Advanced Cell Technology, Inc. (ACTC) Q3 2013 Earnings Conference Call November 12, 2013 4:30 PM ET
Gary Rabin – Chairman and Chief Executive Officer
Ted Myles – Chief Financial Officer and Executive Vice President of Corporate Development
Matthew Vincent – Director of Business Development
Kathy Singh – Controller
Good day, ladies and gentlemen, and welcome to today’s webcast. Today’s webcast is being recorded and you’re in a listen-only mode. Following the presentation, we’ll have a 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, Chairman and CEO. Mr. Rabin, the floor is yours.
Thank you and welcome to Advanced Cell Technology’s third quarter financial results call for the period ended September 30, 2013. My name is Gary Rabin, and I’m Advanced Cell Technology’s CEO. I’m joined today by Ted Myles, our EVP of Corporate Development and CFO; Matt Vincent, Director of Business Development; Kathy Singh, who is transitioning from Controller to a newly created role as Director of Project Management; and David Aubuchon our new Corporate Controller who just started today. Welcome David.
Before we begin, I will ask Ted to read the following statements and provide a brief overview of our financial results. Ted.
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 & Development programs, potential applications of our technology, opportunities for the company and other statements about 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.
Any statements that are not statements of historical fact, including statements containing the words will, believes, plans, anticipates, expects, estimates, and similar expressions should also be considered to be forward-looking statements. There are a number of important risk – 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, risks associated with clinical trials, and economic conditions generally.
Additional information on potential risk 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, and the quarterly report on Form 10-Q as filed today, November 12, 2013. Forward-looking statements are based on 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, or other circumstances should change.
Before I provide a brief overview of our financial results, I’m please to welcome David to the team. As Gary mentioned earlier, David Aubuchon joined the company today as Corporate Controller, and he brings a wealth of experience to our finance team. David was the key member of the finance organization of Sepracor for more than 12 years. During his time at Sepracor, the company grew from an emerging public company to $1 billion pharmaceutical organization. We also want to Kathy her great service as Controller over the past several years. We know she will make very positive contributions in her new role at the company supporting several of our clinical and pre-clinical programs.
Now, I would like to provide an overview of our financial results which are discussed in greater detail and 10-Q we filed with the Securities and Exchange Commission today and in press release recently across the wire. I trust that you have already read or you have already seen our press release that was issued earlier today, so my financial remarks will be brief.
ACT recognized revenue of approximately $39,000 for the three months ended September 30, 2013 compared to revenue of approximately $68,000 in the same period a year earlier. Our revenue relates to license fees and royalties previously collected that are being amortized over the remaining life of the license. Research and development expenses were approximately $2.9 million for the quarter compared to $2.4 million for the same period in 2012. This increase in R&D expense was driven by our planned increase of internal and external costs consistent with our expansion of our R&D staff in collaborations in support of our clinical and preclinical programs.
Gary will provide some color on how these programs have progressed in a few moments. During the quarter, we also realized an increase in general administrative costs. In fact, our G&A costs increased from approximately $2.7 million in the third quarter of 2012 to approximately $3.2 million in the third quarter of 2013. This is not necessarily how we want to allocate our corporate resources, however, we are hindered by decisions made by prior management many years ago.
During the quarter ended September 30, 2013, we realized an increase of legal fees of approximately $250,000, largely due to our efforts to resolve non-routine and legal matters. We were optimistic about the progress we’ve made, and we are committed to completing the cleanup of the company so that our overall corporate profile reflects the world-class science that we believe we are creating. We look forward to resolving these legacy corporate matters and allocating greater portion of our corporate resources to clinical development.
Net cash used in operating activities for the three months ended September 30, 2013, was approximately $4.9 million compared to net cash used in operations of $3.8 million for the same period in 2012. This increase in net cash used was a result of higher R&D and G&A expenses that I discussed a moment ago. The Company ended the 2013 third quarter with cash and cash-equivalents of approximately $5.5 million compared to $7.2 million at year-end 2012.
