Q2 2019 Earnings Call
Good afternoon, My name is <unk> and I'll be your conference operator today.
At this time I would like to welcome everyone to the Athersys second quarter 2019 results conference call.
All lines have been placed on mute to prevent any background.
After the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key.
Thank you Karen <unk> director of corporate Communications and Investor Relations you May begin your conference.
Good afternoon, everyone.
Julian mentioned I'm, Karen I'd director of corporate Communications and Investor Relations for Athersys.
Thank you for joining todays call. If you do not have a copy of the press release issued after close of market. It is available on the Athersys website at <unk> Dot com.
The call is expected to last approximately 30 minutes and May also be accessed athersys dot com.
A replay will be available two hours after the call's conclusion and access information for the replay is in todays press release.
For purposes of the Safe Harbor provision under the private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those indicated by the forward looking statements as a result of various important factors, including those discussed in our forms 10-Q, 10-K and other public SEC filings.
We anticipate that subsequent events and developments may cause our outlook to change while we may elect to update these forward looking statements at some point in the future, we specifically disclaim any obligation to do so.
For the benefit of those who maybe listening to the replay. This call was held and recorded on August seven 2019.
Since then we may have made announcements related to the topics discussed. So please reference our most recent press releases and RPC filing.
With that I'd like to turn the call over to Laura Campbell Laura.
Thank you Karen.
Good afternoon, and welcome everyone I'm more Campbell senior Vice President of finance it after session.
I'll briefly review, our second quarter 2019 financial results and then turn the call over to BJ or corporate update followed by question and answer period.
Compared to $19.4 million in the second quarter of 2018 with the majority of our revenue is derived from our collaboration with Healios in Japan.
Our Healios collaboration revenues were 4.2 million in the second quarter of 2019 and were $18.8 million for the same period last year.
Included in last year's amount was the expansion of the collaboration that included additional license indication among other things.
Generally our revenues are derived from license fees and other contract revenue.
Manufacturing related services.
And grant revenue.
Research and development expenses increased to $11.1 million for the second quarter of 2019 from $10.1 million for the comparable period in 2018.
The 1 million dollar increase is primarily associated with increased clinical expenses and manufacturing process development costs.
Personnel costs and research supply, which was partially offset by a decrease in license fee expense.
Included in our clinical expenses or costs associated with manufacturing services that we provide the helios.
Which are invoiced to helio in accordance with our contractual arrangement.
General and administrative expenses increased to $2.9 million for the three months at June Thirtyth 2019, compared to $2.4 million for the same period in 2018.
The $500000 increase was due primarily to increased personnel costs.
They don't have professional fees and travel costs.
We incurred a net loss for the three months ended June Thirtyth 2019 of $9.7 million compared to a net income of $6.9 million for the same period of 2018 with the expansion of the Healios collaboration in June 2018, being the primary reason for the parent.
Our net loss per share was six cents per share for the quarter ended June Thirtyth 2019.
During the three months ended June Thirtyth 2019, we used $11.4 million of cash in operating activities.
Compared to net cash provided a $4.4 million in the second quarter 2018.
As of June Thirtyth, 2019, we had $44.2 million in cash and cash equivalents compared to $51.1 million at December 31st 2018.
With that I'd like to turn the call over to BJ for corporate update BJ.
Thank you Laura and thanks to everyone for joining the call today.
Also I'd like to thank the investors who have submitted questions before the call. These help these questions help guide our comments other than to go through today.
I'll start with an update on our clinical development activities.
Our masters two pivotal ischemic stroke study continues to progress.
During the quarter, we added clinical sites and continued enrollment into the study.
As we have mentioned on our prior earnings call. We completed production for Helios is treasure study earlier in the year and ramped up production for the Masters two study at that point.
Our intention is to have most of the planned U.S. sites initiated and enrolling by the end of the year.
And we will begin to bring on sites in Europe and other areas. Once we have the core U.S. sites on board.
