ThermoGenesis' CEO Discusses F2Q2014 Results - Earnings Call Transcript

Feb.17.14 | About: Cesca Therapeutics (KOOL)

ThermoGenesis Corp. (NASDAQ:KOOL)

F2Q2014 Earnings Conference Call

February 14, 2014 05:00 PM ET

Executives

Matthew Plavan - CEO

Ken Harris - President

Dan Bessey - CFO

Analysts

Jason Kolbert - Maxim Group

Ren Benjamin - R.C. Wainwright

Steve Brozak - WBB Securities, LLC

Operator

Good day and welcome to the ThermoGenesis Corp Second Quarter Fiscal Year 2014 Financial Results Conference Call. All sites are currently in a listen-only mode but please note there will be a question-and-answer session later in the call. Also note today’s conference will be record and will be accessible both by phone and by Internet. Please refer to the press release about this conference call on the Company’s website thermogenesis.com for further details.

The company has asked that I read the following statement. Management will make comments today that contain forward-looking statements. Forward-looking statements are any statements that are made that are not historical facts. These forward-looking statements are based on current expectations of the management team and there could be no assurance that such expectations will come to fruition. Because forward-looking statements involve risks and uncertainties ThermoGenesis’ actual results could differ materially from management’s current expectations.

Please refer to the press release, the Company’s Forms 10-K, 10-Q, S-4 and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time sensitive and is accurate only at this time. If any portion of this call is rebroadcast, retransmitted or redistributed at later date ThermoGenesis will not be reviewing nor updating this material.

I would now like to turn the conference call over to Mr. Matthew Plavan, Chief Executive Officer of ThermoGenesis Corp. Please go ahead sir.

Matthew Plavan

Thank you operator. It is with great excitement that I begin the call today by announcing the approval by our stock holders for the acquisition of TotipotentRX through a merger with and into ThermoGenesis and a change of our corporate name to Cesca Therapeutics upon closing of that transaction and filings. I'm pleased to be joined by Ken Harris who will serve as our President upon closing of the transaction, and our CFO, Dan Bessey. The merger is deemed effective concurrent with our Delaware filings that will occur within the next few days, but as you must have certainly seen yesterday we announced the stockholder approval of our proposed acquisition. We are energized by the investor turnout in support of the transaction and creation of our new business strategy as Cesca and the creation of what we believe will be one of the premiere cell therapy companies and one of the only fully integrated regenerative medicine companies in the market.

It’s been highly encouraging for us to see the reception of the market to our clinical milestone achievements and the transformation this merger represents. Not only has our stock price began to better reflect the market potential of our combined capabilities but the substantial increase in our daily trading activity as the awareness of Cesca and our story grows is a welcome occurrence. To that point we have deployed a comprehensive IR PR strategy focused on increasing awareness of the Cesca story and our milestone progress through multiple sources, including efforts directed at independent research coverage, financial and investor media, medical journals and by having a greater presence within the scientific symposium and medical conference circuit.

Another critical accomplishment since our last call has been the strengthening of our balance sheet, having closed an equity financing in the last week of January. The interest in this financing was overwhelmingly positive, resulting in a $6.7 million raise, which allows us to maintain our clinical development momentum by launching our next phases for our AMI and CLI trials which Ken will speak to shortly.

It is also gratifying to know that with the culmination of this merger we have now accomplished the goals that we set for ourselves two years ago to re-purpose and realign our company to address the large clinical market opportunities in regenerative medicine. At that time we set out to accomplish four key objectives and we faithfully reported our progress to you each quarter over the past two years. In short these four objectives were to focus our efforts, drive growth in the base business, reduce and realign our costs and invest in regenerative medicine and clinical program.

This quarter’s performance represents the capstone to accomplishing these key objectives with two areas of progress in particular. With regard to building the base business we announced we have entered into a long-term agreement with Cord Blood Registry, the world’s largest and most experienced new born stem cell company to supply our AXP system and disposables. The agreement with CBR represents the culmination of a strategic restructuring of our North American sales and distribution channel in which we will no longer rely on independent distributors and have established direct customer supply agreements. Interacting directly with customers like CBR provides us with valuable insights in user feedback to further improve the quality, product performance and system functionality of cell processing platforms.

Also during the quarter we continue to make progress on our strategy of expanding our presence in Europe by entering into a long-term agreement to provide our AXP system to Bebé Vida. Bebé Vida is a leading core blood bank in Portugal that offers Cryo Preservation services of both umbilical cord blood stem cells and umbilical cord tissue of newborns for family purposes. This is an important win for us, having replaced yet another competitor’s automated cell processing system installation, further increasing our footprint in Europe. We expect to begin the AXP conversion in this account in the first and second quarters of calendar 2014.

So both CBR and Bebé Vida partnerships are important to us, because they are a validation of the superior performance and reliability of our automated cell processing platform. As a matter of fact, the implementation of our AXP system in 2006 made CBR the first U.S. family bank to utilize fully automated, functionally closed stem cell processing technology resulting in a published cell recovery rate of 99%, the highest in the industry. Likewise Bebé Vida conducted an extensive evaluation of the AXP, which verified that ThermoGenesis's cell processing platform yields stem cell recoveries higher and much more desirable low hematocrit levels than our competitor's product platform.

