Athersys Management Discusses Q1 2013 Results - Earnings Call Transcript

| About: Athersys, Inc. (ATHX)

Athersys (NASDAQ:ATHX)

Q1 2013 Earnings Call

May 14, 2013 4:30 pm ET


Lisa Wilson

William Lehmann - President, Chief Operating Officer and Secretary

Gil Van Bokkelen - Co-Founder, Chairman and Chief Executive Officer


Stephen G. Brozak - WBB Securities, LLC, Research Division

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

Jason Kolbert - Maxim Group LLC, Research Division

Greg Chodaczek - First Analysis Securities Corporation, Research Division

Christian Glennie - Edison Investment Research Limited


Good afternoon. My name is Laura, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 Athersys Results Conference Call. [Operator Instructions] Thank you. I will now turn the call over to Lisa Wilson, Investor Relations for Athersys. Please go ahead.

Lisa Wilson

Thank you, and good afternoon, everyone. I'm Lisa Wilson of In-Site Communications, Investor Relations for Athersys. Thank you for joining today's call.

If you do not have a copy of the press release issued at the close of market, it's available on the Athersys website at, or you may call Libby Abelt in my office at (212) 759-5665 to receive it via email. Gil Van Bokkelen, Chairman and Chief Executive Officer; and B.J. Lehmann, President and Chief Operating Officer of Athersys will host today's call.

The call is expected to last approximately 30 to 45 minutes and may also be accessed through the company's website, again, at

A replay will be available 2 hours after the call's completion, and access of the information for the replay is in today's press release.

Any remarks that Athersys may make about future expectations, plans and prospects constitute forward-looking statements 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 the company's Form 10-Q, 10-K and other public SEC filings.

Athersys anticipates that subsequent events and developments may cause its outlook to change and while the company may elect to update these forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so.

For the benefit of those who may be listening to the replay, this call was held and recorded on May 14, 2013. Since then, Athersys may have made announcements related to the topics discussed. Please reference the company's most recent press releases and SEC filings.

With that, I would like to turn the call over to B.J. Lehmann. B.J.?

William Lehmann

Thanks, Lisa. Good afternoon, and welcome, everyone. I'm B.J. Lehmann, President and Chief Operating Officer of Athersys. I'll briefly review our financial results for the period ended March 31, 2013, and then I'll turn the call over to Gil Van Bokkelen for a corporate update, followed by a question-and-answer period.

In the first quarter of 2013, we reported total revenues of $326,000, which compares to $2.7 million for the same period 2012, reflecting a $2.4 million decrease in our Pfizer contract revenues.

The Pfizer-related contract revenues included amortization of collaboration payments over an estimated performance period that ended in June 2012.

Grant revenue remains relatively consistent at $242,000 and $284,000 in the first quarters of 2013 and 2012, respectively, but may fluctuate from period to period based on the timing of grant-related activities in awards and new grants.

Research and Development expenses were $5.6 million for both 2013 and 2012 first quarters with clinical and preclinical development costs of $2.5 million and personal costs of $1.3 million, consistent in both periods.

Other variances were minimal, including a $149,000 uptick in research supply costs that was partially offset by a $53,000 decrease in other costs.

General administrative expenses increased to $1.5 million during the first quarter of 2013 compared to $1.3 million in the first quarter of 2012 due to increases in legal and professional fees.

We reported net other income of $17,000 for the 3 months ended March 31, 2013, compared to expense of $755,000 for the prior-year period, which was primarily related to [indiscernible] lenders that were concluded in 2012.

The change in the fair market -- the fair value of our warrant liabilities resulted in excess of $2.6 million in the first quarter 2013 compared to income of $575,000 in the same 2012 period due to the repricing of warrants issued in our March 2012 financing and increases in our share price.

Net loss in the 3 months ended March 31, 2013, was $9.4 million or $0.18 per share compared with a net loss of $4.3 million or $0.17 per share for the first quarter of 2012.

Looking ahead, our research and support commitments under the Pfizer-RTI collaborations are essentially complete. As a result, absent any new business collaboration, we expect our 2013 contract revenue will continue at a reduced level compared to 2012 and will be comprised of reimbursements from Pfizer for outsourced services related to the clinical product, potential RTI royalty payments and potential license and milestone payments from Bristol-Myers-Squibb.

With respect to clinical development, we currently have 2 ongoing MultiStem Phase II clinical trials, a study in ulcerative colitis in collaboration with Pfizer and our ischemic stroke study.

We have several other programs, which we could move forward in the mid- to late-stage clinical development, including the proposed Phase II, III study evaluating MultiStem to prevent GvHD currently being reviewed by the FDA and also a potential Phase II study in the cardiovascular area.

We are not planning to move these studies ahead until we secure additional proceeds from business development activities, grants or financing activities.

Finally, we are engaged in preparations for the next stage of MultiStem clinical development, including planning and development to support manufacturing scale-up. As a result, we should be well placed to move forward productively and efficiently as our clinical development programs mature.

Turning to the balance sheet. Cash and cash equivalents were $21.3 million at March 31, 2013, compared to $25.5 million at December 31, 2012.

During the first 3 months of 2013, our net cash used in operating activities was $6.1 million, after the first 3 months of 2013, compared to -- one moment -- compared to $5.4 million in the prior year. This was offset with net proceeds of approximately $2 million generated for the issuance during the first quarter of approximately 1.3 million shares of our common stock under our equity purchase agreement with Aspire Capital fund.

We believe Athersys is in a good financial position today to achieve important business and clinical development milestones such as the generation of clinical data from our Phase II clinical trials for MultiStem for ulcerative colitis and ischemic stroke.

With that, I'd like to turn the call over to Gil for a corporate update. Gil?