Based on our favorable early enrollment data, we believe we can achieve strong enrollment numbers once all of our core sites are fully activated.
[laughter] once the study is fully initiated we plan to have sites in North America, Europe and other international locations.
Our stated goal has been to complete enrollment of the study before the end of 2020.
However.
Once we have the coresites fully activated enrolling.
We will be in a better position to estimate or timeline for completing enrollment in the study.
Turning to Japan, Healios has advanced its treasure ischemic stroke study over the quarter.
Healios announced in the second quarter that had completed initiation of all clinical trial sites in Japan numbering more than 40 sites in total.
Healios is enrollment progress has been a bit slower than they have hope for impart due to investigational product constraints earlier in the study.
However, the healios team intends to pursue measures to enable it to complete the clinical trial as soon as possible.
[noise] Phaunos has projected in its public disclosures that enrollment is expected to be completed sometime in mid 2020.
Also as a reminder, Healios has saga gawky designation for this scheme extra program, meaning that the program qualifies for an expedited review and approval process under the progressive.
Japanese regulatory framework for regenerative medicines.
[laughter] in January we release promising preliminary summary results from our exploratory clinical study of Multistem therapy for Ards patients.
Studies called the must arch study.
During the second quarter, we received fast track designation from the FDA for the Arts program.
Following the release of the must artist data Healios initiated a clinical trial in Japan for patients with pneumonia induced arch that study referred to as the one bridge study.
And enrolled its first patient in April .
Data from our must start study for subjects with pneumonia induced arch suggest the potential for substantial clinical benefit.
For Multistem treatment for these patients.
The one bridge study is designed to be eligible for contingent approval under the progressive regenerative medicine regulatory framework in Japan.
And we'll evaluate 30 subjects with pneumonia into starts.
Healios is adding clinical sites and enrolling patients in this ongoing study.
Given our considerable impact on the health and well being of patients and a significant cost of caring for patients on a better later in the intensive care unit.
We believe the favorable reimbursement amount could be justified for multistem treatment that meaningfully reduces mortality increases ventilator free days and I see you free days for patients in line with what we observed in our must art study.
It is possible given the smaller size of the study that results from the one bridge study could be available before data from treasure study and therefore this indication maybe taken through the Japanese review and approval process first.
In any event, we would benefit from Healios has development regulatory success in this area given our license arrangement with Healios and our interest in arts development in other geographies.
As we have mentioned previously we have had substantial challenges enrolling our phase two am I study.
As a refresher study was designed to treat subjects. Shortly following certain types of heart attacks with the catheter based administration of Multistem cells around the effected hard area.
The foundation for the study was our promising phase one study results.
As well as our extensive nonclinical data demonstrating the potential for the cell therapy for in park related conditions in cardiovascular disease.
The enrollment challenges have been in large part due to changes in treatment practices for the targeted patients which are in STEMI patients with severe loss of function and perfusion deficits.
For example.
More aggressive treatment then STEMI patients.
Meaning higher innovate intervention rates and accelerated time to the Cath lab.
Has reduced the time available during the treatment window window to identify can enroll subjects.
Additionally, our intervention approach has been based on moral access.
And a trend to radio catheterization access has had an impact at some clinical sites.
Further improve standard of care resulted in lower than expected severity in the patients coming through our clinical sites.
We've undertaken a variety of measures intended to address the issues and improve enrollment while maintaining the integrity of the study design.
Unfortunately, these steps have not had the impact that we have hope for leaving us with low enrollment in a long time line unless we fundamentally change the study design.
As a result, we have elected to undertake an evaluation of the available data from the enrolled subjects to help us determine the best way forward.
We will provide further information about our strategy in this area once we've evaluated the data and considered its implications.
Finally with respect to trauma.
We have advanced our regulatory and operational preparations toward initiation of the planned clinical study.
Which is designed to evaluate multi stem treatment shortly following trauma with the objective of reducing the severe inflammatory complications and the related organ dysfunction and adverse events.