With regard to investing in the business, as we have divested old line products and no longer have the product support requirements associated with those, our R&D resources are able to cover more ground in regenerative medicine product development and innovation. Specifically this quarter we have advanced our efforts in a couple of key areas of development, first in partnership with Totipotent; and as Ken will expand on later, we have adopted the MXp processing platform's reprogrammable system intelligence to optimize the cell output for use in Toti’s bone marrow transplant program protocol.

Second, we further advanced the AXP system intelligence for processing cells to treat vascular indications. The Vascular Xpress or the VXP will be the base technology for our AMIRST clinical trial and represents a product license revenue opportunity in other indications.

I would like to now turn the call over to Ken for an overview of our clinical initiatives.

Ken Harris

Thank you Matt and thanks to everyone for joining us for today’s call. As Matt mentioned earlier, we believe the cell therapy is the new frontier in medicine, providing sustainable physiological improvements in the diseases that we treat. We have been discussing in previous calls and announcements the differences between Cesca Therapeutics and others who are also in clinical trials in the regenerative medicine space. In the past four months, we have begun releasing clinical data which we believe demonstrates that our combination approach of the cellular product, as well as the engineering devices, and methodologies around the process of handling and delivering cells is also equally important and demonstrating significant clinical benefit.

Simply speaking, our results have supported our hypothesis that engineered cell handling and methods do make the difference and using our surge works, pharmaceutical manufacturing and a Bach [ph] system is a systemized approach. You will recall that our acute myocardial infarction pilot trial demonstrated very encouraging results where a male patient with a high probability of dying had a heart functioning at normal levels within 24 months after treatment with surge works and then 82% of the patients in the critical limb ischemia trial who were facing near term amputation actually desiring amputation because the chronic pain in the disease was so intolerable have their legs saved.

And last but surely not the least is the exciting pediatric bone marrow transplant methods for pediatric patients using the smart AutoXpress and MarrowXpress systems. We couldn’t be more excited about moving into the next phases of the clinical development. Now that we will be one company, the synergy between our two teams will give us even more runway to escalate the development process. So I want to talk about where we go next and what are some of the clinical milestones for this calendar year. Starting with the Vascular Therapeutics, we expect that our surge works systemized kit and process will follow an investigational device exemption pre-marketing approval regulatory pathway, otherwise known as an IDEPMA.

Our team is preparing the CLI pre-submission meeting request for the U.S. FDA where we hope to get the necessary direction and feedback for our U.S. based pivotal trial application. This meeting request will be submitted in the coming week and we start the clock on a 60 day timetable for finalizing the pivotal trial submission. If all goes as planned, we expect to have our multi-site U.S. trial underway by the end of quarter four and are submitting a request to enroll up to a 120 patients. A portion we anticipate will be allocated to each geography and our target markets of the U.S., the EU and India.

Therefore we will also need to pursue authorization to complete a portion of pivotal trial in India and Europe from the respective regulatory agencies. Specific to the AMI trial, India has further refined their clinical trial guidelines in 2013 and the autologous minimally manipulated and/or prior licensed medical devices being evaluated in off-label exemptions which we had used in the past are no longer available.

Effectively two major changes in the Indian clinical trials regulations has been implemented. First one, all clinical trials submitted for approval in India must have the explicit intent of marketing the product in the domestic Indian market. And two, all clinical trials now require a multi-tier 180 day approval process under the Drug's Controller General. It has been wildly reported that the Indian Supreme Court halted trials in 2013 and directed the implementation of these new rules, though our AMI randomized placebo control trial, which was submitted under the old guidelines will need to be resubmitted for new approval. The court has indicated it will lift the general stay by early March and we will follow that order as quickly as practical and resubmit the Phase Ib Medical Device Application.

We anticipate no significant concerns at this time and hope to be enrolling patients by the end of quarter three. I'm also encouraged by the more transparent regulatory process and remain confident that the advantages we and the rest of the leading pharmaceutical companies have experienced in high quality medicine and low cost trials in India will view this modernization in the Act as a significant and positive change for the billion dollar clinical trial business that exists there.

In addition to the next up in our CLIRST and AMIRST studies, we remain very excited about our partnership with Fortis Memorial Research Institute and their pediatric bone marrow transplant program where our Fortis-TotipotentRX Centre for Cellular Medicine plays a vital role. In early February of this year we announced that TotipotentRX’s Cellular therapy clinical team had achieved its 20th pediatric bone marrow transplant in partnership with Fortis. This haploidentical BMT was performed from a mother as a donor for a 10 year old child suffering from combined immunodeficiency due to a DOCK-8 gene mutation. The Fortis Centre, in partnership with our company has so far performed 15 allogeneic BMT including five haploidentical and one double unrelated cord blood transplant, and 5 autologous transplants.