In addition to our cash on hand, we also have approximately $15 million remaining through our arrangement with Lincoln Park Capital. As we discussed at our annual stockholders meeting last month, we do plan to pursue additional sources of funding in the very near future, and we believe this will provide a more stable foundation from which to build a clinical and corporate success in 2014 and beyond.
Now, I would like to turn it back to Gary.
Thanks Ted. We are quite excited about the coming months as we believe there are several events that can create opportunities to build shareholder value. We have significant milestones we’re positioned to achieve in our preclinical programs, clinical programs, and on the corporate side of the company. With respect to corporate developments, we believe we are approaching a resolution with the SEC relating to certain acts that our former CEO committed approximately five years ago. The settlement of this matter along with the reverse stock split are critical steps to listing on NASDAQ.
As discussed previously, we do not intend to affect a reverse stock split, which shareholders approved less than a month ago unless it is associated with a listing on the National Exchange. We believe the listing on the NASDAQ will allow us to meaningfully broaden our shareholder base and make the stock more attractive to both institutional and individual investors.
Although our shareholder meeting was only three weeks ago, I will review what we discussed and to extent I can provide some insight into our future plans. The Dry AMD and SMD programs are nearing the end of Phase I, and we’re in very active development for a plan for Phase II. Shortly after we complete the treatment of the Phase I patients, we expect to announce top line summary data from the trials. In October, we held a meeting of our Ophthalmic Advisory Board, which includes some of the most highly respected physicians in the world, our team of clinical and regulatory consultants, and the senior management team of ACT.
For two days, we reviewed and discussed the data, patient experiences as told by our physicians, reviewed all the photography and data, and we developed a number of potential paths for progression to Phase II. A couple of key takeaways from that meeting include no major safety concerns related to the cells in the treatment, clear signs of long-term engraftment and survival, and in many cases efficacy.
In fact, during the one-year follow-up period, patients in both the Stargardt's and Dry AMD trials have shown improvement in visual acuity in their treated eye. Vision in one of the patients for example improved from 20/400 to 20/40 in the first month. Bu contrast, in that person’s untreated eye, the vision has remained unchanged and will likely continue to show declines in visual acuity as AMD and SMD are degenerative diseases.
We have been diligently working on the design of the Phase II trial with our partners and anticipate some time next year we will begin treating patients in Phase II. We are developing materials to discuss the strategy with the FDA, so I need to stop there and cannot provide any further detail. I’ll ask for your continued patience as we continue to vest this plan.
Additionally, we plan to initiate our Myopic Macular Dystrophy trial early next year. We are in the final stages of negotiating our contract with the [investigators] (ph). Finally, our pre-clinical programs continue to show promise. There are too many of nuggets of exciting data to review now, and the data are too early to discuss at this time, but we are encouraged and we expect to have some announceable developments in our preclinical Mesenchymal Stem Cell Program in 2014.
Now operator, I would like to open the call for questions.
(Operator Instructions). And your first question comes from the line of Jerry Grover [ph].
Yes, I actually have – well, it’s I guess a two part question. Of the treated patients, how many of them have stopped the digression of the diseases and have improved their vision, and how long is it going to take to get this published in a -- well [indiscernible] medical journal wherever you plan to publish it. And there is kind of a third question I would like to sneak in there, is there any timeframe to resolve this SEC issue?
All right, so first of all, I’m not going to give any specific data about which patients have improved and which ones haven’t. I think as we mentioned at the shareholders meeting, all of the investigators were pleased with the data relating to visual acuity change, and I will not comment any more than that on the data. In terms of the timing of publishing the results of the trial, we still have not finished treating all the patients in Phase I. I think we suggested to you that there is a possibility that we will not do cohort 4 as part of Phase I, but at this point, still not thoroughly completely wrapped up cohort 2a.
So, we have – and actually patient in cohort 3 as well, so we still have a little bit of a treatment to do before we can wrap up the paper, but I will say that the beginning work on the paper has already been done, so we are starting to work on the paper, but obviously have to get all the patients treated before we can really write a summary of the trial. As it relates to the SEC matter, as I continue to say we expect this to be resolved this year and we are optimistic that we are going to be able to achieve that, but it’s really out of our hands.
