Vericel Corp (VCEL) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Aastrom Biosciences second-quarter 2014 conference call. (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, Gerard Michel.

Thank you, operator. Good morning, everyone. Welcome to Aastrom's second-quarter 2014 conference call to discuss our second-quarter financial results and the progress of our commercial business and 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 or 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 Nick Colangelo, Aastrom's President and Chief Executive Officer; Dr. David Recker, our Chief Medical Officer; and Dr. Ross Tubo, Aastrom's Chief Scientific Officer.

I will now turn the call over to Nick.

Thanks, Gerard. Good morning everyone. I will begin today's call with an update regarding our restructuring and commercial activities since we acquired Sanofi's cell therapy and regenerative medicine business on May 30 of this year. Through the acquisition, we acquired worldwide commercial rights to three marketed autologous cell therapy products Carticel, Epicel and MACI, manufacturing and production centers in the US and Denmark, and a commercial organization based principally in the US.

As we reported in June, we have implemented an aggressive strategic plan entailing a number of initiatives to eliminate redundancies, reduce costs and expenses and improve operating efficiencies in order to maximize the profitability and growth potential of the acquired business, position the acquired products for sustainable long-term growth, and effectively leverage our talented commercial team.

I am pleased to report that as a result of these initiatives excluding certain items related to ongoing restructuring activities, our US commercial business generated a positive contribution in the second quarter. Net revenues for June, our first month owning the acquired business were approximately $4.4 million. Although we will need to make some additional incremental infrastructure investments and incur some additional operating costs in specific areas to support the business as we discontinue utilization up certain Sanofi transition services, I'm confident that through increases in gross margins, ongoing rationalization of infrastructure and topline growth we will continue to increase contribution of the acquired business.

Gerard will provide further details related to the performance of the acquired business during his review of our second-quarter financial results.

The specific cost-cutting measures that we began implementing in June which include discontinuing production of MACI in Denmark, temporarily ceasing sales of MACI in Europe, significantly reducing certain nonrecurring MACI related R&D expenses and immediate actions to optimize research and development and manufacturing and commercial operations in the US, resulted in a reduction of 80 global FTE positions and are expected to reduce annual operating expenses by approximately $20 million compared to the reported expenses of the acquired business for 2013.

From a revenue perspective, we believe that our two marketed products in the US, Carticel and Epicel, while mature products have real growth potential based on current market penetration rates. Under the leadership of our Chief Commercial Officer, Dan Orlando, and our new National Sales Director, Zach Taylor, we have increased the number of sales representatives supporting Epicel, realigned sales territories for both products and implemented a new incentive compensation plan for the sales team to drive the growth and profitability of these products. We believe that both products warrant these actions.

Epicel is a life-saving therapy for severely burned patients. Currently more than half of Epicel sales come from just a few of the more than 125 specialized burn centers in the United States. Our goal is to expand the use of this life-saving product through enhanced sales and marketing support and outreach to additional leading burn centers across the country.

With respect to Carticel, we estimate that there is a target patient population of upwards of 60,000 younger and more active patients with larger cartilage defects who may benefit from Carticel treatment. We now have durability of repair data for Carticel out to 20 years which demonstrates the long-term benefits of this product. Carticel represents a compelling treatment option for this patient population. We are excited about pursuing opportunities to expand Carticel utilization.

We are also very excited about the potential of MACI, our Phase 3 product candidate in the United States. As Dave will discuss in a few moments, we believe that MACI represents a substantial opportunity to expand the market for autologous cartilage repair products in the United States and to drive further growth of our cartilage repair franchise.

In the two months that we have owned the acquired business, we have made a concerted effort to reach out to key physicians and institutions that utilize our products. Based on these interactions, we are confident that there is a dedicated physician customer base for both Carticel and Epicel and that we have acquired a business with sustainable revenues.

As just described, we also are moving aggressively to expand the commercial potential for Carticel, Epicel and MACI and we are very pleased with the progress that we have made in a short period of time.

Finally as part of our ongoing efforts to leverage our existing assets, we initiated commercial sales of bone marrow in June through Marrow Donations LLC, our wholly-owned bone marrow collection center in San Diego. Based on the significant interest across the biopharmaceutical industry and the use of bone marrow and bone marrow [drive] cells as drug discovery tools, we believe that this represents a promising new business platform for Aastrom.

Now I would like to turn the call over to Dave Recker for an update on our clinical programs and regulatory activities.

Thank you, Nick. I will begin by providing a brief update on our current clinical program for the treatment of advanced cardiac failure due to ischemic dilated cardiomyopathy or an indication for which we have orphan disease (technical difficulty).

As a reminder, the Phase 2b ixCELL-DCM study is a multi-center randomized double-blind placebo-controlled trial evaluating the efficacy and safety of [ixmyelocel] communication with advanced heart failure due to ischemic DCM. The primary endpoint being a composite of major adverse cardiovascular events defined as the number of all-cause deaths, cardiac hospitalizations and unplanned emergency department visits for the treatment of acute worsening heart failure over 12 months.

