical findings. And they continue to demonstrate the breadth of the additional therapeutic opportunities for Aastrom's platform and its products.

That concludes my prepared remarks. I will turn it over to Brian for the financial report.

All right, thanks, Dan. So for the fourth quarter and year ended December 31, 2012, Aastrom had a net loss attributable to common shareholders of $7.9 million or $0.18 per share, and $33.5 million or $0.81 per share, respectively. For the same periods in 2011, our net loss attributable to common shareholders was $2.8 million or $0.07 per share, and $19.7 million or $0.51 per share. The change in net loss reflects the non-cash changes in the fair value of our outstanding warrants, as well as the non-cash accretion of our convertible preferred stock. Our operating loss, which excludes the impact of the warrants and preferred stock, was $7.6 million or $0.17 per share, and $33.8 million or $0.82 per share for the fourth quarter and year ended December 31, 2012, respectively. For the same periods in 2011, our operating loss was $7.8 million or $0.20 per share, and $29 million or $0.75 per share.

Research and development expenses for the quarter and year ended December 31, 2012, were $6 million and $26 million, respectively, versus $5.9 million and $21.3 million for the same periods a year ago. The increase in R&D expense was primarily attributable to the Phase III REVIVE-CLI program and the Phase IIb ixCELL-DCM program, which included clinical site activation and patient enrollment. General and administrative expenses for the fourth quarter and year ended December 31, 2012, were $1.6 million and $7.8 million, respectively, versus $1.9 million and $7.7 million for the same periods in 2011. Both periods were impacted by the reversal of nearly $1 million in non-cash stock-based compensation expense related to stock options forfeited when Tim Mayleben stepped down as President and CEO in December 2012. This was partially offset by an increase in non-cash stock-based compensation expense before the forfeiture, and slightly higher legal and consulting costs.

At the end of the year, Aastrom had $13.6 million in cash and cash equivalents. Our cash use of $7.5 million during the fourth quarter was in line with our previous forecast of $7 million to $8 million. For the first quarter of 2013, we expect our cash spend to be lower at $6.5 million to $7.5 million. We have also utilized our ATM facility to raise nearly $2.5 million so far this year. And we will continue to be opportunistic in using the ATM to provide us with flexibility. We currently have the capital to move well into the third quarter, providing us with the time needed to assess various financing or partnering strategies to address our longer-term capital needs. As Nick stated, we recognize that we will need to raise additional funds this year to support our development programs and corporate activities. While we cannot comment on the specific timing or structure of our capital-raising efforts, we will continue to be opportunistic and act in the best interests of our shareholders.

And now I will turn the call back over to Nick.

Thanks, Brian. I think you can see that we are making good progress in initiating the Phase IIb ixCELL-DCM study, taking necessary steps to accelerate enrollment in the Phase III REVIVE-CLI study, and managing our cash resources carefully. As I mentioned previously, my top near-term priorities are to ensure flawless clinical execution, and address the capital needs of the Company and improve our financial position, and manage our programs as efficiently as possible. I am very excited about the work ahead, and look forward to reporting on our progress throughout 2013. That concludes our prepared remarks.

Now I would like the operator to open the call to your questions.

Certainly.

(Operator Instructions)

Jason Kolbert, Maxim Group.

Hi, Nick. Thanks for the update. A couple of questions. How many sites do you expect in total that you are going to target in the CLI trial right now?

I will answer that one, Jason. We are targeting 100 to 120. We've got approximately 70 active sites currently.

Okay, thanks. And just a question that has come up in my trials and tribulations on cell therapy. Have you guys thought about -- the cells in the DCM trial, they are going to be delivered via Noga, is that correct? And why via Noga? Do you believe that they have to be delivered via Noga? Or is there utility maybe in delivering them via the infarct-related artery? Or is that not relevant in DCM?

So to answer your question, we are really not sure, right? It is not just Noga, it is the Myostar catheter and Noga mapping. And we are in a Phase 2b, so the idea was to get as much information as possible. But we are not certain that we are going to need that mapping to deliver the cells. Certainly we want high engraphment. And we believe that the current -- you know, two together, the Myostar connected with the Noga mapping, ensures that for a Phase 2b. But certainly we are considering and would look to other vehicles that would give us a high engraphment but might not need the mapping.