Gil Van Bokkelen

Thanks, B.J. and good afternoon, everyone. We are developing our off-the-shelf stem cell product, MultiStem with a focus on inflammatory and immune disorders, neurological conditions, cardiovascular disease and other areas.

These are conditions of significant unmet medical need and represent large markets that are likely to grow substantially over time.

Growth will be driven in particular by the aging of the baby boomer population, as well as the increasing global trend of rising rates of obesity.

Over the past several years, we and independent collaborators have generated a wealth of data that shows MultiStem promotes healing and tissue repair through multiple mechanisms of action.

In addition to its anti-inflammatory and immunomodulatory effects, MultiStem also conveys reparative effects such as by expressing factors that promote angio and vascular genesis in regions of ischemic injury and by enhancing repair and healing in other ways.

This is supported by a growing body of data, both preclinical and in clinical trials today.

If it's safety and efficacy profile are confirmed in late-stage clinical trials and MultiStem is approved by the FDA, these multiple mechanisms of action could give MultiStem a significant competitive advantage over current standards of care and other approaches.

To date, we have advanced 5 MultiStem programs to the clinical stage, including 3 programs in the inflammatory and immune disease space. In the most advanced disease, our partner, Pfizer, is conducting a Phase II clinical study involving administration of MultiStem cells for up to approximately 126 patients suffering from treatment resistant or refractory ulcerative colitis.

These are very sick patients with active disease for whom the current standard of care has previously failed.

Ulcerative colitis affects an estimated 1.6 million people in the U.S., core European markets and Japan and is the most common form of inflammatory bowel disease or IBD. Other forms of IBD include Crohn's disease, which also represents an area of significant unmet clinical need.

In the current study, patients received either a single dose of MultiStem or placebo on Day 1 and are then evaluated periodically up through week 8.

The study requires patients to undergo an endoscopic evaluation at baseline prior to treatment and again, at week 8 in addition to other clinical assessments that occur.

The primary endpoints for the study are focused on the clinical evaluation at week 8, including the endoscopic and rectal bleeding scores.

Following the week 8 assessment, patients receive additional treatment with either intravenous MultiStem or placebo and are subsequently assessed through week 16.

As a result, the 16-week assessment, which does not include endoscopic evaluation, includes analysis of 4 separates: one, patients that have received 2 doses of placebo; two, patients that have received 2 doses of MultiStem; three, patients that have received placebo at Day 1 and MultiStem at week 8; or four, patients that have received MultiStem at Day 1 and placebo at Week 8.

The study is designed to incorporate approximately 22 evaluable patients in each of these groups.

Patient enrollment in the final cohort is expected to continue into the summer, with an announcement of initial results through this double-blind placebo-controlled critical trial anticipated in the fourth quarter of this year or around year end.

Turning to a quick update on our program evaluating MultiStem for graft-versus-host disease or GvHD. As we have summarized previously, we completed a 36-patient dose escalation study last year that suggested a dose-proportional reduction in incidence and severity of GvHD in both single and multiple dose arms.

This included the results in the high single dose arm in which there were no cases of severe GvHD and only 1 case of moderate grade 2 GvHD, which was subsequently resolved with treatment.

In addition, there was no evidence of graft failures among patients receiving treatment with MultiStem and study investigators observed evidence of rapid platelet engraftment that occurred in a meaningful number of patients, suggesting clinical benefit in this important parameter.

After preliminary discussions with the FDA regarding the next phase of development, we defined a proposed clinical trial plan and a statistical plan for a double-blind placebo-controlled Phase II, III study of MultiStem, administered prophylactically following a transplant to reduce the incidence and severity of GvHD and provide other benefits for patients undergoing hematopoietic stem cell transplantation. The FDA has been reviewing these plans for the past several months and based on informal communications, we believe that their initial review is nearly complete.

We expect to receive their formal response soon. At which time, we will address any outstanding questions or issues. We anticipate having authorization for this study in the second half of 2013, although as B.J. mentioned, actual initiation is contingent on securing appropriate funding.

Our third clinical program in the inflammatory and immune area, is providing support for solid organ transplantation. In prior work conducted in preclinical models of solid organ transplantation, we and our collaborators have demonstrated that a treatment protocol that includes administration of MultiStem shortly after the transplant procedure enables organ graft acceptance without the corresponding requirement for long-term administration of immunosuppressive drugs.

If these results translate clinically, it would represent a breakthrough in the field of organ transplantation.

Based on these and other results, an investigator sponsored Phase I study has been authorized in Germany to evaluate MultiStem in liver transplant patients where acute rejection of the transplanted organs has been a significant challenge with current standards of care.

We provided the clinical material to our study investigators so that they may initiate enrollment in the study. They're actively screening patients and we will provide periodic updates as this trial progresses.

In the neurological area, we believe MultiStem's cascade effect can have meaningful benefit not just in promoting healing and recovery, but also shifting from the damaging inflammatory cycle that typically follows a neurological event such as a stroke or traumatic brain injury, toward repair and healing.

We believe this also has relevance in certain chronic neurological conditions.

We continue to advance our ongoing Phase II study, evaluating the administration of MultiStem therapy to patients who have suffered an ischemic stroke.

This study is a double-blind, placebo-controlled trial evaluating the safety and efficacy of MultiStem when administered to patients who have suffered a moderate to moderately severe stroke and that exhibit meaningful disability as defined by an NIH stroke scale score of 8 to 20.

Patients enrolled in the study receive a single intravenous dose of MultiStem therapy or placebo in the 24 to 36 hours following the stroke, which represents a significant extension of the current treatment window over the existing standard of care, which requires definitive diagnosis and treatment within a narrow window of only several hours.

Our stroke study is designed to enroll approximately 136 patients in total and we are currently enrolling the large efficacy cohort.