Many of you have asked us, why is this important to Cesca Therapeutics and what is different about this program compared with traditional bone marrow transplant? This is best answered in saying that there are several milestones this program is achieving. First, the practice of haploidentical transplants is groundbreaking medicine and only being practiced at major academic cancer centers worldwide. This practice allows patients who are unable to find a suitable HLA match stem cell donor to now get a transplant donated by a parent or sibling who would have traditionally not been considered an acceptable match.

According to Bartolomeo (Ph) in 2013 article on blood, they cite that although the best results with allogeneic haematopoietic bone marrow transplantations are obtained in patients receiving the graft from an HLA or genetically identical sibling, this type of donor is only available for less than 30% of patients.

In the last three decades, for patients lacking and HLA match family donor, the main alternative was an 8/8 HLA antigen match unrelated donor or typically referred to as MUD, a MUD program, and allocated mainly through the international registries of volunteer donors. As of June 2012 the number of such volunteer donors did exceed 19 million people. But still almost two thirds of the patients did not receive or did reach the availability of a suitable donor for transplantation in time.

The enormous variability of HLA polymorphisms and the time required for identifying a suitable donor are the two most important factors limiting the use of a matched unrelated donor transplant, especially for patients at high risk of disease progression in whom the urgency for transplant is near. For these patients, two potential alternative sources of graft remain available, umbilical cord blood and HLA haploidentical related donors.

As you are aware, we’re already the major supplier in the cord blood processing space. And unlike cord blood the haploidentical method involves a very expensive and complex process where certain immune cells are removed from the donor cell population through an elaborate laboratory GMP process.

Our AXP and/or MXP systems are proving extremely valuable in debunking the donor's cells, so less of the enormously expensive depletion reagents are required, thus reducing the overall cost of the procedure and utilizing our GMP facility inside Fortis for optimizing the protocols for creating a transferable standard methodology co-packaged with our processing AXP and MXP systems and software.

We believe the haploidentical transplants will become standard practice and we are positioning Cesca therapeutics to have laboratory solutions for each transplant center worldwide undertaking this methodology. It is estimated that 30,000 marrow transplants are completed per year around the world, but as Dr. Bartolomeo points out, two thirds of the patients still die waiting for suitable match. This means that we could see global market exceeding 90,000 transplants. 60,000 of which might be enabled with our technology.

Second, in our India market alone where we have the lead position, we estimate that more than 6000 transplants for patients capable of paying and seeking a match donor could benefit from this method. We, in partnership with Fortis intend on developing the Fortis Memorial Research Centre into the leading facility to serve a part of this population. We expect we would see fees directly related to our technology and laboratory services exceeding $10,000 per patient.

Our success with Fortis is gaining additional recognition as more hospital chains are contracting their bone marrow laboratory processing with our Fortis-TotipotentRX center. The latest service agreement to provide BMT services was signed by Totipotent on January 9, 2014 with another private hospital named Artemis Hospitals in New Delhi.

Our next steps include demonstrating our success rates by completing a clinical pilot trial with Fortis inclusive of the T-cell Alpha beta depletion steps and having targeted enrolment of the first patient in this arm by mid-April. Commercially this could start impacting our topline in late 2015.

So in summary, our near term clinical milestones include approval of the pivotal trial application and first patient enrolment in the U.S. by the end of calendar year for the CLI study, the reapplication for the AMI phase 1B and approval in India by the end of the third calendar quarter and completion of the bone marrow transplant pilot trial by the end of the calendar quarter four.

I would like to emphasize that our enthusiasm for the future Cesca Therapeutics, as I believe it creates a combined company with enormous potential our patients, physicians and shareholders alike will appreciate in the area of medicine that is taking leaps in terms of therapeutic potential.

With that, I’m going to turn the call over to Dan for an overview of financial results.

Dan Bessey

Thank you Ken and good afternoon everyone. Before I get into our financial results, I will discuss a few strategic initiatives that impacted our financial results for the second quarter. While certain of these initiatives impacted our quarterly results, we expect that others should have longer term sustained benefits to our results. First, with respect to our revenues, the termination of the GE distribution agreement along with the associated inventory wind down resulted in no new AXP orders in the U.S. during the June and September quarters.

As we discussed in last quarter’s investor call, the financial impact of the inventory wind down is largely complete and our AXP revenues have now returned to their historic levels. As Matt mentioned earlier we entered into a long term supply agreement with CBR and we look forward to helping them expand their business. Our partnership with Golden Meditech in Asia remain strong and we expect sales in Asia to the principal driver of core blood revenue growth over the next several years.

On the cost side of the house, the Company has incurred professional fees related to the merger with TotipotentRX as well as legal cost to defend against the Harvest lawsuit and other IP matters totaling approximately $785,000 during the quarter. We also launched an initiative to further develop our cell processing device platforms for use in our clinical trials for AMI and CLI.

