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Executives

Gary Rabin – Chairman and Chief Executive Officer

Kathy Singh – Controller

Advanced Cell Technology Inc. (OTCQB:ACTC) Q1 2013 Earnings Call May 9, 2013 4:30 PM ET

Operator

Good day ladies and gentlemen, and welcome to Advanced Cell Technologies First Quarter Earnings Call. Today’s webcast is being recorded and you are in a listen-only mode. Following the presentation, we’ll have short question-and-answer session. You can ask questions at any time during the presentation. (Operator Instructions)

It is now my pleasure to turn the webcast over to the host of our call today Gary Rabin, Advanced Cell Technology’s Chairman and CEO. Mr. Rabin, the floor is yours.

Gary Rabin

Thank you and welcome to Advanced Cell Technology’s first quarter financial results call for the period ended March 31, 2013. My name is Gary Rabin, and I’m Chairman and CEO of Advanced Cell Technology. I’m joined on the call today by Matt Vincent, Director of Business Development; and Kathy Singh, Controller. Before we begin, I would ask Kathy to read the following statement. Kathy?

Kathy Singh

Thank you, Gary and good afternoon. Certain statements we are going to make on this conference call regarding future financial and operating results, future growth and research and development programs potential applications of our technology, opportunities for the company and any other statements about the future expectations, beliefs, goals, plans or prospects expressed today constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements that are not statements of historical fact including statements containing the words of will, believes, plans, anticipates, expects, estimates, and similar expressions should also be considered to be forward-looking statements.

There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including limited operating history, need for future capital, risks inherent in the development and commercialization of potential products, protection of our intellectual property, risk associated with clinical trials and economic conditions generally.

Additional information on potential factors that could affect our results and other risks and uncertainties are detailed from time to time in the company’s periodic reports, including the report on Form 10-K for the year ended December 31, 2012. Forward-looking statements are based on the beliefs, opinions, and expectations of the company’s management at the time they are made, and the company does not assume any obligation to update its forward-looking statements if those beliefs, opinions, expectations, and other circumstances, which are discussed in greater detail in the 10-Q we filed with the Securities and Exchange Commission today and in the press release that was issued a few minutes ago. I trust that you have already seen our press release that was issued after the market close today. So I will try and make my financial remarks brief.

For the 2013 first quarter ended March 31, 2013, the company reported a loss from operations of $5.8 million, compared to a loss from operations of $5.4 million in the 2012 first quarter, primarily as a result of higher clinical trial expenses. ACT reported a net loss of $6.4 million or $0.00 per share, compared to a net loss of $5.7 million or $0.00 in the same period in 2012.

Net cash used in operations for the 2013 first quarter was $8.3 million, compared to net cash used in operations of $4.8 million in the same period in 2012. Cash utilization increased significantly as a result of $2.3 million used to settle litigation related to previously issued debentures plus additional legal cost associated with settlements rather than on the general and administrative expenses and research and development costs that are more customary for our business and other similar life sciences companies. ACT expects cash utilization to return to previous levels in the quarter we are in now, and to continue at such levels for the foreseeable future.

The company ended the 2013 first quarter with cash and cash equivalents of $4.1 million, compared to $7.2 million as of December 31, 2012, primarily due to the unusual expenses I just outlined. ACT plans to fund operations for the foreseeable future with the equity line with Lincoln Park that had approximately $27 million available as of March 31, 2013 in addition to the company’s current cash position.

Now, I would like to turn the call over to Gary. Gary?

Gary Rabin

Thanks Kathy. I would like to take this opportunity to bring everyone up-to-date on the exciting progress on our clinical trials. As many of you are well aware, we are more than half way done with all three clinical trials to investigate human embryonic stem cell derived RPE cells for the treatment of Dry Age-Related Macular Degeneration or Dry AMD, and Stargardt's Macular Dystrophy or SMD in the U.S. and Europe. We have the cooperation and involvement of the best ophthalmology hospitals in the U.S. and some of the best eye hospitals in Europe, and the enthusiastic support of many leaders in our field.

In fact, three of the investigators actually gave presentations on our (inaudible) at the industry’s most widely respected specialty conference. We have initiated an additional dosage 2a Cohort in each of our U.S. trials, which will enroll a total of eight patients for in each trial with a 100,000 RPE cells. In the new cohort, patients with better vision will receive treatment, and likely have more of a photo receptor layer to safe. It is likely that for the next phase of the clinical study patients within the Cohort 2a profile will be instrumental. So we’re looking forward to using this new cohort to help refine our clinical evaluations.