Based on the recommendation of an independent safety monitoring committee last fall, which founded in the first cohorts of the study, MultiStem was safe and well tolerated by both of the doses evaluated. All patients enrolled in the large efficacy cohort will be randomized to receive either high dose MultiStem or placebo enrolled in a one-to-one manner.

In early April, we received formal regulatory authorization from the MHRA to include some of the leading stroke centers in the U.K. in our study alongside approximately 25 participating U.S. sites. We believe the inclusion of these clinical sites in the U.K. will help us complete this study in an efficient manner.

A preliminary ethics committee review has already been conducted. During which, we responded to certain questions. We anticipate the formal completion of the ethics review process shortly. At which time, we will be in a position to initiate enrollment at sites in the U.K.

We are very eager for the stroke study results. Assuming a positive outcome, we would subsequently look to move the stroke program into a pivotal clinical trial, either alone or with a partner.

Positive Phase II outcomes could also guide our efforts in other acute and chronic neurological indications such as traumatic brain injury, multiple sclerosis, spinal cord injury and other areas.

And speaking of multiple sclerosis as we announced recently, we have completed substantial preclinical work exploring the effects of administering MultiStem for MS funded by the National Multiple Sclerosis Society's affiliate, Fast Forward.

Preclinical studies have generated evidence that in addition to reducing the inflammatory mechanisms that represent the underlying cause of damage in the brain and spinal cord, intravenous administration of MultiStem can also induce re-myelination of the affected axons, which is critical to the healing process and which none of the currently available treatments can provide.

Based on this work, we have already scheduled a meeting with our clinical advisory group to lay groundwork for the next steps. Then we will be in a position to meet with FDA to discuss the data and our initial thoughts on advancement of this program into clinical development.

Turning to cardiovascular disease. This is a significant area of unmet medical need that will continue to grow over time. According to recent estimates from the American Heart Association, direct costs from cardiovascular disease are expected to grow from the current spend of about $275 billion a year to more than $818 billion a year annually by 2030 in the U.S. alone, as a result of an aging and increasingly obese population.

We believe that by administering MultiStem following a heart attack or myocardial infarction, we can improve outcomes while reducing the risk of progression to congestive heart failure.

Published preclinical work shows that MultiStem enhances healing and recovery in both acute and chronic ischemic injury models and promotes revascularization in areas of ischemic injury through formation of stable, well-integrated blood vessels.

Delivery is rapid and straightforward and this opens the possibility to position MultiStem as front line intervention following a heart attack, as well as a treatment for chronic forms of heart and vascular disease.

In a Phase I study that was conducted at leading cardiovascular treatment centers, we believe our published data provides evidence of safety and tolerability as well as evidence of dose-proportional clinical benefits.

One-year data from our Phase I trial focused on acute myocardial infarction or AMI, demonstrated meaningful recovery in heart function in patients treated with MultiStem as measured by improvements in left ventricular injection fraction, stroke volume and wall motion and detailed analysis of one month data also suggests the trend towards reduced tachycardia.

Based on these results, the FDA has previously authorized the 150-patient Phase II study for the administration of MultiStem to patients that have suffered an AMI. However, similar to our clinical program in preventing GvHD, initiation of this specific trial is on hold, pending the availability of capital resources.

In the meantime, however, we've continued to explore potential partnering opportunities, as well as pursue additional grant funding that may allow us to advance specific cardiovascular programs into clinical evaluation. We anticipate having further information regarding some of these activities shortly.

While advancing our clinical portfolio, we continue to broaden and deepen our understanding of biological mechanisms of action in various preclinical models of disease and injury.

Recently, the publication of 2 new articles in peer reviewed scientific journals demonstrated the relevance of MultiStem for autoimmune disease, transplantation and peripheral vascular disease.

In addition to describing the potential therapeutic benefits, the articles also described specific biological mechanisms by which MultiStem delivers benefit in these areas and illustrate the strong scientific foundation supporting our development efforts. These findings may support clinical investigation in these areas and represent important new commercial and partnering opportunities for our MultiStem franchise.

First, The Journal of Immunology article, authored by scientists at King's College in London, Pfizer and Athersys describes the results of a preclinical study using allogeneic islet transplantation, which is an approach for treating Type I diabetes as a model to assess the ability of MultiStem cells to control the T-cell responses that play an important role in autoimmune disease and allograft rejection.

These studies demonstrate that MultiStem cells suppress T-cell proliferation in inflammatory cytokine production, increase anti-inflammatory cytokine production, suppress autoreactive T-cell activity and supported the proliferation of regulatory T-cells, which result in a durable control of potentially damaging inflammatory T-cells.

Average T-cell activity contributes significantly to a number of inflammatory and immune-mediated conditions, including Type I diabetes, graft-versus-host disease, solid organ transplantation, inflammatory bowel disease and other autoimmune conditions such as scleroderma, lupus and rheumatoid arthritis.

Second, an article in the journal Circulation authored by investigators of the Oregon Health & Science University and Athersys describes the results of the study using advanced imaging technology to evaluate the administration of MultiStem cell therapy in a rodent hind-limb ischemia model.

Ultrasound imaging of ischemic limb, following treatment with multiple adult progenitor cells showed more complete recovery of blood flow and greater improvements in microvascular blood volume in treated versus untreated animals.

The study confirmed that this in fact was in part related to endothelial activation and enhanced recruitment of endogenous pro-angiogenic cells resulting from the MAPC treatment.

Critical limb ischemia or CLI is an advanced form of peripheral vascular disease characterized by a severe decline of blood flow. CLI causes persistent and severe pain in the lower extremities and eventually leads to ulceration from gangrene, resulting in amputations and a significant death rate.