We are one of many defendants in this matter and in many ways we are the small fish, so unfortunately getting to rapid resolution of this has not been as easy as we would like. If this were a straight corporate matter between two companies negotiating something, I’m sure we would have had it done long ago, but there are other considerations, but with that said we still remain optimistic that we will be able to wrap this up. Next question operator.
Next question comes from the line of Adam.
Hi, Gary, in the Q2 call, you said the only milestone you were worried about hitting was the uplift, and it sounds like that’s changed considerably. Can you touch on that and whether you think we are going to hit any of the milestone that were laid out in January, if not why; and secondly, there was a talk of a trade name earlier in the year, and that kind of we haven’t heard any follow up on that, and so is there any kind of trade name for the RPE therapy?
We are still actually working through the trade name issues. There are some very specific issues that we have to deal with. So, we’ve got no trade name on that yet, but it is something that we are working on quite actively. As it relates to milestones, other than the NASDAQ one, we obviously are planning on finishing the treatment Phase I for patients this year.
We would like to be able to share top line data this year, and the iPS human platelet program we advanced, we’ve made a lot of significant advances in that program, but I think we made it clear to you that we are only going to fund that program through third-party capital, because it is a very expensive program and the best commercial application is for governments for National Security and things like that, it’s not obviously the most commercial of all programs for purposes of the ability to just go and sell platelets and produce them and the scale would be enormous, something we are actually not going to take on. We have continued to be in discussion with potential government partners on that matter, but it remains on the back runner until we can find a partner.
As it relates to the clinical trial for Myopia, we have the contract out, and the investigator which is UCLA's Jules Stein Eye Institute is reviewing it, and we hope to begin treating patients, I think, we said early next year, so that’s our timing for that, but obviously we want to try to get that done as quickly as we can.
And then if we go to our sort of general corporate objectives, again matching those with our milestones that we have laid out at the beginning of the year, I think it’s more or less sort of the same. We’ve got this one key hire that we want to make in clinical development, we are talking to some very good candidates there, obviously we hired the CFO making progress on the corporate development side in terms of bringing the financial statement reporting in-house, obviously hired in David today is a big step for us in that, and we are very pleased with where we stand today in the MSC program both as a pre-clinical source of material for potential clinical applications in humans as well as potential opportunities in veterinary market. Next question please.
Your next question comes from the line of Adam [Stains] (ph)
Hi, Gary there.
Yes, I have a two part question. The first question is in terms of commercialization of the RPE therapy. Down the road, where we are in terms of having these cells or rings ready in a bio-compatible solution to kind of eliminate that cell threat by doctors prior to surgery? And secondly, what would list are core versus non-core kind of programs.
Sure. So in terms of development within manufacturing, the number one most important thing we are working on is this bio-compatible media. We believe we’ve identified the media, we believe that it permits for survival of the cells in the shipping [indiscernible] for at least a day and a half, perhaps as many as four. So, we’re pretty optimistic about that, we’re readying materials to submit to the FDA that will allow us to move forward.
We actually – because one of the treatment centers about 2.5 weeks ago had a flood in their cell prep, GMP cell prep facility. We actually had to postpone the patient, which drives home how acutely important having this biocompatible media in sort of syringe ready form, is to the future of the company especially as it relates to scalability of this disease when you’ve got millions of potential patients, so very, very high priority.
In terms of what are our core programs to the company, I can’t stress enough how the RPE program is one, two, three, four, five, and six on the list. We are intensely focused and advancing the RPE program. We obviously have significant opportunities outside the RPE program. Both in other ophthalmic programs, Dr. Lanza talked about what the Ganglion cells and the retinal progenitor cells that we’ve talked about a bit before, and also we are seeing some really nice results as Dr. Lanza mentioned two weeks ago in the MSC program. So, those are excellent pipeline programs for us pre-clinically, but the vast majority of our resources and efforts go into the RPE program.