Today, we have treated one of Stargardt's patient in this new cohort, but we have scheduled one more Stargardt’s and two new AMD patients just in the next couple of weeks. At this point, only two of our four U.S. centers have received IRB approvals for the new cohort. We anticipate completing enrollment of our Cohort 2a patients near the end of Q2 of this year, so of the two institutions that do not yet have IRB approval do not receive it in the next couple of weeks. We will authorize the other two sites to enroll and treat the remaining patients in the cohort. They have committed to do this.

We had observed no significant safety issues relating to our treatment and the Data and Safety Monitoring Board or DSMB has approved each plan step in the trial as well as the treatment protocol for patients with better vision.

We have observed the persistence of visual acuity gains and the engraftment of the transplanted cells in both the SMD and the AMD patients, which is consistent with what was previously reported on earlier in the trials. The clearance to treat patients with higher doses of RPE cells and patients with greater visual acuity represents significant milestones in our clinical trials. The DSMB’s dose escalation analysis and approvals to treat patients with better vision is a very important to advancing our trials and it allows us to further evaluate and target which patients may benefit the most from the treatment, thereby allowing us to more appropriately define our patient population and better design the labels for our upcoming studies.

Many patients as you know have reported improvements in their every day lives some having their vision improved from being able to see hand motion only to being able to read parts of an eye chart as well as importantly developing better color recognition, contrast and a low light vision. We have a meeting with our Ophthalmic Advisory Board and all of the investigators in early October and by then, we will have three-month results from cohorts 2A and 3.

Based on what we have seen to-date, we are planning to review the data we have with our investigators, consultants, and the DSMB and we’ll evaluate the benefit of terminating the Phase I portion of that trial, which was initially planned to treat patients with 200,000 cell dose and instead advance to a new protocol or series of protocols for Phase II studies. Determining the endpoints for Phase II of the trial, we’ll of course be critically dependent on upon what we have seen from the evaluations of the Cohort 2A and 3 patients. But we have seen so far has been very channelized.

We will likely have multiple studies in our Phase II trials. One study with mid to late stage patients focused on visual acuity improvements and another study of earlier stage patients looking at slowing the projection of damage associated with the disease process, other studies may be undertaken to evaluate additional findings.

Now I want to turn to some highlights in our preclinical progress. Within ophthalmology, we have several exciting activities ongoing. In glaucoma, we have carried out studies using test derived retinal ganglion for progenitor cells resulting in rat model of glaucoma, show the cells had a major impact on ganglion cell survival compared to the control arms.

In UVIS, preliminary studies have been carried out using test drive of Mesenchymal Stem Cell or MSCs in a mouse model of UVIS. Early data is extremely encouraging and shows the cells can prevent the disease process.

In our effort to reverse blindness, we have initiated preclinical studies in rodents with rapid onset blindness using hESC-derived photoreceptor progenitor cells to try to replace the already lost photoreceptors. Indeed, we have already completed study, showing we can use these cells to prevent blindness in rodents with Macular Degeneration.

In the case of our photoreceptor progenitor cells, we are now working to isolate the factors and proteins expressed and up regulated by these cells to perhaps create a biologic or small molecule. This is the kind of therapy that could be used in later stage Macular Degeneration patients as a combination therapy with our RPE program.

Outside of the eye, a couple of items may I comment. In multiple sclerosis, as we have discussed before, we have a scientific paper in advanced progress. Our studies have now been repeated numerous times. hESC-derived MSCs have a major impact on the clinical symptoms and neuro degeneration in the mouse model of MS. We have identified mechanisms as to why human embryonic stem cell derived MSCs are superior to bone marrow and adipose-derived MSCs. This may have significant benefits to us.

In the propecia and hepatitis, we have trials in large animals currently underway using hESC-derived MSCs, the treatments of propecia and hepatitis at top veterinary schools. We are also ready to initiate preclinical studies in a variety of other animal disease models using MSCs.

We have also had success outside the clinic. ACT continues to position itself to uplift from the bulletin board to the NASDAQ market. The recent settlement agreement with CAMOFI and CAMZHN resolves litigation associated with previously issued convertible debentures, and effectively closes that chapter on the company’s tortuous anti-dilutive warrant issuances.

We are very close to hiring an experienced CFO. In fact, we have a handshake agreement and are now about to begin negotiating the employment agreement. We also believe that we are quite close to reaching an agreement to settle with the SEC, the matters relating to certain financings that previous management executed.