We believe that investing in the smart functionality of our cell processing devices is essential to success in our regenerative medicine initiatives. Additionally, early in the second quarter of fiscal 2014 we completed a strategic reorganization designed to better align resources with our expected core blood revenue streams and provide additional funding to enhance our internal clinical resource capabilities. The net result of our reorganization is the elimination of 11 physicians. Coupled with other targeted savings in operating costs the company expects to realize savings of approximately $1.5 million annually in our base business. In connection with this reorganization, we incurred approximately 210,000 in severance costs, which were substantially paid in the second quarter. Accordingly, we expect to begin to see the savings associated with this restructuring in the third quarter of fiscal 2014.

Having covered the major strategic initiatives, let’s move to an overview of our financial results for the second quarter of fiscal 2014. Net revenues for the quarter ended December 31, 2013 were $4.5 million, compared to $4.8 million for the same period in 2012. Revenue decreased by $334,000 for the quarter, due to fewer sales in our bio BioArchive systems and a decline in thermo line revenues as a result of the sale of that product line. These decreases were partially offset by an increase in sales associated with our bone marrow cell processing consumables.

Revenues associated with our AXP platform remain consistently strong when compared to the prior year quarter and have resumed historical levels as a result of the completion of the inventory wind-down associated with the termination of the GE distribution agreement.

Gross profit for the quarter ended December 31, 2013 was $1.8 million, compared to $2 million for the same period in 2012. The decrease in gross profit was due primarily to a decline in the number of BioArchives sold from four in the prior period to three in the current period. Gross profit margins for the quarter of 40% were comparable to margins of 41% for the same period in 2012.

Operating expenses for the quarter ended December 31, 2013 were $3.4 million, compared to 2.5 million for the same period in 2012. The increase in operating expenses of $858,000 was primarily attributable to professional fees associated with the acquisition of TotipotentRX of $563,000, legal diligence cost associated with patent litigation of $220,000 and development cost associated with the advancement of our bone marrow cell processing platforms that will be used in our AIM and CLI clinical trials.

Excluding the impact of the legal and professional fees, operating expenses increased only $75,000 primarily due to the cost associated with investment in our cell processing platforms. Adjusted EBIT loss was $1.3 million for the quarter ended December 31, 2013 compared to $297,000 for the same period in 2012. The increase of $1 million in the adjusted EBITDA loss was due to the legal and professional fees associated with the TotiRX merger and IP defense.

Excluding the impact of these merger and IP related costs, our adjusted EBITDA loss was $532,000, an increase of $235,000 over the same period in 2012 as a result of the investment in our cell processing devices. Net loss for the quarter in December 31, 2013 was $1.6 million or $0.10 per share, compared to $563,000 or $0.03 per share for the same prior period. We ended the second quarter with $2.3 million in cash, compared to $6.9 million at the end of fiscal 2013.

Lastly, as a result of favorable conditions in the capital markets, we successfully raised net proceeds of approximately $6.1 million by completing a private placement on January 30, 2014. We issued 3.3 million shares of common stock at $2 per share plus $1.7 million cash warrants with a strike price of $2.81. We’re very pleased with this financing as it provides us with the necessary investment capital to help fund the next phases of our clinical trials and to grow our bone marrow transplant program in partnership with Fortis.

In closing, we are pleased with the financial strength of our base business as it provides us with a sound financial foundation to invest in our clinical trials and expand our regenerative medicine initiatives. Now I like to turn the call over to Mat for his closing comments.

Matthew Plavan

Thank you, Dan. To wrap up the call, I’d like to highlight Cesca’s immediate four key objectives to be accomplished in achieving our overriding goal of developing and commercializing these blockbuster cell therapy drugs initially for the vascular and orthopedic markets. First we must effectively integrate our two companies into one. With operating entities in both the U.S. and India, integrating our back office support systems will be an important deliverable. We will integrate our human resources, information systems and accounting systems to maximize the efficiency of our combined company. We’ll also integrate our operational functions as well, including manufacturing customer care, regulatory, sales and marketing and research and development functions. We expect that integration of personnel will happen in the near term while integration efforts involving information systems could take up to 12 to 18 months.

Second, expand our clinical expertise within the leadership team and the Board of Directors. Certain gaps exits today in our clinical leadership capabilities at a management and board level. Clinical opinion leadership, medical reimbursement strategies and deeper regulatory agency relationships will serve to optimize the commercialization of our cell therapies.

Third, we want to continue to innovate technically. We’ll continue to introduce new innovate cell processing technology upgrades, along with cutting edge new products to work closely with our customers to expand the use of cord blood in medical practice to new indications and to continue generating the necessary tools for our regenerative medicine initiatives.

And most importantly, fourth, we’ve got to innovate clinically. In the coming months we have several clinical milestones achievements lined up, which Ken did a pretty good job of covering, I’ll just quickly summarize them; one, we’ll begin enrollment of our pivotal trial with Fortis for the haploid bone marrow transplant which we are targeting to begin within 90 days from now; two, the submission of our randomized placebo controlled AMI Phase Ib/feasibility trial under the newly established regulatory guidelines for approval and we’re targeting approval and commencement of enrollment late in the third quarter of 2014; and three, the CLI pivotal trial regulatory filings in calendar Q3 and the trial should get underway and we should start enrolling patients by the end of calendar 2014.