Peripheral vascular disease and CLI affect more than 5 million people in the U.S., Europe and Japan, a number expected to increase with an aging population and the growing prevalence of diabetes, which is a contributory risk factor. These latest results further confirm that MultiStem cells are not one-dimensional. They have the capacity to act in a dynamic manner and convey robust therapeutic effects through multiple modes of action depending on the disease or condition.

This is a central paradigm that distinguishes cell therapy from traditional single modality drugs and biologics and represent an important potential advancement in the treatment of a range of diseases.

Finally, we continue to engage in business development discussions on a number of fronts including our 5HT2c agonist program, which has shown promise for the treatment of obesity and schizophrenia.

Importantly, in the past several months, we have completed studies with potential partners in independent labs that confirm our prior preclinical results in both these areas, and it also confirmed the best-in-class selectivity profile we have described previously.

We continue to work with potential partners on diligence related activities in these and other areas including several regenerative medicine programs and will make announcements regarding these important initiatives as appropriate.

With that, we'd be pleased to take a few questions.

Question-and-Answer Session


[Operator Instructions] Your first question comes from the line of Steve Brozak from WBB Securities.

Stephen G. Brozak - WBB Securities, LLC, Research Division

I wanted just to go back over a topic that you had mentioned, specifically on how you are different than the current treatment protocols and specifically how you would say in the inflammation side, you would be different as far as -- especially the side effects that some of the anti-TNF drugs that you're going to be competing head-to-head against and how you've got singular advantages there and also specifically on how a lot of people are saying that stem cell therapy is unique, but you have the ability to put out literally, thousands of doses? And then I've got one follow-up after that.

Gil Van Bokkelen

Okay. So getting to the point of differentiation. I mean, it's interesting the TNF-alpha inhibitors have undoubtedly helped a lot of patients. I mean, these are some pretty successful drugs out there that are being used in a variety of different indication areas, but I think one of the things that's become quite clear over time is that a lot of patients either don't respond to these types of intervention or they become resistant to these types of therapy over time. In fact, that's pretty much true with across the spectrum of various type of anti-inflammatories or immunomodulatory drugs that people are utilizing to treat various types of autoimmune disease, including IBD, but other indications as well. One of the things that we've done is we've systematically tried to analyze both here at Athersys and working with outside independent collaborators, the mechanism that MultiStem conveys when we administer it in a variety of different types of inflammatory conditions, and one of the things that we see over and over again are that these cells are not just reducing the activity of key inflammatory molecules or pathways. So for example, having an important effect on regulating TNF-alpha but they also affect other pathways. And so what really is clear is that when we administer MultiStem, that they're actually affecting the inflammatory cascade as a whole. I think one of the reasons why -- if you talk to an immunologist, one of the reasons why a lot of these therapies ultimately fail is because it's kind of like putting your finger in the one hole in the damn, it doesn't prevent the water from coming in, in other places and eventually the system just gets overwhelmed or it adjusts and it compensates. We believe that we have a much higher probability of success with something like MultiStem because the cells can actually regulate the immune system on multiple different levels and not just regulate it at the level of a single factor. Traditional pharmaceuticals or TNF-alpha blockers for example, are only going to regulate the system essentially at one key point. But admittedly, that can be very helpful, but we think that by regulating the system at multiple levels, that we can have better effects. Now, we're not just taking that for granted in comparison to other types of intervention out there. We've actually conducted studies, examining MultiStem versus other types of cell therapy approaches, Class I SCs, for example or other cell types that we've looked at. What we see is, is that MultiStem's is clearly regulating the inflammatory cascade on multiple different levels and in ways that these other cell types don't appear to be capable of or that they don't do very effectively. So it's based on that understanding of mechanisms of action, not just around MultiStem, but doing the comparative assessment related to other cell types that we're very confident that our cells are competitively well positioned. And then in addition to that, the other question that you asked related to the scalability of the technology, and one of the things that was confirmed in the work that we did with Pfizer, that was part of the recent publication are the robust growth properties and characteristics of the cells we work with and how they are substantially advantaged relative to classical mesenchymal stem cells because of our ability to actually take cells from a single bank essentially, and use that as a way to produce hundreds of thousands or millions of doses. So we think that when you combine the various factors, both in terms of the depth of our understanding and the way the cells work, their clean and consistent safety profile and the scalability of the platform, it really puts us in an extremely strong competitive position not only with respect to the inflammatory disorders, but the other conditions that we're looking at.

Stephen G. Brozak - WBB Securities, LLC, Research Division

Okay. And that actually leads me to the last part of the question. Cost of goods, because obviously, everyone believes stem cells, how expensive. Can you give us some insight as to what your cost of goods are and I'll hop back in the queue obviously, after that.

William Lehmann

Steve, it's B.J. here. We're doing a lot of work to improve the cost of goods position but I think our perspective right now is in the areas in which we are competing. Even today, we have cost of goods that's going to be competitive. It's going to sit within the reimbursement scheme that we envision. We haven't disclosed specifically what the cost of goods position is, but we think we are good or better than anybody in the industry and have the potential to be much better from a cost of goods perspective.

Gil Van Bokkelen

I mean, one of the advantages that we have, Steve, is that if you think about the scalability that I just described, we believe that we'll ultimately be in a position where we can produce these cells in very large manufacturing systems and that's what really drives your cost of goods down to something that is extremely competitive. And because of the biological characteristics and of cells and our ability to actually grow them up using these types of approaches, we think we're going to be in a very, very strong position there.


Your next question comes from the line of Ted Santos [ph] from Piper Jaffray.

Unknown Analyst

My question, I guess, has to come back to kind of some of these other indications that you're starting to look for. Obviously, we've got big data coming from ulcerative colitis and stroke and you have other indications teed up. Can you tell us a little bit more about some of the work that's being done externally. In particular, around that liver transplant program, kind of how that works and sort of what data we might be able to get. And also on the other stuff, maybe from some of the newer sort of preclinical neurological indications that you've been starting to discuss. I think those are very interesting.