The next step, once the SEC matter is behind us would be to submit a final and revised application to NASDAQ. As a clear leader in regenerative medicine, we should be trading on a major exchange. This would give more institutional investors access to our stocks and provide us with greater liquidity and the chance to appreciate and value as we meet our clinical milestones.

As we’ve said before, there is a great deal of interest among big pharma and biotech companies regarding joint ventures as every major pharma company with an ophthalmology program is watching these trials very carefully. While that is exciting to us and we note to you as well, we recognize that clinical results will drive these collaborations. With everything that’s been accomplished in the clinic to-date with our corporate goals of resolving all litigation and achieving a national market listed highly obtainable. And with many exciting clinical milestones on the horizon for this year, we believe that 2013 has great potential to deliver shareholder value.

Now, operator I would like to open the call for questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions)

Gary Rabin

So while the operator is queuing up questions on the phone, I’ll take some questions from the Internet. The first question I have is who and what was the reason for coming up with the 2A study? Okay, we designed the Cohort 2A obviously in consultation with our investigators and the Ophthalmic Advisory Board and this was done back in October of 2012. It was done to give us data that would be useful in designing primary and secondary end points for Phase II and its approval reflects significant confidence by the investigators of course the DSMB and importantly the FDA in the safety and progress of our trials.

I’ll take another question from the Internet. Can you describe the history of what resulted in the Form 4 files?

Well as you all know I’ve been working to get this company cleaned up for the two plus years that I’ve been here and this is obviously very frustrating. What I’ll say is that the independent members of the board are conducting a review regarding the circumstances surrounding this as well as our internal trading policies and procedures. After they have completed that review, we will make any disclosures being necessary. I can’t really say anything else about that now. I might go to the phone. Operator?

Operator

Yes sir. We do have a question from [Jim Kube].

Unidentified Analyst

Hey, good afternoon. Gary.

Gary Rabin

Hi Jim.

Unidentified Analyst

All right thanks for taking the call. Yes, just good news to hear the plans on potentially terminating Phase I early and starting Phase II. So the way to understand is OAB meets in early October to kind of look at the three month results from the 2a Cohort and a 150,000 cell cohort and then you decide from there, where you go. So I guess my question is, in that case, my perspective would be terminate Phase I, start Phase II, so from October, how long does it take to get the Phase II application submitted to the FDA and what’s the expectations for how soon Phase II could potentially start?

Gary Rabin

Well, I guess what I’d say there is that, first of all, we obviously have some data already on Cohort 2a, as well as Cohort 3 and we’re seeing some exciting things there. So Ed Mickunas, who is our Director of Regulatory Affairs and the team are already working to try to design and define what those clinical endpoints are. And I think you can imagine that you’re looking at two very different studies and two very different endpoints based on intermediate and later stage patients and improving their visual acuity, as opposed to taking much earlier stage patients and trying to stem the decline of their disease and not only is it the study that itself, but it’s also the follow-up.

So what we had originally thought, well, we need to figure out what label we want to go after, but after talking to the docs and seeing the results that we’ve seen both from now, very late stage patients, as well as kind of more intermediate to late stage patients, I think it gives us confidence that running contemporaneous trials would make a lot of sense.

Now, what’s the timing for that? I mean, we’re obviously not going to show-up in October with a totally blank slate and say, okay, now let’s get to work, but we want to make sure that the DSMB and the investigators are signed off on this. And look, we’ve treated three patients in cohort 3 and only one 2a. So we still have six more patients in cohort 3 and seven more patients in cohort 2a to 3. So we’ve got a lot of data together. But our objective is to advance to the Phase II as quickly as possible and we have a lot of wind at our back.

First of all, in U.S. and Europe, the SMD trial is governed by an orphan indication, so that gives us accelerated opportunity to be able to fast track, and then in the U.S. with dry AMD as an unmet medical need and some of the new changes that the FDA has made to fast tracking, we think that that puts wind at our back too.

So, I would rather not comment on specific timing for when we can enter Phase II, so much as to say that everything is going for us in terms of the disease indication, the safety profile, some of the efficacy data we’ve seen so far and the sort of regulatory framework behind us.

So, I think when you add all that up, I think it would be fruitful for us to move as quickly as possible and obviously every data – we are not in Phase 2 puts us a day further away from the commercialization. So we’re cognizant of that. While at the same time obviously having to balance managing our clinical trial partners and the DSMB who justifiably is focused on making sure that we are taking all the right steps. Next question?

Operator

Your next question comes from [Michael Phelps].

