At this time I would like to welcome everyone to the Celsion Corporation year-end 2012 financial results conference call. [Operator instructions.] I would now like to turn the call over to Jeff Church. Please proceed.
Thank you. Good morning everyone, and thank you for joining us. Our year-end 2012 financial results were released this morning, along with the filing of our 2012 form 10-K. The 2012 form 10-K is available on the SEC’s Edgar system, and the company’s earnings release and Form 10K are both available on the company’s website at www.Celsion.com. Today’s call will be archived, the replay beginning today at 2 PM Eastern time, and will remain available by phone until Monday, April 1, 2013, and on the company’s website for 30 days.
Before we begin the call, we wish to inform participants that forward-looking statement are made pursuant to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. You are cautioned that such forward-looking statements involve risks and uncertainties including, without limitation, the risk of clinical failures, delays or increased costs; unforeseen changes in the cost of our research and development activities and clinical trials by others; possible acquisition of other technologies, assets, or businesses; and possible adverse action by customers, suppliers, competitors, regulatory authorities and other risks detailed from time-to-time in the company’s periodic reports filed with the Securities & Exchange Commission.
Following our formal remarks today, we will open the call for questions. I’d like to turn the call over to Mike Tardugno, president and CEO of Celsion. Mike?
Thanks, Jeff. Good morning, and thank you for your continued interest, and support of, Celsion. I’m joined today by Dr. Nick Borys, our chief medical officer; Gregory Weaver, our chief financial officer; and of course Jeffrey Church, from whom you’ve just heard, our senior vice president of investor relations and corporate strategy.
Today, in addition to discussing our year-end 2012 financial results, we will provide you with an update on three topics, the most important of which of course is our progress with our analysis of the Phase III HEAT study in primary liver cancer, along with some preliminary findings. And I want to repeat, preliminary findings.
We will also discuss our recent financing and activities to strengthen our balance sheet. And lastly, we will discuss our continuing program for ThermoDox and our platform technology low-heat-sensitive liposomes.
I’ll start by saying, as you can imagine, we have been extremely busy since the announcement on January 31 of top line results from the HEAT study. But not only were we surprised and frankly extremely disappointed, so were virtually all of the study’s principal investigators with whom we spoke.
That said, our analysis of the data has been intense and rigorous. It is being conducted in conjunction with two separate, independent statistician groups, and with the oversight and input from our lead principal investigators, and other medical experts in HCC. So with an abundance of caution, here’s what I can say so far.
It appears that there is a large subgroup, approximately 575 patients, with smaller lesions, smaller meaning 3 cm to 5 cm, that has demonstrated clinically meaningful benefit, although not with statistical significance. Number two, it is then also apparent that patients with larger lesions, 5 cm to 7 cm, have had a correspondingly poorer clinical outcome. Number three, evaluation of the control group does not suggest that regional variation in the RFA procedure had a significant impact on the study.
Number four, the strength of the small lesion outcomes supports our interest in following this large patient group to determine the overall survival benefit. Number five, we intend to share this information and our plans with FDA and EMA as soon as we have fully vetted and better understand the small versus large lesion phenomenon and its overall impact on this study.
The message I want to leave you with that we are cautiously encouraged. The [LTSL] science appears to be sound. ThermoDox appears to provide activity in this very difficult tumor model. We will continue to tease out the data. We will keep you informed as our analysis progresses. So stand by. There’s more to come.
In addition to our own review, we have discussed the trial results with key stakeholders, and I will discuss three. At a conference that we arranged here in Princeton, our findings to date were presented to a panel of lead clinical investigators, and some of the most important names in the field of HCC research. There are three findings I would like to share from this conference.
First, consensus is that ThermoDox is showing activity in HCC, but that activity must be further delineated. Second, the panel strongly endorses and requests that investigators continue to follow patients to collect data on overall survival. So as you’re thinking of OS, the secondary endpoint, you should know that median survival has not been reached in either the ThermoDox or the control arm. Historically, median time to progression in this population has been around 30 months.
I’d also note that another topic of discussion focused on the potential for ThermoDox’s activity in the ablation margins to confound accurate CT readings of tumor recurrence. Now, this is a very interesting notion, and might explain a lot, if true, so with all caution, and led by one of our more prominent lead PIs, we are taking a very careful look at this question.
Separately, Dr. Borys presented the HEAT study results to the principal investigators involved with our Phase II DIGNITY study and the Phase II ABLATE study and our HIFU, high-intensity focused ultrasound, collaborators at Oxford University and at the CTMM in Utrecht, in the Netherlands, and I can say without equivocation all of our research partners continue to be fully supportive of the LTSL technology. Their premises are HEAT plus ThermoDox approach in difficult cancers shows important evidence of benefit. All wish to continue their clinical programs.