And obviously as a company that is not only somewhat capital constrained, but moreover of course importantly resource constraint, we must prioritize RPE as number one, two, and three. So until such time as we really get the RPE program sort of on auto pilot and into Phase II, it will be really very, very much the focus of corporate development at the company.
Now that doesn’t mean that in any way we’re slowing down our efforts in the MSC program or the other ophthalmic programs that are outside the RPE program. And in fact, Dr. Lu and Dr. [Aaron Kimbrell] (ph) who are in charge of those two programs respectively are working very hard with co-collaborators and we’re trying to advance those programs, and we’re very pleased about the potential result there. Next question please.
Your next question comes from the line of [indiscernible].
Hi Gary, I just wanted to quickly ask you, it has been a rumor that two of the four sites had halted injections pending a protocol change, and I wanted to confirm that if I could, and also understand is that a protocol change for Phase I or is it pending the movement from Phase I to pivotal Phase II trials, and wanted to see if you could comment on that? And so there are some reports that Bascom Palmer has injected one patient to-date as of 30, and I was curious if you could comment on that?
Okay what, I will comment on how many patients have been treated by individual programs because the centers themselves don’t like to be discussed in that regard. Plus there is no truth to the fact that two of the four centers have stopped injecting patients. All the of the centers continue to recruit patients; we are trying to find some of these last patients. As I mentioned in the shareholders meeting a few weeks ago finding RPE patients, sorry finding SMD patients that our better vision has been little bit tricky because the protocol change that was written by the previous head of regulatory didn’t take into account how symmetrical the eyes are within the Stargardt's diseases, different than the AMD diseases where there is much less symmetry and acuity between the eyes.
So recruiting for that cohort has been very challenging and that’s really combined with the fact that here you are looking at younger people who were technically still in Phase I now of course a lot of them have been told “hey gee they did some great plus the doctors have been pushing the program” but if you are younger person and you are at this sort of 2100 visual acuity stage you heard that this is a Phase I safety trial it does have a tendency to hangover recruiting a little bit, so that’s really been issue in recruiting on that side, but no there is no truth whatsoever to the rumor that two of the four centers are not any longer injecting patients.
In terms of protocol changes the next most thing of course that we’re working on is designing our Phase II trial all of the centers, all of the lead investigators that all of the centers were evolved in our Ophthalmic Advisory Board meeting and they all had complete unanimity in the path that we should to advance this to the next phase. Next question please.
And at this time there are no further question via the audio.
Okay, I will now go to the internet for questions and obviously operator you can let me know where we stand on additional questions from the audio. So the next question. When there is an SEC settlement will there be an immediate press release with the information to be held until the next general webcast?
No the settlement of the SEC matter will be the subject of an immediate 8-K obviously it is an important overhang for the company, there are many investors who simply won’t invest in the company that has an open SEC complaint against it and that’s an important matter for us and that it’s obviously something we will release as soon as we get to the settlement. Next question.
Can you elaborate a little more on some of the other aspects in the works about building more shareholder value you mentioned in your opening statement?
I can, we have laid out for you a series of events that you will be able to follow for opportunities to create shareholder value, obviously one of them is ramping up treatment here in Phase I, another one would be publishing the data, another one would be submitting protocol change to the FDA for Phase II, another one will be advancing to treating patients in Phase II. So you really got a series of events in RPE program that can create the opportunity for increased shareholder value here, obviously the most important one will be getting the FDA to clear our protocol for Phase II and starting to treat patients in Phase II identifying the centers that will be treating in Phase II and the like.
The question about whether or not Phase II will be a pivotal trial is an open question and remains open and depends on a lot of factors that we can’t begin to answer today. Obviously the breakthrough technology opportunity for the company and the orphaned indication opportunity for the company within Stargardt's indication is very important to us and it is our objective to move toward commercialization for these programs as quickly as possible, but the four Phase I is compete and we submitted the report on the trial to the FDA its impossible for us to speculate as to how Phase II would be designed in terms of whether it would be [pivotal] trial or not. Next question.
How close to a joint venture with a biopharma are we?