In closing, I’d like to note that due to the opposing demands of our stockholder vote and the financial filing deadline for our 10-Q, that we were left with no alternative than to report our earnings today, a Friday and Valentine’s Day no less. On behalf of Ken, Dan and me, we greatly appreciate the investor support we enjoy and especially those of you who have joined us at such an inconvenient time as this. We wish you and yours a happy Valentine’s Day and a great holiday weekend, and we look forward to continuing to report our progress towards our goals.

With that I’d like to open up the call for questions, operator.

Question-And-Answer Session

Operator

We will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from Jason Kolbert from Maxim. Please go ahead with your question.

Jason Kolbert - Maxim Group

Congratulations, it sounds like it’s a completely new company. Help me understand a little bit and I know Matt you’ve tried to summarize at the very end. But I want to focus on clinical, because it seems to me that going forward, that's segment of the company that has the greatest potential. So can you review with me once again what is the market opportunity, particularly in the haploid transplant market and what are the clinical steps to get there and really the same question when we get to AMI. Exactly help me understand -- what sources take the haploid transplants and then we'll come back and I have a few more questions on the AMI side.

Matthew Plavan

Jason, that’s a good question. And I’ll going to it over to Ken to size up the haploid market.

Ken Harris

Okay, thanks. So as I mentioned, we believe that the haploid transplant approach is going to unlock 60,000 additional transplants per year worldwide and of those there will be a portion that will require T cell depletion and we assume that’s probably in the range of about half, which is where our AXP and MXP technology is most beneficial because improves the cost reduction. So we think the net, net value to Cesca Therapeutics per annum is going to be in India alone $6 million to $9 million, and worldwide it depends upon what market share we would take but you can do the math and assume what percentage of 60,000 we would get. And our top line revenue per procedure, depending upon the region the world's going to be between $10,000 and $15,000.

Jason Kolbert - Maxim Group

Okay, so you know it’s a fantastic market, it’s a huge market, help me understand a little bit clinically what has to happen in terms of the approval process, particularly in the US, you know, I know you talked about India but where are we, with, if that’s going to global, will it be FDA, EMEA (Ph) and India and what are the clinical steps so that we can assemble a timeline.

Matthew Plavan

Okay, so the first step for us is to get 5-10K on label clearance or our AXP and VXP, our MXP devices for bone marrow transplant. That clinical trials already underway and that’s part of the announcement where we said we were 20 patients in to a 40 patient trial. So we anticipate wrapping that up by mid-summer. The second step is the t-cell depletion step and we will be initiating our first patient enrollment for that in I think early to mid April as we announced. And we will be doing 15 patients for that specific trial. All of the data will be useful for getting 5-10K clearance here in the US and then using 5-10K clearance for regions of the world where FDA is acceptable and then as well pursuing the CE market. I think we’re probably around 12 months before having that packaged up and being in the….

Jason Kolbert - Maxim Group

And so the last step in terms of the label claim associated with the device would be positive results in this 40 person clinical trial -- 15 person clinical trial with the t-cell depletion step that would begin in mid April, so you could be in a position to file for approval based on that data package when? And then how long should we budget for a decision.

Matthew Plavan

Right, so let’s talk a little bit about the filing, it’s a very, it’s a lower threshold than I think what I heard you just say, we’re not seeking; our clinical trials are not seeking to show superior efficacy to other bone marrow transplants. We are simply enabling bone marrow transplants, so it’s a safety assessment and a non inferior status to what they would have if they had an equivalent HOA matched unit. So we believe that that entire process is pretty simple, 5-10K approach using a predictive device that’s already on the market for de-baulking. The t-cell piece of it is the more complicated one and that’s being tracked already, there’re clinical trials under way in Europe and MD Anderson at Sloan Kettering with Miltenyi who was part of the technology we’ll we using and we won’t personally be seeking that clearance, they will. So our clearance is only for the cell processing step up front and then we would enter a commercial relationship to bundle the two of them together.

Jason Kolbert - Maxim Group

Okay, so, help me understand then that on the other side once you’ve got the 5-10K cleared on the device side and Miltenyi and you are able to show data that you’re effective at t-cell depletion, in the competitive landscape how does that position the device versus what’s being used today, so that you’ll be in a position to win market share, I mean, is it kind of everybody does the home grown do it yourself approach versus suddenly we have a device that’s got data that supports its effectiveness.

Matthew Plavan

Yes, today people do the home grown approach and that home grown approach takes between four and six hours and ends up in a stem-cell loss of 40 to 60%. So our approach can be accomplished in an hour and has a cell loss of no more than 25%, so, one we have a higher dose. That’s important for pediatric patients because you simply can’t transplant them with such large volume units. And we see that and pediatric really being sort of open space for us, with not a lot of competition. In the adult side of transplants then the home grown will continue to be you know, I guess available but it seems logical to us that transplant physicians aren’t going to take the risk of losing 60% of the stem-cells. Though I think we’re right now the only one positioned to be out of the gate, focused on this market.