And my last question is, even though the nomenclature on the enrollment criteria around CLI has been revised slightly, have you changed the enrollment criteria in terms of the Rutherford category or class? I know you are trying to find that sweet spot -- patients that were severe enough that the therapy could rescue them, but not so severe that they were beyond being rescued. And so just help me understand. Do any of these changes change the criteria for which patients qualify to be treated?

Yes, so, Jason, you articulated that well. We are really trying to find that sweet spot, right? We had expressed on an earlier call that some of the early screen cells had to do with patients who really didn't qualify because they had end-stage renal disease. But once folks have gotten through the screening and they learn that patients like that aren't qualified, they obviously don't screen them again. What we have seen a little more recently is that we have gotten some patients who are too far advanced, and the ERC will reject the patient and say that, that patient really should just move on to amputation or is not stable enough. They have to be stable for three months to be able to enter the trial. So our hope in the change -- and this is the feedback we have gotten -- that the change in nomenclature, as well as some expansion in wound size, taking the TcP02 a little higher, that we will get that patient who really isn't suitable for the next revascularization procedure. Instead of the patient who got that one more procedure, if you will, and then now is so advanced that they can't be enrolled via the review of our ERC.

Nick, thanks a lot. Good luck at the helm.

Yes, thanks so much.

Boris Peaker, Oppenheimer.

Yes, hi, can you hear me?

Yes. Hi, Boris.

Great. My first question is regarding the change in the enrollment criteria for the CLI study. Now, by allowing the larger wound size than maybe initially planned, I'm just curious what we could learn from the Phase 2 data set if we apply that criteria. Just retrospectively.

What I don't have, Boris, is specific to wound size. I can say that we did an analysis of all of the changes, and we looked retrospectively. So I will answer the question to the information I have. And it is a little bit tricky to do, because physicians may have screened out a patient before formally screening them. So you could say they pre-screened out a patient for a TcP02 value, or something like that. But for patients who were formally screened, if we apply the new criteria to the patients who have screened failed, it would improve the enrollment by about 10% to 15%.

But what about -- so that is helpful in terms of the enrollment. But if you applied the whole new criteria data set for patients that are enrolled -- and I understand there are statistical issues with that number. But just to kind of get a sense from that Phase 2 data set, how would that impact the actual results between the two arms of the study?

I don't have the information -- we did not apply that back to the Phase 2b results. I'm sorry.

Okay. And further on the enrollment for the CLI study, could you tell us what enrollment criteria -- maybe the top three enrollment criteria that are responsible for the largest patient rejection?

You know, I shared the one that is most common recently, is that the patients have been too far progressed. And we are hoping that the changes we are making here address that. There really is kind of a tie for everything else. Typically, it is wound size, it is another -- and sometimes it is comorbidities, as well. So the patient's stability to be able to be enrolled -- because, again, we need somebody who is going to be stable for three months in the enrollment period.

I see. And lastly, in terms of -- going back to the enrollment criteria -- the actual process of harvesting. I mean, is that something that you are seeing concern expressed by patients or physicians? And how -- or is there any way to improve that process?

Yes. Just as a reminder, our enrollment -- excuse me, our harvesting is a very small amount. It is 50cc's to 60cc's, not a lot. So we have not had a big hurdle there.

Okay, great. Thank you very much for taking my questions.

Okay, thanks.

Megan Dow, MLV Securities.

I had a quick question about, now that you are implementing the new nomenclature and you got the approval, how long do you think it's going to take to re-educate your physicians and the IRBs in the clinical sites to actually see that those changes pan out in your enrollment in the CLI trial?

Sure, Megan. I can tell you that we have prepared materials in advance. We had good discussions with the FDA early on, knowing that we felt pretty confident that these changes were going to get approved. So although we just got approval last week, we are already have materials ready and are being shipped out to the sites. And we believe, based on the type of changes, that the IRBs will -- the vast majority will approve them within one to two weeks. There will be a few, just because of policy and procedure, that might take a month. So we expect to do our video conferences and updates with almost every site by the end of April. And I would say at the latest, implementation in May.

And do you expect the increases -- you said you now have 70 sites that are active, out of the 80. Do you expect the remaining sites to be material in adding to enrollment?