Were now finalizing for submission the idea for the trial.
And our planning for the started this study around the end of the year.
We will provide further updates as we make additional progress on the regulatory front and other relevant areas.
Turning to the business development front, we are engaged in evaluating potential partnering opportunities, particularly involving our critical care programs like stroke arch than others.
For example, the recent must Arts study data has generated additional interest from leading global and regional companies.
We will continue to evaluate these partnering opportunities with a focus on finding the right partner and the appropriate deal structure for the indications and geographies our focus.
We believe that business partners may be important to ultimate commercial success in certain geographies and areas.
But we also intend to get appropriate value for our stakeholders for any licenses and business arrangements.
Even if this means we must wait.
Not every opportunity may be worth pursuing however.
In June we disclosed the expiration of Healios is right of first negotiate first negotiation with respect to an option for potential rights to develop and commercialize multi stem cell therapy in China for certain indications.
In the end, we could not agree on the key terms for the China expansion.
Uncertainty in China due to the escalating trade dispute may have had some impact during the negotiations.
As a result, healios no longer has exclusive negotiation rights with respect to China.
And it's a warrant to purchase Athersys stock is now limited to 4 million shares as a result price at the greater of $1.76 cents per share where the market price with the define premium and expiring in September 2020.
Given the size of the potential opportunity in China, we're not willing to out license, China commercial rights unless the business opportunity is sufficiently attractive to our company.
That said, we already have underway partnering discussions with other companies about rights to develop and commercialize our cell therapy in China.
Which we will continue to develop and evaluate is the trade dispute plays itself out.
Recently, we have received request to provide an update on our research and development and the animal health area.
We have made progress in this area and remain positive about the opportunities now animal health, particularly in the commit companion animal space.
Under an arrangement with a leading animal health company. We recently completed proof of principle study to evaluate our cell therapy technology and an important companion animal indication.
The results demonstrate the potential for our technology to treat animals and initial evaluation suggests a significant market opportunity.
Additionally, we continue to make progress in other research areas and in developing the animal health product platforms with a focus on dogs cats and horses.
We are in discussions with our initial research collaborator and other companies about development and commercialization rights in the animal health area.
Given our focus on our leading human health programs, though.
We will continue to evaluate opportunities to proceed prudently in the animal health space as circumstances warrant.
As we have conveyed before we are in the midst of a number of process development and manufacturing initiatives intended to increase manufacturing scale produce production cost and enhance process controls and product quality among other things.
We continue to make progress and expect that preparing for commercialization more require increasing effort investment over the next several years.
We expect these capabilities when they are developed to be a source of sustained competitive advantage for the company.
We're also working with outside experts to develop proprietary solutions to the unique requirements related to the cell therapy supply chain and clinical site logistics.
For instance, in the critical care space cell therapy product needs.
That needs to be available at a moment's notice and ready to use when needed by the clinician, who is treating stroke arts and trauma among others in an acute setting.
In the past, we developed a ready to use off the shelf product format that is being used in our current clinical studies.
Recently, we unveiled a proprietary prototype for a cryogenic system designed to securely storing dispense our product and hospital pharmacies.
To enable rapid treatment by physician clinicians and product control by us.
Our intention is to be prepared to enable effective commercial supply of our cell therapy product. Following successful completion of pivotal studies application approval by regulators.
A theme that comes up frequently and questions from our shareholders is our approach to capital management.
We addressed this in our last call, but given its important importance is worth revisiting today.
Our overall objective is to maintain a healthy balance sheet and have access to capital as we advance our lead programs through development and prepare for possible approval and commercialization.
We expect our operational and investment to increase as we move through this period.
As we have done in the past, we May fund our activities in a variety of ways, including through business collaborations.
Grants.
And equity sales as necessary.
At any given time, we typically have multiple business development discussions intended to create opportunities for us and for fund important initiatives realize value from our technology platform and add important capabilities to development and commercialization effort as appropriate.