Jason Kolbert - Maxim Group

Okay, it’s fantastic and it’s really exciting and I guess it shows how the different divisions of this company can come together just to create a great commercial opportunity. So if we switch gears on the heart attack side, help me understand a little bit what the Phase 1B trial will be designed for, and it will be, what will the entry criteria of the patients be, and then coming out the other side, what kind of endpoints are you looking for beyond safety that will then justify going to a larger Phase 2 clinical trial.

Matthew Plavan

Right, so, the study size, it’s a randomized placebo controlled study of 30 patients, and it is both safety and efficacy, enrollment criteria is an AMI of less than 10 days of which the ejection fraction has remained at or below 40%. And we choose this patient population because they have an 80% mortality rate within five years and the prognosis on them is very-very poor so that’s our basic enrollment criteria. The endpoints we’re measuring including safety really from a efficacy standpoint are the change in ejection fraction and volume metrics and multiple other endpoints from efficacy but also from a commercialization standpoint re-hospitalization rate. And not only do we think we need to prove for the regulatory agencies that yes it works, we get the ejection fraction up and you remember in the patient I mentioned the placebo male patient his ejection fraction went from 36% back to normal at 60 and this guide was basically what have been in the 80% probably of dying between one to five years.

So we’re pretty excited about it but the re-hospitalization measurement is how we believe we’re going to get reimbursed. So although we could have FDA approval with fantastic clinical results how do we actually get the insurance companies and the government programs to pay for it and on that we’re adding in the re-hospitalization rate or major adverse cardiac events.

Jason Kolbert - Maxim Group

Okay, thanks. And do you mind closing with me on one last question which is just describe for me a little bit what the treatment paradigm looks like in terms of how you get the product, how you process it and how you ultimately end up treating the patient so that we can understand the apparent contrast in the competitive landscape. And what do you think the COGS of a product like this where are you targeting in terms of the range?

Matthew Plavan

Okay. So the system is pretty simple and I will direct you within two weeks we will have an animated video available on our website that will basically demonstrate the entire procedure. But within 60 minutes so the patient has a heart attack, they come into the hospital, the heart attack is diagnosed and blood flows restores via stinting or thrombosis either in the emergency room or in the cath lab then over the next couple of days they’re monitored and at the third day to 10th day if their ejection fraction is still below 40%, they would be considered either a target for the clinical trial or an on label prescription. They’re taken back to the cath lab and once are in the cath lab they’re given a mild sedative, we harvest their bone marrow, we do a quick diagnostic to see how many stem cells they have presents they that tells us how much bone marrow we need to draw that’s added into our smart processing systems in the right volume processing is done, diagnostics is done one final time to make sure we have our therapeutic dose and then we use an specialized intracoronary catheter to inject to stem cells over a number of injections in the last 20 minutes of the procedure and within 60 minutes they’re rolling out the door having received the treatment.

Jason Kolbert - Maxim Group

Okay, terrific. Thank you so much. We can always follow up next week and get into the details but we can all tell that the new era at the company Cesca. Thanks guys.

Matthew Plavan

Thanks Jason.

Operator

And our next question comes from Ren Benjamin from R.C. Wainwright. Please go ahead with your question.

Ren Benjamin - R.C. Wainwright

Hey. Good afternoon guys and thanks for taking the questions and congratulations on the successful vote and merger.

Matthew Plavan

Thanks Ren.

Ren Benjamin - R.C. Wainwright

Couple of quick questions just following up on Jason but looking at the other indication of CLI you had mentioned the Phase III trial starting in the fourth quarter. Can you take us through a little bit of the Phase III trial design how long you think that study could take and a little bit of the end points that you’ll be exploring in order of the FDA approval end points?

Matthew Plavan

Right, so this is a bit of it’s not unchartered water so we can have some expectation of what the FDA will direct us to do based on what they have other companies. And so our targeted end points again will be amputation free survival and as well reduction in pain and improved walking ability and wound closure so we have four targeted clinical end points. We anticipate the enrollment will be about 120 patients worldwide 40 to 50 of those in the U.S. 40 or so in India and 30 to 40 in Europe.

So our timing assuming our meeting with the FDA and granted that we’re requesting next week and clock will start on 60 days and all in all I think we probably would be looking at a pivotal trial approval from the FDA by September time frame. Then we anticipate enrollment treatment and follow up in the U.S. to be about 18 months. The follow up time period is 12 months per patient and to get everyone enrolled and completely follow to be about 18 months.

Ren Benjamin - R.C. Wainwright

And when we think about and when we’re trying to think about design and what sort of delta you’re looking for? Can you just help us put into context the one year amputation free survival be? And also would that be the primary end point or this the composite end point looking at all four end points equal?