Gil Van Bokkelen

Yes. So regarding the organ transplantation work, that is actually in the process of being published right now. It's been accepted for publication, and it should be out soon. And I think that I'm personally quite excited...

William Lehmann

The pre-clinical stuff.

Gil Van Bokkelen

Yes, the preclinical stuff, that's right. And I'm personally quite excited about that because I do think as I described earlier, that it shows some pretty amazing things, actually. Mainly that it's kind of a long-standing objective in the field of immunology has been for people to try and achieve treatment paradigms that could essentially in effect achieve authentic tolerance. Meaning that you could actually do an organ transplantation and you would within the process, be requiring the patients that received to transplant to be living in a life of immunosuppressive drugs for the rest of their days. If you think about it, that understanding, the biological mechanisms that might be imparted by a therapy like MultiStem could have broader ramifications with respect to a whole host of autoimmune diseases that obviously don't involve [indiscernible] and what this work will show, I think, will be quite exciting in terms of the depth of our understanding about how MultiStem can be administered to achieve authentic tolerance but also some of the other things that are going to be part of that work. And I don't want to [indiscernible] on the publications too much because I think people will find it pretty exciting in terms of the results of the data that have been generated. And all that work we've done, obviously, we've provided the materials to run the study and we helped design the study, but it was done by an outside independent lab and group of clinical experts in the field of organ transplantation that are highly motivated to figure out ways to address some of the major challenges that clinically represent serious problems for patients that are getting a liver transplant or various other types of transplantations. And in terms of working with these outside collaborators, I think that's a good example that's reflective of our broader philosophy, which is we don't try and develop the internal capabilities to establish all the models that outside key opinion leaders and independent investigators have spent years to develop and refine and then utilize in a variety of different ways. We simply establish relationships with those expert and then tap into their expertise. They don't really want to know how to manufacture a product like MultiStem nor do they necessarily are they going to be in a position to run a lot of mechanistic studies that will help deepen the understanding of how it might be valuable as a therapy. And they're certainly not going to run the studies that are necessary to illustrating and understanding the various types of safety parameters or other types of characterization that we've run in accordance with the wishes of the FDA to satisfy our own requirements internally, but what they can do is take our knowledge and our capability to provide them with clinical-grade material and high quality other resources so that they can tap these into these various models that they have deep expertise in and then they can independently report the results back to us, and that's what we've done over and over and over again, working with investigators from over 30 institutions across the United States and in Europe. The organ transplantation area is just one example of that and if you think about it, we've seen consistent results both in hematopoietic transplant models, as well as in the solid organ transplant models and we're pretty excited about that because as I said, if that translates clinically, we're going to be in a really outstanding position.

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

When it comes to that work, is that the work that's being done in Germany and do you think specifically, they're in a position to take that into the clinic or...

Gil Van Bokkelen

Yes. So that's right. That's the work that's been done in Germany. So I will tell you this, so the initial work that we've done was conducted using something called a Heterotopic Heart Transplant model where you're literally doing a kind of a heart transplant procedure in a rodent model. You're not replacing the endogenous heart, you're basically just kind of adding another heart into the system, but it's a model that's very, very useful for examining whether or not allografts will actually take and so it's kind of standard world adult-aided [ph] model that transplant biologists work with. And so that -- but that was kind of the principal subject to the early work that was done with this group, and the results were so compelling they actually called us and said we want to start giving this to patients right away and we weren't really in a position to do that right away. We felt it was more appropriate to go through the regulatory procedures and work with them to get approval from the German regulatory authorities, which we did. And we've already provided them with the clinical trials authorized by the German regulatory authorities. We've provided the clinical material to the investigators at this transplant center, and they are busy screening patients and get the dose escalation study. It's not a large study, it will involve anywhere from 12 to 24 patients in the trial, and it's basically just the dose escalation in these types of patients and then we'll see what the study reveals. But I think that the knowledge that we've generated with them is highly consistent with what we've been seeing in other areas. And then the second question that you asked is actually about some of the neurological work we've done and in particular there, I mean, we're excited about a number of the things we've done. We've actually produced several publications around work we've done in TBI, we've been awarded some pretty significant grants to support the work we've done in traumatic brain injury as well as work we've done in spinal cord injury. In addition to -- we've actually had a few million dollars of grant awards related to the work we've done in stroke. Some of the recent work that we've done, which has been sponsored by the Multiple Sclerosis Society and Fast Forward I think is particularly compelling because as I mentioned earlier, right now, the current standard of care which is largely focused on treating patients who suffer from relapsing-remitting MS really doesn't ultimately get those patients or the patients that are suffering from other forms such as secondary progressive MS to where they want to be. Namely, that you're repairing the damage from the lesions that have formed. And Ted [ph], as we've heard when we were at the conference in Rome recently that actually talked about some of the challenges facing patients that suffer from MS, this is a big area of unmet medical need and these patients are pretty desperate. And what we've been able to show in our pre-clinical work again, working with a leading independent investigator is that when we administer MultiStem intravenously, not only do we stop the inflammatory mechanisms that are driving the damage in central nervous system, but we actually induce re-myelination and authentic repair of the lesions that occur in the spinal cord and in the brain. So again, look, it's a preclinical model, but I can tell you that the MS Society is actually excited about it and the team at Fast Forward as are we, and that's why they had strongly encouraged us to actually meet with the clinical investigators that make up our advisory team so we can sit down and map out a clinical plan and hopefully put ourselves on a path where we can actually start putting this in the patient at some point.

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

That's great. B.J., I got one really quick for you quick. I just popped open the Q which was published and I saw that there's about 56.3 million shares out as of May. What accounts for the increase from sort of where we ended 1Q?