We will continue to pursue opportunities to should share the development activities and costs with business partners, while maintaining core elements for value future value creation.
On the equity front, our strategy is to have in place tools to allow us to have efficient access to the equity capital markets is necessary.
For instance, we were too.
Routinely haven't place an S. Three registration statement to enable us to move efficiently to undertake follow on activity. It does make sense.
Additionally, we recently put in place an ATM.
Or at the Mark at the market equity program.
Provide direct access to the market.
And we have not used the ATM at this point the program makes it easier and less expensive for us to reach potential equity investors.
We also have an equity facility whereby a longstanding investor has agreed to make purchases of our stock at our request under certain conditions.
This facility gives us a degree of certainty, if we want or need to add capital to the balance sheet.
And it is important to note that it is with an investor which has maintained a meaningful position in stock over time.
Over the past couple of years, we have used the equity facility from time to time to support important operational initiatives as disclosed in our SEC filings.
However, we remain mindful of the potential dilutive impact associated with any equity related activity.
Taking into consideration stock price level.
An important milestones in front of us.
Some of our investors have asked about stock price fluctuations.
And I would like to briefly address these here.
There are a number of factors that might affect our stock price at any given time, including company announcements and milestones macro economic influences.
Industry conditions changes in regulatory policies investor activity in company fund raising activities among many others.
A number of these factors are beyond the company's control for example, we cannot control economic and regulatory externalities.
Further.
So we can communicate the companys value proposition to investors, we cannot control and investors buying and selling decisions or an investor's activity in the market.
Sometimes there may be significant selling pressure for reasons that may not be explained easily by company news or other directly relevant information.
This may reflect the impact of the externalities, such as a major equity market move.
It could also represent a hedge fund or other investor taking actions in generating rumors to support a short position of stock or it might be simply a fund making portfolio adjustments or reallocations independent of any new company information.
It's hard to really know, but our experience suggests that these can be important drivers of selling pressure in our had often are short term in nature.
While these stock price fluctuations are frustrating for us at our investors we remain focused on.
Operational execution and achievement of substantial long term value creation for our shareholders associated with the opportunities ahead of us.
We continue to take efforts to increase exposure to the company, our programs and investment and the investment opportunity or in other words to communicate the companys value proposition.
We conduct regular outreach efforts focused on both institutional and retail investors, we present regularly at financial and scientific conferences.
We publish our research findings and reputable scientific and clinical journals and we work to educate the public through the business and scientific press.
Recently for example, there were podcast and articles covering the company and its programs and Forbes and fortune.
All of these new stories can be accessed on our company's website under news and media and by following Athersys on social media.
Again, we'd like to thank our investors for submitting questions ahead of the earnings call update hopefully we've addressed most if not all the questions that have been submitted in one way or another.
We'd now be happy to take some additional questions.
Thank you. Your first question comes from Jason came from Dawson James Your line is open.
Hi, Jason K talking to BJ high great job running the call BJ really appreciated I'd like to focus a little bit on onwards on the arts trial.
And I'd like to understand the importance and the significance of the results. So just to kind of review and set the framework for my question. My understanding is 20 patients in the multi stem group 10 patients in the control group and at day 28, the mortality numbers were 40% control versus 25% Multistem. How significant are those differences what is the feedback you're getting from KL wells that you mentioned that you don't PD has picked up I assume that BD is looking at the same thing I'm looking at which is the slide that goes through.
Kind of the differences seen between multi stem and control and quite honestly I've never seen.
This this kind of data even when I go back to like discovery labs, and the surfactant approach for or so it looks very significant to me how do you guys interpret it.
Well thanks for the question.
Jason Kay.
Sorry no.
No. We're excited by the data first off let me say that.
Secondly, I just want to add a note of caution that it is a small study 30 patients of valuable data.
And the results are very promising, but we would characterize them as strong trends at this point.