Another point that I would like make is we received a letter of support immediately following the announcement of the HEAT study trial results from Phillips Healthcare, indicating their desire and encouragement to continue our jointly funded program to evaluate Sonalleve, their MR HIFU medical device to evaluate Sonalleve plus ThermoDox in a Phase II study of painful metastases in the bone caused by prostate cancer.
This is a study that we will initiate as soon as we have sorted out our respective obligations, regulatory among them, with Phillips. As you know, this is an exciting area of research. I have asked Nick to comment on this and our other HIFU programs in more detail during his remarks.
Now on to the financials. In the first quarter of 2013, we strengthened our balance sheet in three ways. First, we received a $5 million payment as part of the technology development agreement with Hisun in January. This program is ongoing, and I suspect will advance to a broader collaboration once the success milestones that are noted in our development program are achieved.
In February, we raised $7 million through the sale of common stock shares under an act of market equity facility, or an ATM. Also in February, we raised $15 million through a registered direct offering that was led by two dedicated healthcare funds. Craig will cover both of these financings in more detail.
This total of $27 million, when added to the $23 million of cash in our balance sheet at the end of 2012, provides us with the flexibility to continue to evaluate ThermoDox in multiple indications, as well as complete the HEAT study analysis including following patients through the secondary and very important endpoint of overall survival.
On this basis, I can tell you with confidence that the company has sufficient cash to fund its operations through 2015, and is well-positioned to determine the best path forward for the company.
So with that, I will now ask Greg to provide an overview of our 2012 financial results. Greg, it’s over to you.
Thank you, Mike, and I’ll begin with cash, where we reported total cash and investments at December 31, 2012 of $23.1 million, as compared to $22.7 million at the end of the third quarter 2012, reflecting a net increase in total cash in the fourth quarter. This Q4 2012 positive cash flow was the result of proceeds received from warrant option exercises in the fourth quarter offsetting cash used in operations. The year-end cash and investments do not include the $27 million raised during the first quarter of 2013, which I will discuss in a moment.
For the year ended December 31, 2012, Celsion reported a net loss of $26.6 million, or $0.76 a share, compared to a net loss of $23.2 million, or $1.11 a share, in 2011. The increase in net loss was due primarily to a noncash, non-operating charge of $4.1 million in 2012 related to the change in common stock warrant liability, which increased the 2012 net loss, and due to licensing revenue of $2 million received in the prior year.
The year over year comparison of our operating expenses reflects a drop of 12% to $22 million in 2012 from $25 million in 2011. And our net use of cash for operations was $22.3 million in 2012 compared to $22.7 million in the prior year. Our 2012 expense reductions were the result of a continuing downward trend in our drug development expenses consistent with our prior guidance and driven by lower HEAT study CRO costs as we completed enrollment of the Phase III trial in May of 2012.
R&D costs were $4 million lower in 2012, compared to the prior year, primarily due to this completion of patient enrollment in the HEAT study in the first half of the year and also through our ongoing spending controls on our Phase II programs.
General and administrative expenses were $1.2 million higher in 2012, compared to the prior year, largely as a result of an increase in professional service fees related to product market analysis, business development activities, and personnel costs.
In an effort to move Celsion into a strategy position of financial strength, we have significantly improved our cash position through the completion of the following recent transactions in Q1 of 2013, which totaled $27 million in gross proceeds.
First, on January 18, we received a nonrefundable R&D fee of $5 million from our China partner, Hisun Pharmaceuticals under a technology development contract. Then on February 1, we entered into a controlled equity offering sales agreement, or ATM, where the company sold $5.4 million shares under the ATM equity facility and received $6.8 million in net proceeds from these sales.
Then, on February 22, we entered into a securities purchase agreement with certain institutional investors where we sold 15,000 shares of preferred for an aggregate purchase price of $15 million, $14 million net of fees. These preferred shares are convertible into 12.1 million shares of common. They carry a zero interest rate, and have no rights or preferences.
And, during the first quarter of 2013, we received approximately $400,000 of gross proceeds from the exercise of warrants and options.
Thank you. I will now turn the call over to our chief medical officer, Dr. Nick Borys.