Certainly. You know, the newer sites, we tend -- we are shying away from the academic sites. And we are going to the more community-based -- some rural, in the South. And what has been encouraging is some of the new sites that we've gotten recently have been screening patients very quickly. So they are really too new to assess in what the implications will be for enrollment. But certainly their activity in screening is promising.

Okay, great. And then the last question is relating to that 10% to 15% increase in the enrollment that you are expecting, given the nomenclature changes. Where is that number coming from?

It wasn't just nomenclature. It was changes to TcP02 levels, changes to wound size, and things like that. So we just took those criteria and looked back and said -- all right, of the patients that screen failed previously, what of this pool of patients would now screen in?

All right, great. Thanks, guys.

Okay.

Steve Brozak, WBB Securities.

Considering you've got the clinicians that have been onboard and have had more success, did you go back and do any kind of meta data analysis that allowed you to get a better picture of what they were looking for and what would allow you to have quicker enrollment? And what was, let's say, their strongest feedback that allowed you to come back or go back to FDA and basically say -- we want to change the SPA this way? And I've got one follow-up in terms of on the commercial side after that.

Yes, so, good question. We did interview the investigators. We also interviewed the clinical site coordinators, and that is where we got a lot of really good, tangible insight as to ways to improve the efficiency of like cancer screening, and things like that. So we got some very good, practical advice from those clinical site organizers or advisors. So the one piece I will add is that the physicians who are the most aggressive were saying that no option in their mind -- for some physicians, they felt like they have never seen, never heard of, may never in their future see a no-option patient. And that when we talked more about -- okay, let's think about the patient, who you are about to do a procedure and you really don't have a lot of confidence in this next procedure, typically a diabetic with a lot of collaterals. And once we repositioned that verbiage, along with some of the changes like TcP02 being a little higher, it is like kind of focused, if you will. We are bringing the patient more into focus.

Okay. So you've got the clarity there. Now that brings us to the next question. Obviously your protocol, your clinical progress -- I mean, the large pharmaceutical companies, the large biotech companies that are out there still don't have anything in their cupboards. Does what you are doing now, would you say, enhance your ability to go out there and draw interest in a partnering agreement? Or in some kind of a partnering system, in your opinion? I know it is not a fair question, considering how long you've been on the job. But obviously it's one of those things where all of a sudden now you've got greater data, now all of a sudden they've got less. What are your thoughts there? And you do not have to go into vast specifics. And I will hop back in the queue.

Yes, thanks for your question. This is Nick. Dan has been asking, obviously, a lot of -- or answering a lot of the clinical questions. You know, I think this only helps our partnering prospects. As you mentioned, this is an innovative therapy that is of high interest to the large pharmaceutical and big biotech companies. There is no doubt in my mind that this therapeutic approach is superior to other approaches that were tried. We've got first mover advantage in this indication. And so I think this only helps in terms of the attractiveness of the asset.

Great. Well, we look forward to getting positive data on the next call. And I look forward to it, and congratulations, and welcome.

Well, thank you very much.

Chad Messer, Needham & Company.

Welcome, Nick, and my best wishes to you in your new role. I know that you guys mentioned a couple times you are aware of the need to address cash needs in 2013. But just in terms of trying to think of what those needs are, can you give us any help or guidance on what the DCM trial may be adding in '13? And also, real quick, can you just remind me what are the terms and what is left on the ATM transaction that you have?

Yes, Chad, this is Brian. So in terms of the DCM trial, the total cost of that is going to be around $7 million, which will be incurred in 2013 and in 2014. So it will be a little bit of an incremental amount in 2013. But I think that will be offset by some of the start-up costs that we had already incurred in 2012. So comparing it 2012 to 2013, I don't think it will have the big impact. In terms of the ATM, we have about $18 million remaining on that. We have raised about $3 million in total, to date, under that facility. And the terms are pretty straightforward. There is really no limitations, other than the dollar amount of $18 million.

Okay, thanks for that. And just one follow-up, if I may, on CLI. I know you guys have some new protocol amendments that you've implemented. And obviously you're hoping to report back when you're able that -- what the impact might of those been on enrollment. But we did get previously that in May there were 10, and November, 36 patients enrolled. Can you share with us where we are at now?

We had shared 26 back in --

Oh, sorry.

Yes. So now we are at 40.

Okay, great. Thanks so much.

Jason Butler, JMP Securities.