With respect to how the Coelce view. This I think they are also very excited by what they see in the promise that the cell therapy could bring to the space.
We recently had an investor day for instance in May we had an art art survivor speak there.
We had one of the leading clinicians in the space talking talk as well and I think what was clear in their comments was the substantial unmet need in this space.
The lack of.
Fective therapies for these patients the lack of things that can fundamentally change the direction of recovery.
That was crystal clear with respect to the results were seeing.
The same sort of kind of perspective was evident in the comments.
These results if we can replicate them in a larger pivotal study would be substantial significant in the clinical field.
And our view is based on that.
They would translate into a substantial kind of market opportunity.
You are talking about a very very extensive.
Indication in terms of treatment.
With substantial impact on quality of life, and we think that the value. We can bring if we if we replicate the observations we had in our study.
Would have a meaningful impact on those cost and on the quality of life.
And BJ can you opine a little bit on you know Healios is action to go ahead and initiate the one bridge study so quickly.
And then talk with me a little bit about what was involved and fast track designation and your regulatory discussions with the FDA.
Yes, no happy to do that.
Healios has had an interest in arts for some time, you know they've been aware of our preclinical data, which by itself is very exciting we've demonstrated.
Physiological impact.
On lungs through treatment and essentially driving.
Benefit through a substantial impact on the inflammatory activity that follows.
The substantial.
Promise to the launch.
So they have been excited about the potential for arts for some time and as you may remember in the original deal we did with them. They had an option to bring arts into the license ultimately that was exercised last year.
So they were aware of the potential in the area. They were eagerly awaiting the data.
When it came out.
They had done the prep work to move forward with clinical studies, but I think the thing that was.
Most important for them. It this really brought into focus the design of the study and the potential for it to go through the kind of.
More progressive regulatory process in Japan take full advantage of that and really allow for design.
That could lead to contingent approval.
I think they were particularly excited by the patients in the study that that will look like patients that they have in their study which are pneumonia induced ards patients.
Our results there were.
Even even better than they were for the entire population so that is kind of how.
Their interest developed it really catalyze the activity when the data came out and they were able to get the study.
Up based on some preplanning, but to get it up and going in the first patient and then.
In early April and they continue to make progress on that study through the second quarter and I'm sure they'll talk about that in their own earnings call I think it tomorrow.
So we're excited for their progress.
With respect to your other question fast track designation I think at the end of the day, we had summit.
The evidence that we have generated about potential efficacy. The FDA is well aware of the product platform minutes, developing tolerability and safety profile.
And our view is that there is a high degree of enthusiasm for the potential for treatment in this area.
And part of that has to do with that.
I mentioned earlier that they're not really any good options for these these types of severe patients.
Yes, certainly sounds very exciting I could understand why BD is getting very active which will lead me to my final question for Laura with 34.2 million in cash.
And I know people are always worried about a financing I thought you did a great job of talking about the vehicles at your disposal, but it also sounds like there could be a lot of BD opportunities.
Between now and let's say however, much runway that 34 million will last.
That's what I'm, just trying to get a sense for what you're thinking in terms of the amount of runway you currently have and what role BD might play in extending that runway. Thanks.
Actually its 44.2 million so I just wanted to make that correction.
Thank you.
And then yes, I think you had 44 million and ill jump in.
It provides us a very good foundation for continuing.
To execute the strategy the way we want.
In the areas in which we're focused obviously BT could be an important component of how things develop on a going forward basis I think what we demonstrated the past three and a half years is as an example, we've been very successful working with committed partners.
And.
Developing.
An opportunity to fund.
Programs that align with.
Our interest.
And serves both parties I mean Healios is a perfect example.
They they have interest in stroke working in stroke, we are generating data sets that will be.
Utilized by both parties in the regulatory processes.
In the Arts and same way and so we get leverage from the investment made by our partners and as in these areas I mean in fact, our AR.