As I’ve said I think on every earnings call and every shareholders meeting, we will partner the RPE program when we believe that we have created a significant inflection in value. I have also similarly stated that virtually all of the big pharma companies that have an interest in the ophthalmology universe are following this trial relatively closely. So for us it’s a matter of sort of crossing that bridge getting into the Phase II figuring out exactly what those efficacy end points are, because defining those end points are a critical value creator from pharma’s perspective. Next question.
Why cant we resolve the NIH issues that prevent funds from the government agencies?
I’m going to differ that question to Matt for a quick update. Matt.
Thanks Gary. So I spoke with Story Landis, Dr. Story Landis who is the head of the Regenerative Medicine, Stem Cell Division of the NIH just about a week and a half ago, it was actually her first day back after the furlough and she promised that its on their desk that they are trying to move it along and that by Thanks Giving they will reconnect with us and give us an update in terms of the timeline. She made no promises as to what that meant in terms of how long it would take to be considered but at least to be hearing back from them in terms of where they see the process today and what they still have left to do to finalize the guidelines for [propagation] as rule.
Excellent thanks Matt. We will go the next question.
It appears that Dr. Lanza’s contract was renewed for only three months, why such a short period of time?
I think I described this a little bit at the shareholders meeting, but essentially Ted Myles, Dr. Lanza and myself at the main executive officers of company, we didn’t have full term on this contract so Dr. Lanza’s contract ended in September and so because we wanted to put together and I should say we I mean the compensation committee of the board of which I’m not a member. The compensation committee of the board wanted to put together an incentive program that was focused on major corporate events for the company and wanted some additional time to put that together for Ted, Dr. Lanza and myself. So they are now working on that will be in the year and that’s something that will happen in the renewal of the contracts for Dr. Lanza and myself. Next question.
How many years away are we from commercialization?
I obviously cannot answer that depends on many factors, depends on whether Phase II could be a pivotal trial or not, depends on which indication we build for our first many, many, many factors can’t obviously begin to address that. Next question.
Has the Board of Directors concluded their investigation of the form four related issues?
The Board of Directors continues to review the form four matter and as we described in the previous earnings period, we will inform our shareholders and constituents upon the Board’s completion of that matter. Next question.
How many patients in Phase II do you we will need and how long do you expect Phase II to take?
Impossible to answer that question today, we are just starting to put together the materials with the agency, so that we can better understand how we bad power this trial, we are working with biostatisticians and our investigators to figure out how do best side this trial and of course it will be partially dependent on whether it’s pivotal or not. There are many advantages to having the Stargardt's indication lead versus the AMD or doing them sort of tremendously [ph] and those are things we are evaluating right now.
Operator I’m going to come back to you if you have any final questions.
Yes, you do have question from the line of [indiscernible].
Good afternoon Gary thanks for taking the call. Gary I want to go back and follow up a couple questions that [indiscernible] asked earlier on Phase I. My assumptions here is you got finish Phase I before we can start going with Phase II. So right in the shareholder’s meeting you talked a little bit about potentially going to the FDA for protocol change for SMD to give you to address this issues of symmetrical degeneration with SMD or you still thinking about that protocol change?
You know we are so late into this; we are really just trying to wrap it up.
It is something we are considering; there are some small changes we could make maybe to help us bringing in a few more patients. The good thing about the SMD patients population of course is with the aggressive immune suppression that we are doing in this trial, I think you know we are doing both Tacrolimus and MMF because of the aggressive immune suppression treatment in this trial. It’s particularly tough to recruit and enroll some of the older patients, the younger patients have a little bit better tolerance for it so there some trade offs, but our goal is to just try to find these few patients the centers are screening for than we have some potential candidates, obviously we just want to get this wrapped up and get on to the next phase. Operator any more questions?
And at this time there are no audio questions.
Okay all right well with that I will move to close this. I want to thank everybody for their continued support. We do believe that we are entering a time period of potential great value creation for shareholders and we look forward to updating you on these area in our next call earlier next year. Thanks everybody and have a good day.
Thank you again and thanks all of our participants. We hope you found this webcast presentation informative. Have a good day.
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