William Lehmann

We are continuing to utilize the net we wanted that we have in place. It's a complement to our fund raising strategy as you know. We've utilize that to a small extent, the second quarter.


Your next question comes from the line of Jason Kolbert from Maxim Group.

Jason Kolbert - Maxim Group LLC, Research Division

Can you give us some idea, Gil, you were talking about the stroke trial and you were talking about you're now enrolling, I thought you heard you say efficacy patients or that the control group is enrolled. Is that what you meant to say and can you give us...

Gil Van Bokkelen

So what I meant to say is that the third phase of the study -- so the study is basically divided into 3 parts. The first 2 parts were small dose escalation cohorts that involve a limited number of patients that receive MultiStem or placebo. So we finished the low dose cohort then we proceeded after that was demonstrated to be safe as judged by an independent data safety monitoring committee. We then proceeded to the second phase of the study, which was treating patients at the high dose level. Then the data safety monitoring committee last fall looked at all that data and said okay, it's a clean safety profile, now you can enroll the remainder of the patients in the study at the high dose level. And basically the way that works is 120 patients will be enrolled into that portion of the study and 60 will receive MultiStem and 60 will receive placebo. Enrollment in that has actually been going on now for the past several months and as I mentioned, we're adding sites both in the U.S. but also in the U.K. And we're excited about it because the U.K. in particular, one, if U.K. did something that I think is -- that I wish we'd see more of actually, here they United States. Several years ago, they formed a national stroke clinical trial network where they linked all the major stroke treatment centers in the U.K. and they created kind of a central mechanism for allowing companies to come in so you don't have to negotiate with each institution on a one-by-one basis, you basically do it through 1 central mechanism in terms of buy or be in contracts, which makes the whole process actually much more efficient. And the other advantage to the U.K. is these clinical centers in the U.K. actually see on average, several times the number of stroke patients because the population in the U.K. is more densely populated, so patients are actually getting shunted into these clinical centers. So they actually are seeing several times the number of patient that you would see at an average stroke treatment center here in the United States. And in the U.S... yes, sorry, go ahead.

Jason Kolbert - Maxim Group LLC, Research Division

Go ahead, you finish. In the U.S...

Gil Van Bokkelen

So I was just going to say, in the U.S., we have about 25 clinical centers that are part of the trial and it really kind of ranges in terms of geographic distribution across the United States but again, on average, they will see a meaningful number of patients, but not quite as much as some of these large centers in the U.K. will see.

Jason Kolbert - Maxim Group LLC, Research Division

So if I do the math and I assume that these patients are able to enroll 1 patient a month, it seems like you could complete enrollment pretty quick. Are the 25 sites in the U.S. now up and running and seeing patients?

Gil Van Bokkelen

The majority of them are, but not all of them. And the sites in -- now remember, one of the things that many people have learned about running a stroke clinical trial is we've defined our enrollment criteria so that we're seeing a relatively homogeneous population of stroke patients. In terms of the severity, as I mentioned, there's a defined range in accordance with the NIH stroke scale. These are cortical stroke patients. There's other parameters that basically define it, including age parameters. That was one of the questions that came up in the design of the study is, what is the age range? And we're actually taking patients up to the age of 70, up to including the age of 79.

Jason Kolbert - Maxim Group LLC, Research Division

What I hear you saying is you may be screening a lot of patients, but actually enrolling into the trial only a percentage of those that are actually screened and that meet all the criteria?

Gil Van Bokkelen

That's exactly right and that was done based on the input we got from clinical experts in the field that said you want to design this as a relatively homogeneous population of stroke victims in this kind of a study. It will just make the analysis a little bit easier.

Jason Kolbert - Maxim Group LLC, Research Division

And 2 other questions. Just kind of projecting the map here. You had previously guided towards potentially seeing 90-day clinical endpoint data by second quarter 2014. It sounds like that is still very much on track, is that correct?

Gil Van Bokkelen

That's right.

Jason Kolbert - Maxim Group LLC, Research Division

Okay. And then, I guess, the last thing before we leave stroke is -- and this goes back to your -- in the discussion on screening. If you're enrolling patients, you said the window was 24 to 36 hours. I thought the window might be a little bit longer, yet 24 hours, what's my ability as a clinician to determine who's the potential spontaneous recoverer versus not, versus let's say at 48 hours?

Gil Van Bokkelen

Yes. So the clinical experts, I think, there's a pretty strong consensus in this, that you pretty much know by 24 hours whether or not a patient is on the path of meaningful spontaneous recovery. And so that's why we decided to design the study that way. Originally, we had actually thought about doing it at 48 hours, but ultimately based on their input -- and again, it was a pretty strong consensus they said we think that you can -- you'll know by 24 hours. If patients have improved by several points on the NIH stroke scale, then you know they're on the path of spontaneous recovery and we exclude those from the trial, which is important for a couple of reasons. One, this study is focused on patients that have robust durable deficits and so if we show a clinically meaningful effect in that type of patient population, I think everybody's going to believe it. They're going to have a lot of confidence in that. And I think when you also consider the history of clinical trials that have been run in the stroke area, which admittedly has been pretty chaotic, a lot of that is due to the fact that patients or the studies are forced to treat patients within the first several hours because that's their window for a neuro protective drug or like thrombolytic like tPA. You basically have to give it to the patient within 3 to 4 hours. And that means that you have to diagnose the patient definitively to make sure they don't have a hemorrhagic stroke and then you have to treat them and then it literally -- it's a very, very tight window, which is why only about 5% of the patients in the U.S. that have an ischemic stroke actually get treated with tPA because most of them simply don't get through that process in time. We think that a 24 to 36-hour time frame is a clinically practical time frame. Our window may extend well beyond that, but based on the preclinical work that we published, we've shown that if we administer MultiStem in models of ischemic stroke that if we treat it even after a week after the stroke that we saw very robust and in many instances, a virtually complete recovery. But I think the first thing in this study is just to show that if we intervene within this, which represents a clinically practical time frame and we can eliminate the people that are spontaneously recovering within that first 24 hours, that we're going to have a pretty tightly designed indication of how the therapy is working for these types of patients.