Thank you, Greg. Immediately after the unblended data from the HEAT study was released, the company initiated a comprehensive and systematic review of the data in order to better understand the outcome. We quickly confirmed that there were no essential randomization errors or treatment allocation mistakes. We also confirmed that our independent radiological reads were consistent with the reads done at the site level. Furthermore, all the data was properly and comprehensively collected, confirming that missing data was not an issue.
We then fully launched into a detailed review of the study’s subgroups, and invited our lead investigators and liver cancer experts to a comprehensive HEAT study data review meeting. It is clear that our investigators and experts were both surprised and disappointed with the results.
However, the analysis that we have done to date indicates that there may be patient subgroups that benefited from ThermoDox. The data regarding these subgroups is undergoing verification and we are not prepared to discuss the details at this time.
What we have clearly learned from our HEAT study is that the important assumptions used to develop the endpoints were essentially correct. We also saw that the biology of HCC is highly complex, and although ThermoDox is showing evidence of changing the course of the disease, it did not literally translate to a benefit to our primary endpoint.
There is much more work to do in our analysis, and we have secured the services of a company that specializes in post-data analysis in order to help us. We literally have terabytes of data to analyze, and there is much we can learn from the HEAT study. This has been the largest controlled study in intermediate HCC. In the end, it may very well be that the most important data to the success of the HEAT study will be the overall survival. We continue to collect this data with the hope it will be positive.
While primary liver cancer has been a priority for Celsion, ThermoDox’s unique properties support its potential use beyond first line treatment in HCC. As Mike mentioned, we’ve announced several important new collaborations recently that underscore not just our belief in this potential, but support for it with academia and industry.
We met with the lead investigators on each of our ongoing clinical studies, after the HEAT study results were announced. In each case, the investigators were supportive of continuing the studies as planned.
I would like to comment in more detail on HIFU, and our joint development program for ThermoDox combined with Phillips’ Sonalleve MR-HIFU technology in the palliation of painful metastases to the bone is continuing. We expect to initiate a Phase II study in this indication this year. Phillips, as Mike pointed out, remains committed to this development program.
The MR [unintelligible] system has the potential to precisely and not invasively target lesions with acoustic energy, creating sufficient heat to activate ThermoDox and preferentially release high concentrations of doxorubicin in the targeted treatment area. This multimodality approach may have the effect of creating a next-generation noninvasive treatment for this condition, and may also have other treatment potential.
The preclinical data supporting this approach are compelling. There are between 300,000 to 500,000 patients with bone metastases. Many of these patients experience excruciating and unrelenting pain, and are often treated with powerful analgesics such as opiates, resulting in only modest benefit. External beam radiation therapy is effective in palliating painful bone metastases, but is limited by accumulating toxic effects to healthy organs.
We are also collaborating with the University of Oxford in the U.K. for a clinical study of ThermoDox in combination with ultrasound guided HIFU to treat metastatic liver cancer. We expect treatment of the first patient in this study sometime by midyear. The trial, which is supported by the U.K.’s National Institute for Health Research, will be carried out as a multidisciplinary collaboration between Celsion, the Oxford University Institute of Biomedical Engineering, and the Oxford University Hospital’s [NHSF].
Lastly, we are working with the Focused Ultrasound Foundation on preclinical studies designed to support the use of ThermoDox in combination with MR-guided HIFU in the treatment of pancreatic cancer. The studies are being conducted at the University of Washington School of Medicine by Professor [Wong]. The UW research is expected to include animal models to confirm the ability of HIFU to target high concentrations of doxorubicin in proprietary cancer cell lines. We have in vivo studies to assess the response of these tumors, treated using ThermoDox with and without HIFU-induced hyperthermia.
We believe that these collaborations are just the beginning. We’re combining important device technologies such as HIFU with our low heat activated liposomal technology. I look forward to reporting on the progress of these and other collaborations in the coming months.
With that, I’d like to return the call to Mike.
Thank you, Nick and Greg. As always, we are very appreciative of your comments and insights, and for your personal commitment to Celsion and our research.
For those of you on the phone, I hope our remarks make clear that the company is focused and moving forward. We will complete our analyses of the HEAT study and prudently determine next steps. We have strengthened our balance sheet, and now have the flexibility to consider a number of strategic options. Our partnerships remain strong.
We will continue to focus on our critically important work, and look forward to reporting our progress. Doing so, we hope to create exceptional value for our shareholders and, most importantly, we’ll make a significant difference in the lives of patients and their families. This is the fundamental motivation for our work in this industry.
As always, we greatly appreciate your interest and your support of the company, and look forward to updating you on our progress. Now, we’ll go to questions, which I’ll ask you to limit to no more than two to give everybody a chance to get answers. Operator, if you’ll open the line for questions, please.