We continue to see strong enrollment to the study and have now enrolled and treated more than half of the targeted 108 patients and we remain on track to complete enrollment of the study by the end of the year.

Also with respect to ongoing clinical activities evaluating the use of ixmyelocel-T for the treatment of patients with cranial facial defects and undergoing reconstructive surgery, enrollment is near completion and one-third of the NIH sponsored studies in Phase 1/2 trials in patients affected by cleft palate or alveolar bone defects due to trauma.

Finally as Nick mentioned, we are preparing for our discussions with the FDA regarding the US registration pathway for MACI. As an advanced third-generation cartilage repair product, MACI offers the efficacy of Carticel with the improved ease of use for the surgeon to reduce rehabilitation programs (technical difficulty).

MACI is the first and only tissue engineered product approved as an advanced therapy and medicinal product by the European Commission. Pivotal clinical trials supporting MACI registration in Europe, the 144 patients Superiority of MACI Implant to Microfracture Treatment, or SUMMIT study, demonstrated both statistically as well as clinically meaningful improvement in the co-primary endpoint of pain and function for patients treated with MACI compared to microfracture.

Based on the SUMMIT study results as well as the extensive clinical experience in over 9500 patients treated with MACI outside of the United States, we believe that MACI represents not just a potential replacement product for Carticel but an opportunity to expand the market for autologous cartilage repair products.

Physician feedback about MACI is very positive and our goal is to launch MACI in the US market and reintroduce MACI in select European markets just as soon as possible.

I will turn the call back over to Nick.

Thank you, Dave. As you can see we have a number of important commercial and clinical activities underway.

I will now turn the call over to Gerard to review our second-quarter financial results.

Thanks, Nick. Our second-quarter financial results are the first financial results reported following the May 30, 2014 acquisition of Sanofi cell therapy and regenerative medicine business.

For the second quarter ended June 30, 2014, Aastrom reported a net loss of $4.6 million or $0.94 per share compared to a net loss of $4.9 million or $2.72 per share for the same period a year ago.

The results for the three months ended June 30, 2014 incorporate one month of operating results of the acquired business which generated $2.6 million of the reported capital loss for the period. The loss included restructuring charges of $3 million and expenses of approximately $200,000 for the Denmark business which is in the process of being closed. Adjusting for those charges, the US commercial business generated a positive contribution of approximately $600,000 in the second quarter.

Net revenues for the quarter ended June 30, 2014 were $4.4 million and reflect one month of results from commercial operations in the US. Revenues were comprised of $3.4 million of net sales of Carticel implants and surgical kits, just over $900,000 of net sales of Epicel graphs and biopsy kits, and just under $100,000 of revenue from the just initiated commercial sales of bone marrow by our marrow donation business in June 2014.

June traditionally is one of the relatively stronger months for Carticel sales while Epicel sales generally are fairly volatile on a monthly basis given the nature of the patient population and the small number of burn centers performing the bulk of Epicel graft procedures.

Gross profit for the quarter ended June 30, 2014 was negative $577,000. Gross profit was significantly reduced by $2.4 million of charges in costs of goods sold associated with the recently announced restructuring of the acquired business.

Research and development expenses for the quarter ended June 30, 2014 were $4.4 million versus $3.7 million for the same period a year ago. The increase in research and development expenses is due primarily to an increase in clinical trial expenses resulting from increased enrollment in the Phase 2b ixCELL-DCM clinical trial.

General and administrative expenses for the quarter ended June 30, 2014 were $3.6 million compared to $1.6 million for the same period a year ago. The increase in SG&A expenses is due to an increase of approximately $400,000 in legal and other related expenses related to the acquisition of the acquired business, approximately $600,000 in restructuring expenses, and approximately $800,000 in additional SG&A costs related to the acquired business in the US and $200,000 in SG&A costs from the acquired business in Denmark which is in the process of being closed.

Other income for the quarter ended June 30, 2014 was $3.9 million compared to $345,000 in 2013. The increase in other income is primarily due to a bargain purchase gain of $3.6 million recorded upon the closing of the acquisition of the acquired business.

During the quarter, we raised approximately $3.2 million in proceeds in from the Lincoln Park equity line. We will continue to use this facility and others prudently as we consider additional financing options.

As of June 30, 2014, the Company has $7.3 million in cash and cash equivalents compared to $8.1 million in cash and cash equivalents at December 31, 2013. For the six months ended June 30, 2014, cash used for operations was $10.7 million.

That completes my financial review. Now I will turn the call over to Nick.

Thanks, Gerard. We have accomplished a great deal in the first half of 2014. We have transformed Aastrom into a fully integrated Company with a sustainable US commercial business and a high potential late stage pipeline. We've also build an entirely new management team with significant experience in the development and commercialization of products in the United States.

The growth and emerging profitability of our cell therapy business, the integration of our commercial and leadership teams and the new opportunities for pipeline expansion are encouraging demonstrations of our progress as we continue to build Aastrom into a leading regenerative medicine Company.

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