Jason Kolbert - Maxim Group LLC, Research Division

That's very helpful. Can we switch gears to ulcerative colitis? I'd like to understand a little bit about what is Pfizer thinking or what is Athersys thinking in terms of the complexity of this particular trial where you have a placebo and then a MultiStem, you have a MultiStem and then a placebo and I assume a MultiStem and a MultiStem treatment protocol at 8 and 16 weeks across 130 patients. I guess, just my only concern is that 130 patients isn't a lot of power when we start to create lots of subgroups. Can you just share a little bit of insight into what the thinking was there, but the good news is that I believe this was the first trial, where we're really going to see allogeneic scheduled redosing and retreatment, which ought to assuage anybody's concerns about what the reactions are when you retreat with an allo product. So I think that it's actually -- I think in that regard, it's very positive. But what was the thinking behind it?

Gil Van Bokkelen

Well, remember that the -- just in terms of the overall powering of it, the primary clinical evaluation is occurring at week 8, before patients receive that second dose, either a crossover dose or a second dose of what they've already received. So that's the primary, but as an incentive, if you can imagine if you're running a trial like this and patients know that there's a 50% probability that they're not going to get MultiStem, a lot of patients might be kind of put off by that, right? So as a way to kind of incentivize patients to participate in this study, Pfizer thought it was a good idea to actually create a mechanism that would actually allow them another shot at it, if you will, and at the same time, it would give us an indication, some evidence essentially, of the differences between either a single dose or a multiple dose treatment strategy. Now their thinking on this was actually pretty heavily influenced by the results we saw from our GvHD Phase I study, where we saw that if you give a meaningful dose in a single dose of MultiStem, you actually saw pretty significant effects. So I think that they looked at that and they said, look, we can learn a lot from this study if we design it this way and remember that what they're really looking for here is evidence of biological activity. Ultimately, I think the clinical objective that they are most interested in is Crohn's disease, which tends to be a more severe disease and it doesn't affect as many people as ulcerative colitis does, but it tends to be kind of more intense area of unmet clinical need. Although, I think if you talk to any ulcerative colitis patient that's struggling with treatment refractory or resistant ulcerative colitis, they would say that that's a big problem too and they need the help. But I think that what this really was designed to do was give some indication of evidence of biological activity and honestly, if you're seeing that after a single dose or a couple of doses administered over this time frame, I think most people are going to find that to be pretty impressive.

Jason Kolbert - Maxim Group LLC, Research Division

Got it. And that's really practical and definitely a big form of thinking and it makes sense. Last thing is help me understand how much progress has been made on the BDE[ph] side, both not only on potential partners for some of the clinical trials that you'd like to move forward, but also on 5HT2c because we know that, that market has been exciting. We know that certainly you've had a lot of discussions. Can we expect -- is there -- are you seeing an increased level of activity that we should be aware of?

Gil Van Bokkelen

Yes. So we continue to make good headway there. I think one of the things that we elected to do -- and we certainly didn't have to do it this way, but for some of the companies that we're in discussions with, they said look, we'd like to verify -- your results are really impressive and we showed them data and study reports and other things that really illustrated how we've been able to do some things that frankly, we've had a number of Big Pharma companies tell us they were never able to come close to. Mainly, to develop compounds that are very, very potent agonists of the 5HT2c receptors that are completely [indiscernible] at these other receptors like 5HT2a and 5HT2b. And I think if you think about it, if somebody's looking at this as a pretty substantial partnering opportunity, and they want some additional comfort around certain technical parameters, there's a variety of ways you can address that. But one of the ways in which we've chosen to address it is -- in certain instances, people said hey, we'd just like to run it through an outside independent lab, some confirmatory study that actually validate some of the data that you guys have already presented and conveyed to us. It just shows that these things are in fact, occurring in models of diet-induced obesity or some of the neurological models that are reflective of various types of neurological conditions that these partners are interested in. And we had choice. We could say that we can either do that or not do it, but we felt that it was in our own best interest to run some of these studies and we've actually done similar types of things with potential partners in the regenerative medicine area. And I think one, it reflects a lot of confidence on our part that what we have is real, and we're not afraid to put that to the test. And ultimately, I think that's what gets us the kind of outcome that we and our shareholders are going to be happy with. So it takes a little bit longer, but we think it's well worth it because ultimately, it gives us the greatest amount of confidence that we're doing it the right way and it gives the partners the greatest amount of confidence.


Your next question comes from the line of Greg Chodaczek from First Analysis.

Greg Chodaczek - First Analysis Securities Corporation, Research Division

Gil, Jason asked all 15 of my question so I really don't have any more questions. I was just going to ask about partnering, but I appreciate the updates on partnering.