Matthew Plavan

We will desire to have composite end points; I’m not sure based on FDA’s prior decisions that they will allow anything but a primary end point of amputation free survival. So, assuming that is the number, the benchmark we have to exceed other cell therapies are out there in 50% to high 50% amputation free survival rates to date, in our pilot trial of 17 patients we got the 82% of major amputation free survival and 70 -- I’m thinking of top of my head, I think its 70 some percent for total amputation free survival. So, I’m extremely confident that by what we saw in angiograms, we saw real vessels formed, we saw real clinical evidence that we revascularize the leg, I’m extremely confident that this will be far superior to anything else in the market place even off the pivotal.

Ren Benjamin - R.C. Wainwright

And just sticking with the pivotal for a second, can we just assume that there would be placebo controlled some sort of some stem cells or what would be the appropriate control arm (Ph).

Matthew Plavan

That’s one of our questions that we’re asking because the problem we have in particularly in the U.S. is the ethical (Ph) question, since there are no option patients and earlier my discussion I mentioned that these patients were near term -- going to be near term entities that doing a sham procedure on a no-option patient is probably going to be difficult to get approved and that is one of the main discussion points we’ll have with the FDA in a couple of weeks, we are proposing to use standard care instead of a stem.

Ren Benjamin - R.C. Wainwright

Okay. And in this case what would be the standard of care?

Matthew Plavan

So, standard of care is just continuing if not been able to be revascularize you keep them on standard cardiac drugs, antique-glance and exercise regiments. And most of those patients, I can guaranty will fail that standard care regiment probably within 4 to 6 weeks.

Ren Benjamin - R.C. Wainwright

Got it. Okay. Just following up on the part study that you just completed and reported on, anything in terms further follow up results or any total results or when we might see some updated results from that study?

Matthew Plavan

We don’t have a protocol for doing any additional follow-ups, we have gone back and presented to the Ethics Committee that we would like to do additional analysis of exams on all the patients at 24 months just because it’s become an interesting scientific and clinical question, if you’re creating angiogenesis and a target region convenes everyone that you’re not creating what you don’t what it and so we want to do another round of studies on all of the patients received treatment in their eyes what’s called Fundoscopy. And so, in that process we’ll be able to see the patient and have a follow up on what their status is.

Ren Benjamin - R.C. Wainwright

Okay. You had mentioned the milestones obviously that the trials that will be starting and initiation of trials, I guess one question that I do have kind of like the data that you presented from CLI, are there any data presentations up in coming for 2014 that we should be aware of either from past studies or follow up from older studies and upcoming scientific meeting or publications.

Matthew Plavan

So, most definitely, there will be bone marrow transplant data presented in 2014 for one and I think the follow up study CLI we’ll be able to report on and where they are at the 18 months timeframe and beyond that they would all be new studies that we would initiate.

Ren Benjamin - R.C. Wainwright

And then just one final question, you have SpineSmith as a collaborator, can you just remind us what that collaboration is about and as we think forward with the new combined company as Cesca what -- I would think that the types of collaborations and partnerships would be more therapeutic or indication focused and would reflect that so called that significant premium as well. Can you help us think through what types of collaborations we might see going forward?

Matthew Plavan

This is Matt, I think that’s a great question and it’s clearly at the top of our list as we’re now Cesca. You asked what our arrangement with SpineSmith today? Its originally form was they act as a distributor for us using our technologies and assisting physicians at the point of care to do spinal fusions using stem cells that are concentrated using our devices. But as we better understand the opportunities to take what we’re doing today and create real on label therapies, SpineSmith and the business that we have together represent a meaningful opportunity for us, in the US, where they have a current footprint, and so it would be a natural step for us to look at ways to broaden that partnership and extend the things that we’re doing at Cesca through the channel as well.

Ren Benjamin - R.C. Wainwright

Anything regarding new indication-specific productions?

Dan Bessey

Right now, vascular and orthopedic are the big focus for us and that can mean a number of things within those two broad indications.

Matthew Plavan

I think we had a echoed last time that we were looking at avascular necrosis, although plainly that is on our roadmap, we are just on projecting timelines on it yet.

Operator

And our next question comes from Steve Brozak from WBB Securities; please go ahead with your question.

Steve Brozak - WBB Securities, LLC

I only have three. I would like to start on the first one, the IDE application that you guys have filed, can you talk us through that process because I’ve been on the road before and that there’s a lot of different hitches and you did make one statement concerning that you would need to have additional staff and supervisors, so you have gone through the process of obtaining FDA approval, now can you walk us through in terms of the investigational plan, the IRB institutions, and everything else and how that works, and how you worked it, and what your considerations are there?