I understand that you can't give a lot of details here. Can you talk about the kinds of partnerships that you are considering? Is this a regional or global type of approach? Are you thinking about all indications, given the breadth of the potential uses of this therapy?

Yes, I'm happy to answer that. This is Nick. You know, obviously, we -- again, our financing and partnering strategies go hand-in-hand. With -- we believe we have an extremely valuable asset here. And we are only going to partner the asset if we think it's going to meaningfully advance the program and be in the best interest of the Company and its shareholders. So I don't think we are putting ourselves in a box in terms of, you know, it has to be certain geographies, or whatever. Obviously most potential partners that approach us would like worldwide rights to the product. And so I think we are open to considering that. It is more likely a larger company would be better positioned to commercialize outside the US than we would be. But in terms of indications, I think this therapy lends itself to being able to potentially partner around the individual indications, which obviously increases the value to the Company. So I don't think we are going into it with any preconceived notions. And again, the guiding principle will be -- are we going to advance the program, enhance the chances of success, and does it make financial sense for the Company?

Okay, great. And just a question on the CLI trial. We know that historically in CLI there has been geographic variability, both -- or in -- apparently in response to these kinds of therapies. Can you talk about what data you have in the US and within different parts of the US that give you confidence that you won't see significant variability?

So at this point, I don't know that we have enough evidence to suggest that there is regional variability. Certainly the diabetes trends lend a bit to that, because diabetes is the number one cause for this. So if you look at the ADA website of where the prevalence of diabetes is, then of course CLI is going to follow. However, we have found that the recruitment -- the physician recruitment -- doesn't always track with that. It is more about the physician's willingness to say -- the next likely procedure here is not going to be successful, and I'm going to go ahead and enroll that patient. So I don't know that we have enough evidence of that yet. And I think that a lot of what I've read on the differences regionally have been -- and some of the implications of studies have been ex-US, [first] US. But with more data, we will -- might be able to answer that.

Okay, great. Thanks for taking the questions.

Thank you.

Jason Napodano, Zacks.

Can you give us a sense of the competition that you are seeing for enrollment at sites? Are you seeing any competition? And does increasing the number of sites and potentially moving away from academic centers potentially provide you a more favorable position in terms of finding patients away from competition?

Certainly. So I assume you are referring to the CLI trial?

Yes, sorry.

The competition tends to be more of the physician's practice and the way they approach that next vascular procedure. We haven't run into a lot of competition issues at this point. And certainly, going away from academic centers that will do so many different trials at the same time, helps us a great deal. And one of our other successful groups have been the VAs. They have been helping quite a bit lately.

Got you. Does increasing the number of sites potentially change the statistical powering assumptions that you guys use, at all? It seems like you may have -- getting up to potentially 120 sites, it seems like you may have a lot of sites that are going to have a small number of patients.

Yes, that is a reasonable question. But we don't believe it will have an impact on the stats.

Okay.

And you know, 120 is our upper limit. Likelihood it is probably -- we are looking for viable sites. And unfortunately, put a lot of effort in some sites that we've had to remove from the trial, as well. But likelihood is probably just north of 100.

Okay. And anything in terms of changing the lexicon around the enrollment criteria, things like tissue size and TcP02, like you said? Does that change any of your statistical powering around what you would expect for the control? I believe you guys were expecting event rate around 35%?

Right, we were really careful not to mess with that. We did a lot of homework on that. We had good discussions with consultants from the outside, statistical as well as physicians and experts in the field. We are very careful not to mess with what we believe is a single study that will lead to a conclusive result and applying for approval. So we did not shift those statistics, if you will.

Got you. Okay. And then just a final question, in terms of CKD patients, or patients with end-stage renal disease. Do you think it makes sense to maybe do a study in those patient subset, either potentially after this trial, or post-approval, or prior to filing for approval?

That's exactly where we landed. And again, we went out to experts and got their opinion. And in the end, that makes a lot of sense. Small trial on its own, evaluating what is a risky population to start with.

Got you. Okay. Thanks a lot, guys.

No, thank you.

Thank you. This does conclude the question-and-answer session of today's program. I would like to hand the program back to management for any further remarks.

Okay, well thank you, Jonathan. I want to again thank our callers for your questions and continued interest in Aastrom. We appreciate your support, and we look forward to updating you on our next call. So thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.