Our.
Ill flip print if you will with respect to the activity we have is larger than than we in.
Than we invest.
So we are in a good financial position right now our objective is to continue to maintain a strong financial position to allow us to do what we need to do.
We expect business development to be as it has been over the past years, a major component of the plants on the capital management side over the next couple of years.
Graduations, great progress exciting times, where the stock price for now it looks to me like just very compelling opportunity. Thanks.
Thanks for your time Jason.
Your next question comes from John M. from Needham and company. Your line is open.
Hi, guys. This is Joe on for Chad.
Thank you for that.
Update.
I have.
Couple of questions just.
So.
First on.
The.
That are being enrolled and open by year end here in the U.S.
Hello.
Our sites open do you expect enrollment to really ramp up and what could be potential bottlenecks.
Well, obviously when you bring sites on initially.
You hope to have them in the game and enrolling very quickly in fact, there's a high degree of enthusiasm when you open a study or initiated site.
And we'll we'll want to leverage that we've seen that in the enrollment that we've had thus far in this study we saw at the earliest drug study and so forth.
So we hope to have impact.
Meaningful impact at these sites.
Very soon after their initiated the clinical teams.
We'll have is top of mind going to be focused on the study.
So we expect to have good impact shortly after we bring them on.
As I said, we're focused on the U.S sites this year.
The if you're asking a general question about.
Things that risk I with respect to enrollment.
And so forth.
One of the things that's affected us so far I think we've talked about in the past.
We had to complete.
Product supply and production for Healios ahead of for the most part our Masters two study that's now been completed.
And we've manufactured a lot of product for the Masters Tuesday, but we haven't completed yet so thats always a potential risk.
We think its manageable we don't we don't expect it to affect our plans and what I laid out today.
Is there, but based on the best information we have.
With respect to that and other things, but I think with respect to enrollment at the sites.
We see a relatively clear path in terms of other activity in the space. So we don't anticipate a lot of competitive.
Clinical trial activity at this point.
But that could change over the course of the study and have some impact on enrollment at particular sites.
There is a high degree of enthusiasm so I don't see any.
Lack of enthusiasm thats being a big risk I feel like we're well positioned to.
To move this very quickly at the sites.
That are on our list.
All right. Thanks for the color so just to clarify.
So the terms from enrollment.
To complete by mid 2020.
Did I get that right.
Yes, that's what they have disclosed.
All right.
And lastly, about the trade dispute in China.
How does that exactly affecting your conversations for business development is mostly Chinese companies or U.S. companies wanting to operate in China. If you can provide any detail.
Well I mean, we're talking we're talking to a variety of different company type obviously, we're talking a Japanese company with Healios for some time about this we are talking to global operators and we're talking to companies in China.
It's hard to know how the trade dispute should affect specifically, what we're trying to do at one level.
You know technologies such as this.
Should be above.
What would be included in the trade dispute, but the fact is there is a substantial amount of uncertainty because it does it's not clear.
What levers are administration will pull.
And what what what levers.
The leadership in China will address.
It's a kind of make their points and hopefully drive to a resolution of the trade dispute. So.
Well.
This should be outside of what would be affected the uncertainty that it could be brought in some way.
With respect to the weight technologies handled in China, either way from us or Chinese perspective.
As is caused caused a little bit of.
It has had some effect in the discussions.
Hopefully this is not an issue for cellular therapeutics in general I hope not and in China. In particular has been very aggressive with respect to pharmaceuticals, and medical technologies and bringing that technology in largely because it's got the other another substantial kind of macroeconomic issue to deal with and Thats, the kind of health care cost associated with this large aging population. So my hope is that trumps.
Whatever whatever the objectives are on the trade dispute.
That's underway right now but.
We don't really know.
All right. Thank you for answering my questions and.
Congrats on the quarter.
Okay, well, thank you for participating.
That's all the time we have.
Thank you for your participation you may now disconnect.
[laughter].