Unidentified Analyst

Yeah, hi, Gary. I was hoping for an overview of the MMD program at Jules Stein, any update regarding any private financing there?

Gary Rabin

Yeah, got it. Interestingly, well actually he was on phone talking to us today about this. We are finalizing the budget along with Jules Stein. We want to include our other investigation centers in the trial although for a variety of reasons, California has a lot of these patients available to us.

So they are sort of finalizing some of these details with us and our goal would be within the next two to three months to begin start treating patients in that MMD trial. Some of the statistics that we’ve dreamed about MMD are simply remarkable. I mean there are large cities and countries in Asia where the incidence of MMD related blindness is twice that of AMD related blindness largely because the onset of the duties is so much earlier and you’re looking at lot of people in their late 20s, 30s and early 40s that are blind as a result of this disease.

So we’re very, very excited about this, but finalizing the budget and making sure that it’s something that we’re comfortable which is important and then Jules Stein and you see at later course are continuing their pursuit for some additional private funding of this, obviously the Phase 1 trial for this especially is that it’s just under one or two centers is not really that expensive and is actually baked into our budget assumptions for 2013 and 2014. It’s a sub $2 million cost kind of a trial given all the other data management and resource we have in place. So of course we would like Jules Stein’s to get some private funding for this, we’re helping them with that, but the cost associated with this is relatively marginal.

I'm going to go now to a question from the Internet. The question is, when will the annual shareholders meeting date?

Last year we filed our proxy and in relatively close coordination with our 10-K, this year we felt that we wanted to hire the CFO and settle with the SEC so that we kind of had a very clean looking company before we advanced to the shareholder meeting and we need to give about 50 to 60 days in advance notice of shareholder meeting, the proxy prior to announcing the meeting. So given all the things we’ve got going on with the CFO and the SEC settlement, we hope to be able to get a proxy out in the next month or two months kind of timeframe so that we’ll be able to have a summertime annual shareholders meeting. So we have not set a date or time but our objective would be for it to be this summer.

I'm going to go back to telephone questions now.

Operator

And you have a question from the line of (inaudible).

Unidentified Analyst

Hi Gary.

Gary Rabin

Hey Adam, how are you?

Unidentified Analyst

Good, how are you?

Gary Rabin

Good.

Unidentified Analyst

I was going to ask, in the opening remarks the one that you were mentioning the IND filings for the platelet, and I wasn’t sure if there was any update on that after the pre-IND meeting with the FDA.

Gary Rabin

Yeah, we are working to identify iPS lines – so one thing that the FDA made clear to us, is that you cannot test an iPS line, that is not GMP inter compliance. So the major providers of iPS sales, do not have GMP compliant lines. So, we are working now to find a provider or potentially create a partnership to give us iPS lines that we could use in this trail, as well as to define an indication that we can pursue – it will be some late stage indication, so that we can demonstrate that effectively our platelets flow and participate in clot formation, identically to platelets that you would find in your blood stream. We will of course observe that in our animal studies and in our assays that we’ve provided. So, we are working on that. Our objective is still to get that IND filed this year.

But I think that given the FDA stands on cannot test lines into GMP-compliant, obviously it’s a big set back, really not so such for us. As it is all these iPS providers that thought that they had lines that were potentially ready for FDA review. So, that’s kind of where we are in that. We maintain our objective to get that filing in this year.

I will take the next question from the internet. The question is, is there any thoughts to getting involved in veterinary medicine, since we are making excellent progress in animal trials. The answer to that is actually yes. We have some very interesting especially in the MFC side, but also in UVIS. We have some very interesting and we have some very interesting animal model that we’ve looked at including large animals. And the path to approval and revenue is much shorter in the veterinary field. So part of our pre-clinical study of course involves the ability to go down the veterinary pathway. And we are taking the preliminary steps to sort of prepare the company for setting up veterinary affiliates or subsidiaries that can pursue this market.

Obviously it is imperative to us, our shareholders, our stakeholders that we maintain clear priority focus on the RPE program in those indications, but we do see some significant promise here and it is something that we will pursue, I am going to go back to the phones. Operator?

Operator

Yes sir. Your next question is from the line of John Redaelli.

Unidentified Analyst

Hey Gary, do you hear me. Okay?

Gary Rabin

Hey John, how are you doing all good?

Unidentified Analyst

I’m doing fine. This is John Redaelli - 22 at InvestorStemCell.com. Gary, it's always great to hear about the great progress at ACT. I have a two-part question if you don't mind. What is the present status regarding vision improvement for early patient, Sue Freeman? How do we explain her great results? And, question number two, what is the status of re-definition over at the NIH? Thank You.