[Operator instructions.] We’ll take our first question from Keith Markey with Griffin Securities.
Keith Markey - Griffin Securities
I was wondering, you addressed a little bit about the HEAT study and how the ThermoDox treated patients have responded. I was just wondering if you had any insight into what might have caused the [unintelligible] treated patients to deviate, it would seem, from historical norms, meaning that they’re surviving longer and they benefitted, perhaps, somewhat better from the RFA treatment.
You’re reflecting on a comment that I made when we announced the results of the trial back on January 31, where I said with some caution that it appeared that the control arm did better than we expected by approximately 20%. There is some regional variation in that, but now, with the clear view of all the data, and having gotten more deeply into it, the 20% represents the true improvement or the true kind of progression in the control arm. It’s something less than that. It’s more than what we anticipated, but something less than that. And I don’t think we’re prepared, at this point, because we don’t have the definitive view on it, that we’re prepared to discuss that any further at this point.
Keith Markey - Griffin Securities
And then for a second question, in your 10-K you mentioned that you’re interested in, or at least you’re considering, a strategic option. And I was just wondering, with Hisun doing the registrational batches still scheduled for mid-2013, have you discussed the potential of giving off ThermoDox development to a certain extent to Hisun?
We have not discussed that point in any detail with Hisun. We can say this, as Hisun continues to remain very interested in our technology, both the heat-sensitive liposome generally, and ThermoDox specifically, they attended our conference here in Princeton. I don’t want to speak for them, but I think they came away believing that their investment in this technology development is not being wasted.
Dr. Borys and I intend to meet with their development team and their executive management team later in the second quarter. I think we’ll have a better view and probably could answer the question on what their longer term interest is. Whether or not that’s an interest that we share as a company is yet to be seen.
But certainly our partnership with Hisun is very important, for a number of reasons, one of the most important of which is it’s a very stand-up company, focused like a laser beam on improving the quality of healthcare for patients, this very large patient population in China. We enjoy our work with them for that reason, above all others. It’s an organization committed to improving healthcare in the largest pharmaceutical market on the planet.
So we’ll have more to say about it, I’m sure, as time goes on, but at this point, what I can say with confidence is they remain extremely interested. They are very focused. We exchange quite a bit of information with them on an ongoing basis, and the technology development program continues in progress.
Keith Markey - Griffin Securities
If I could just ask one sort of related question. Do you think that their continuing involvement with ThermoDox will depend at least partly on overall survival data?
Well, certainly partly. I don’t feel I can say more than that. The data tends to speak for itself, and as Nick pointed out, it’s too soon to share in detail some of the raw data that we’ve looked at. But they have seen it, and I can say with confidence they continue to be interested.
And we’ll take our next question from Mitch [Langraf], a private retail investor.
This question relates to the ABLATE study, and I’ll just ask first that you correct me if I’m wrong. One is that I think at one point there was a discussion when it was first getting set up of whether or not the smaller lesions would be involved in the study. It seems like we felt we had a prowess with the larger and that the final result of that was indeed that the encouragement of the lead investigators and doctors being what’s going on with their patients, they really still want to include those smaller lesion sizes. I believe that they are included, those smaller lesions. And also that, instead of just a [PFF] surrogate and then the OF endpoint, there is also an assessment at one year of tumor action at one year in the ABLATE study.
My question is if you could correct me if I’m wrong in any of those assumptions, but the question is, are there things in what you’re seeing in the data from the HEAT trial that specifically, because of those things or other factors, actually give the company more encouragement about the possible positive outcomes of the ABLATE trial versus the HEAT trial?
Nick, do you want to take that?
That’s a very good question. I think one of the first things that our investigators mentioned to us when I reviewed with them the top line data was that they believe that the biology of the metastatic liver cancer is different than what we saw in our [HDC] study. So they kind of saw it that way, that there are two independent events. But there is much to be learned from our HEAT study in terms of how we’re dosing the drug, and how we gave the drug to the patients, that we’re always looking at. And what further we apply from our learnings in the HEAT study to the ABLATE study is still ongoing. But I think your assumptions in general I think are generally correct.
Mike, if I can ask in regard to when you were talking about the panels, clinical investigators conference, that the company gathered together, and you mentioned three points that came out of it. You definitely clarified that the third point there was something you don’t entirely have all the information you need yet to make a firm statement, but you mentioned the activity of around the ablated area in the margins, there was some possibility that it was confounding the CT scan. For a layman, would it be irresponsible to conclude from that there’s a possibility that there was perhaps an overidentification of treatment failure in the treatment arm of the HEAT trial? Or perhaps they did better than the CT scans were able to confirm?