Gil Van Bokkelen

Yes. Well, obviously, Greg, as we've talked about, the partnering activities are pretty central to our strategy here, and I think that the good news is that we have we have opportunities in multiple different areas and we're doing this very systematically. And we're trying to make sure that we're picking the right potential partners and that we're constructing things in the right way. And we're more concerned with doing it right than doing it super fast. And if you think about it, it really hasn't been that long since the world kind of changed in the obesity area specifically, because it was last summer that Arena and VIVUS both got approval by the FDA and candidly up until that point, a lot of people weren't really even thinking about the obesity space because of the prior rejections that they and other companies had suffered through. So now people are kind of looking at launch activities. I think VIVUS has gotten out of the gate pretty slowly, Arena is about to get out of the gate here pretty soon and I think people are looking at that. But honestly, nobody really doubts that obesity is a multibillion dollar opportunity and I think that the interesting thing is recently, I gave a presentation that actually referred to some prior clinical work that shows evidence from a study that was conducted by a team at Pfizer or really, it was Wyeth, that actually provided some clinical evidence that showed that 5HTt2c agonist could be robustly effective in a Phase II clinical of schizophrenia. And that plus the own -- plus the work that we've done internally, as well as with outside independent labs, I think gives us tremendous confidence that this is going to be a very attractive area for our partner to go after. And again, we're just trying to do this very systematically, and I think we're on the path to where we want to be.

Greg Chodaczek - First Analysis Securities Corporation, Research Division

And with regards to GvHD, are you purposely waiting for Pfizer data to come through before that gets partnered or if the right partner comes along with the right amount of money, you'll do it at any time?

Gil Van Bokkelen

Yes, we're actually forming partnering opportunities both around the GvHD and the kind of the broader opportunities around organ transplantation, as well as in the cardiovascular area.

Greg Chodaczek - First Analysis Securities Corporation, Research Division

Right. I mean so -- but will you wait to get positive Phase II data before you do that or...

Gil Van Bokkelen

Not necessarily.

Greg Chodaczek - First Analysis Securities Corporation, Research Division

Okay. So the right price and the right partner, you'd take it no matter what.

Gil Van Bokkelen

That's exactly right. I mean, yes, that's actually right.


[Operator Instructions] Next up, we have Christian Glennie from Edison.

Christian Glennie - Edison Investment Research Limited

Just linking into the [indiscernible] questions that made earlier, this may be a naïve question, but in terms of when you think about sort of trying to carve up of the opportunity, the various opportunities that MultiStem seems to address, obviously so far, Pfizer has rights in the sort of gastrointestinal space, but given that -- as far as I understand sort of essentially, one product, one sort of cell bank obviously, there will be variations in terms of doses and reach of administration in different therapeutic areas but how do you look to sort of carve up and ring some [ph] of the opportunities and how much potentially is that an issue in terms of partnering?

Gil Van Bokkelen

Yes, that's a great question. So we refer to that as the product segmentation challenge and I think one of the things that we've thought a lot about actually are various pickets in the fence, if you will, to achieving product segmentation in the areas that we want to. And it relates to a number of different things. But obviously, in certain instances -- the cardiovascular area, let's kind of consider that. The delivery strategies and the packaging methodologies that you utilize for a product like that are going to be distinctly different than what you may expect for something where you're administering MultiStem intravenously, and you're getting kind of a large intravenous dose, hundreds of millions to a billion cells or maybe more than that, depending on the indication. In the cardiovascular areas, our published clinical and preclinical work shows you can get actually, very effective responses by administering a relatively small amount of cells. I mean, something in the neighborhood of 50 million or 100 million cells and are using it to localize delivery approach, so you can imagine a world where you got kind of a prepackaged system, if you will, that allows you to administer MultiStem very efficiently and you can create kind of a product configuration, if you will, that is cleanly segmented from other types of indications. For other areas, it may not be quite as straightforward to achieve that type of product segmentation, but we think that there are strategies that we can implement that will allow us to actually achieve segmentation pretty efficiently and that relates to things like creating product banks that has been constructed, formulated and validated for use in specific areas, but not for other areas. And it may also relate to specific types of things that you can do with a product where you are enhancing biological activity for using certain areas that may not be relevant in other areas. So there are a number of things that you can do over time that I think will allow us to achieve the type of product segmentation that you want. But in the near term, there's actually a lot of advantage to not doing that because you can rely on 1 common foundation of safety data from 1 centralized bank. In fact, all the clinical work that we've done today, we're able to run that off 1 bank that we've created and so what that does is it creates kind of a common knowledge base, if you will, from that 1 central resource whereas, we know in other studies that have been run by others in the field, they have to go back to multiple donors just to generate enough material to run even one study. Well, here we are with multiple clinical programs that we've in some cases, already completed or other things that we're running or things that we could run in the future and we are able to do that off of 1 bank. But we are thinking very carefully, Christian, as our partners are about how to achieve the type of product segmentation that we need. Long term, we want to be the hub of the manufacturing and the product supply, which is another way that we can kind of guard against that and control it, but I think that there's multiple things that we can do over time to protect ourselves and protect our partners.

William Lehmann

Christian, one thing to add there I think at the end of the day from a partners strategy perspective, we're going to end up with a fewer number of larger, more comprehensive partnerships.

Gil Van Bokkelen

That's right.

William Lehmann

And they're likely to be focused around therapeutic area. So not only do you have that kind of product differentiation opportunity, you also get to manage different channels through which the products are going to go. It will make it a fair bit easier, I think, in managing potential conflicts across partners and the like.

Gil Van Bokkelen

So we're not trying to pretend that it isn't going to be a challenge because obviously, it will be. I mean, there's been numerous examples throughout the biotechnology history, where companies that struggle with these types of issues where you got highly valuable therapeutic product that might have relevance in distinct therapeutic areas and how do you deal with that, right? On the one hand that's kind of a high-class problem because it means that you got a product that has relevance in multiple different areas. On the other hand, you want to make sure that you construct your relationships very carefully and you're thinking through all the logistical issues that relate to manufacturing, distribution, product validation, qualification and use.


There are no further questions at this time. I turn the call back to Dr. Van Bokkelen.

Gil Van Bokkelen

Well, thanks, Laura. And in closing, I'd like to thank you, all again for listening and participating in today's call and we appreciate your ongoing interest and support and look forward to keeping you updated on our future progress. Thanks very much.


This concludes today's conference call. You may now disconnect.

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