Gary Rabin

Okay. On your first question, we are not by a whole variety of loss permitted to comment on any individual patient. Other than to say that we continue to be impressed with the longevity of the visual acuity changes in our earliest patients and we are working on putting together a method to present to you this long live data and I guess we should say, you should just be watching this space over the coming months for that information.

In terms of NIH, on the last conference call, we described to you how we had sort of gotten frustrated with our internal sources and some law firms that we’ve been using to help us pursue NIH approval and we have hired a new consultant to help us with this and we are in dialog with both the White House and HHS which has preview over the NIH about this matter and trying to break the logjam. And in fact just yesterday I have lost track of day just yesterday we were in the offices of Warren Hatch and Elizabeth Warren to try to advance this ball. We know that this is something that the shareholders are focused on, we are focused on it. And the reason that we’re focused on it isn’t so much that we think that the NIH is going to begin actively funding our e-programs. They are really in a way too far advanced for that. But we have had significant numbers of requests from collaborators that are going after a whole variety of neurological CNS disease indications that would like to use ourselves first of all because they are robust, differentiate easily, have been approved by the FDA for a use in GMP environment. And so the ability to get those cells approved could bring us significant opportunities for collaboration in Parkinson’s and Alzheimer’s and things like that.

So this is a big, big deal to us and we are acutely involved. I guess I would say that in my 25 years as a business person, I dealt with a lot of government agencies, both here and overseas and in emerging markets and this has been a very frustrating situation and one unlike many that I have never seen. But I do believe that we are getting to the bottom of where the issue is. And I think that we have an open eared audience, both at HHS and The White House to get this logjam cleared, so once in for all, we can get our lines on the NIH.

The irony of course is that we are the only company, the only entity that has non-destructive method of creating embryonic stem cells and look we’ve been unable to get them approved. So we are bringing that argument and the logic of that argument really to both sides of the isle and the appropriate departments within the White House and (inaudible). So we’re very focused on it and I really do hope that we’ll be able to have something for you on that relatively soon.

I will take a couple of more questions from the Internet before we end this today. At what point will human embryonic stem cells RPE cells be given a trade name, ahead as an excellent and timely question.

We are actually working on that right now and it’s something that we want to get done relatively quickly because it’s a cumbersome name and it isn’t reflective of how far we’ve advanced both the program and these cells and all the intellectual properties that we have around them. So yes that is something that we are very, very focused on.

I’ll take one more question from the Internet. Why hasn’t the two remaining IRB’s okayed the trial to proceed as the others have?

I guess what I would say there is that, these institutions are very large, very prestigious institutions and this was – while we have no issues or there’s been nothing negative it’s come back. I think it is important for people to understand that in a safety trial, to go from treating patients that are legally blind to the patients that still have rescuable photoreceptors and fairly significant amounts of visual acuity, is a pretty heroic week, both on the part of the IRB’s as well as the DSMB and the FDA.

So this is a process that takes time and I think is logically being pursued methodically by these organizations. And we’re – while of course we would like everything to happen faster, we’re not frustrated with it and we’re working with these institutions to get everything cleared. We provided all the data requested and we believe in the case of both institutions, that in the next two three weeks it will clear.

But I have made clear to you what our backup plan is, which is that, the other two institutions have plenty of patients and they have made it abundantly clear to meet personally, as well as our regulatory and clinical group, that they will happily do those patients. So we will continue to obviously pursue the IRBs, but our objective is to make sure these patients have done by around the end of second quarter. So that will come, we will absolutely do them at the other two institutions that have been approved. I will take one last question from the Internet here.

Do you see a reverse split and uplift by the end of the year?

We have made it clear that, we had a significant objective this year to achieve an uplifting and to achieve a formal partnership with a large credible organization. Those are two important objectives to us; they’re important objectives to the company’s overall compensation program and they are reporting objectives to everyone of shareholders and we have not backed away from that, (inaudible). So everything else we are doing is keeping in mind trying to achieve those two objectives.

All right. So we’re coming up on 40 minutes here, and so I’m going to wrap this up. Thank you all for your questions. We will of course be available for the second quarter earnings release, which will be in early August and of course we have a variety of presentations and meetings before that and we look forward to seeing you all again. Thank you all very much for your participation. Operator?

Operator

Thank you, again, Mr. Rabin and thanks to all our participants. We hope you will find this webcast presentation in four minutes. Have a good day.

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