That’s a great question. That is a potential working hypothesis. You know that there’s some published information on this visual [rim] enhancement that’s seen in patients who have had ThermoDox administered prior to radiofrequency ablation. There’s a question, maybe a working hypothesis at this point, that the [unintelligible] enhancement for even the most sophisticated eye might provide a reason for radiologists to conclude that some of these enhancements inappropriately represent a recurrence of the cancer. It’s still a work in progress. It’s too soon to give you any definitive color until we’ve sorted this through in more detail.
Certainly. For me, I always have great hope in regard to cancer development, and if there is some kernel of something going on, in that point that you mentioned, it could bode well for overall survival, and that would be just outstanding for HCC patients. You don’t have to answer this. I understand it would be a third question, but there’s just a real push out there for what ever happened to open label DIGNITY data from the Phase II? It’s just been months and months and then years. When are we going to see some open label data from the DIGNITY Phase II?
The final study paper has been completed, and Celsion has submitted it to Duke University, because as you know it was a joint effort. And we’re awaiting the Duke signoff, which I have to admit and say, it’s been a long time coming for us. So we’re feeling the same way you are, and as soon as Duke signs off on it, it’s going to be submitted for publication.
[Operator instructions.] We will now take our next question from [Judson Porter], a private investor.
Two questions. As a layperson, if Nick can explain this in a way that a layperson can understand it, two medical questions really. One is how were local and distant recurrence defined for the study, and did ThermoDox show better success against local recurrence than distant? If we know.
That’s a very interesting question, and there was quite a bit of discussion on that. But let me first answer that question technically. Local recurrence is defined as a new lesion appearing within 1 cm of the original ablation zone. And distant recurrence would be everything else, basically. So what we saw was pretty interesting in terms of the local versus distant recurrence. And it caused a lot of questions and discussion at the meeting. Again, we’re not ready to discuss the details, but this is an area of focus and a big area of interest for us. I hope that at least partially answers your question.
Yeah, I recognize that the data analysis is still ongoing. Second question, and it was kind of answered, but I need to follow it up more specifically. It was said that the biology of metastatic liver cancer is somehow different than HCC. Is colorectal liver metastatic cancer likely to be more vulnerable to ThermoDox than HCC? Is the cancer itself different? Can you talk about that?
Again, that’s a difficult question. I mean, the biology is different in the sense that the tumors that are associated with metastatic liver cancer are not normally known to be sensitive to anthracyclines such as doxorubicin. However, in our Phase I studies, we show some very nice results in that patient population. And so we think that the activity, which has a high concentration of doxorubicin overcomes that resistance in metastatic liver cancers. Whether that’s going to work better relative in our HCC study it’s hard for me to speculate right now, and we’ll have to see once the results start coming out. We’re very hopeful.
Mike said some differences between 3 cm to 5 cm and 5 cm to 7 cm from the HCC study. What sizes do the metastatic liver cancer lesions tend to be?
We took a look at that patient population and we opened up that protocol to any patients that are good candidates for RFA. So we didn’t put a hard number on the lesion sizes. We left that up to the clinical judgment of the clinician, to the PIs in the study, so that if they’re going to do an RFA, that they would consider that patient for our study. So here we’re not putting hard numbers on that. We’re opening up to patients that are candidates for RFA.
[Operator instructions.] And we’ll take our next question from Bob Green, a private investor.
The overall survival timeline for the HEAT study, when should we see the end of the overall timeline?
I’d like to be able to answer that question the next time we talk to you. I mentioned the [unintelligible] at this point has reached its median. So we’d like to see another time point, or go collecting data on a quarterly basis. We’d like to see another time point before we can project with some confidence when the overall survival benefit could be achieved. Now, that said, [they] want some guidance from us, and it’s likely to be more than a year. I can say that.
I was with the understanding, or we were, really, that it would be a certain time from the last treatment, but evidently it’s a floating timeline, right?
Well, you know, it’s always our best estimate on what the timelines are going to be as a function both of our expectation for the improvement that the therapy provides and our understanding of the time to death following diagnosis that’s in the literature. So it’s always our best estimation, but it’s not a firm date.
It appears there are no more questions at this time.
So I think we’d like to conclude with a sincere thank you to all of our shareholders and those that follow Celsion. As always, we greatly appreciate your interest in the company. We look forward to continuing our work and to updating you on our progress. Again, thank you very much, and have a great day.
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