Matthew Plavan

Steve, I think just it’s a quick qualifier; it was me that said in my closing remarks that we would be adding additional capabilities in the scientific and clinical arena, both at a senior management level and on the board. I would say that that’s just generally looking for a CMO for example and perhaps some experienced at the board level with medical reimbursement and such. But I would say that’s separate and distinct from the IDE end, I’ll let Kenneth to speak to that

Ken Harris

Right so we are only and we have developed our protocols obviously because we did our feasibility phase 1 and 2 study already for CLI. We are only submitting 10 questions or so to the FDA where we believe we need clarification for our IDE PMA pivotal trial. Of those, and I think Ren hit on the key one for us is the question of sham or our control arm. And that’s hardly debated today worldwide in particular with cell therapies where the patient actually will receive nothing and they will have to go through a pretty extensive surgical procedure. And that’s very difficult to get through Ethics Committees. We don’t believe that the FDA will take us there. Regarding the IRB approval process, since we are not first in human, this is coming out to be pivotal. We don’t see any barriers so long as that sham procedure isn’t too challenging to getting IRB at our multisite trial locations. There won’t be significant changes to the protocol off of the pilot trial other than making it a randomized controlled trial.

Steve Brozak - WBB Securities, LLC

Okay so you obviously got coordination to do with each of these institutions which actually which means the next question; you have announced a lot of different programs and just looking at your financials here you obviously just did the financing, going to the June 30th numbers you are 6.884 and then the December 31 numbers were at 2.330 on your cash and cash equivalents. There has to have some burn between December 31st and now; how are you going to pay for all of these different programs because you’re talking about significantly expensive program? What are your thoughts in terms of going out there and just covering the cost of operations, maintenance and then where does the money come for these different programs?

Dan Bessey

Steve, this is Dan. When you look at our cash balances at the end of our most recent fiscal year in comparing to what we just disclosed, all of that investment has been made in getting the merger with Totipotent, complete and done and get this to where we are at today. And so looking forward just a couple of different things that you want to monitor, the first thing is that as Matt has said previously, we believe our base business is on a very quick road to be self sustaining, so that the money that we raised recently is 6.1 will be deployed to fund clinical trials in AMI and CLI as well as the bone marrow transplant program that Ken has talked about. So that’s how we will utilize the recently raised money. In addition to that, when we first announced the merger and we look at our business model and the requirements that, the funding requirements that we would need to fund all of our different initiatives, we said pretty consistently that we thought we’d need $15 million to $20 million in total to do that. So, looking forward, I think, we’ve got enough money now on our balance sheet to fund the next critical steps for initiatives but we will continue to monitor the capital markets and look for the most beneficial and advantageous funding mechanisms to support our clinical initiatives.

Matthew Plavan

Yes, and we’ll look to grant funding and strategic partnerships as well, to avail ourselves to all options on the table that may exist.

Steve Brozak - WBB Securities, LLC

Along those lines and I’ll switch out to different questions, along those lines, I mean obviously there have been lots of other companies that have gone out there and the regenerative medicine space is you know, by definition one of the more expensive areas, obviously you do have expertise there so you do not quantify costs, but if you were let’s say to focus on one program, what do you think say your top priority would be and what do you think the costs would be on something like that.

Matthew Plavan

Well I think I’d go back to what Dan just summarized, it will be choose between AMI or CLI which one we put as number one, but those are both moving forward in parallel and we think we can get to the next phase with the cash we have, I don’t think the bone marrow process adds significantly to our worth, so I think we feel pretty well equipped to accomplish those near term objectives.

Ken Harris

I would just add to that, I wouldn’t seek to prioritize our top three initiatives; AMI, CLI and bone marrow transplant, I would only say that they have different commercialization horizons. So obviously things like AMI and CLI that had longer term commercialization horizons are offset by initiatives like the bone marrow transplant program which we see could be more near term, and I think we mentioned earlier in 2015, where we could see commercialization efforts there, so we’re really trying to balance our initiatives out between those that have longer term commercialization timelines and those that have near term.

Steve Brozak - WBB Securities, LLC

Okay, that leads me to the last question. You obviously, you’ve got your program obviously set up within India and you had mentioned during the initial part of the call the Indian Constitution, there are different parts of the Indian Constitution talking about expenditures, expenses and other such things. What kind of a pricing differential do you see with what you’ll be doing in India and also within the rest of the world, and how does that reflect in terms of your business model, what do you, how do budget for that, because obviously, you’d mentioned things are much cheaper in terms of trials, terms of development and everything else but there’s also a much-much, there’s a much-much different way in terms of pricing and everything else around that and that will not be lost on a lot of people, payers and everything else. How do you answer to that and I’ll hop into the queue after that, thank you.

Matthew Plavan

Right, so I’ll start it off and say yes, the cost of doing clinical work in India is roughly one fifth of the US and that is a significant part of our business model and it allows us to just put more clinical programs in the hopper early on to have a more robust pipeline than competitors, so we get more bang for our buck. Regarding the ability to charge in the Indian market, I think that’s a bit of a misinformation out there that the Indian market for high technology pays less than they do in the US. They may pay less, and they may not, traditionally I can tell you for all the imported products whether it’s a J&J knee or other implants or research chemicals coming in, it’s typically about a 120% to 130% of the US price, that a patient ends up paying. So I would step back from that and say the difference between the two markets is that in India the patient pays for all of it out of their pocket and in the US you have to deal with reimbursement and we don’t have that headache in India, so I think our opportunity for gross margin is probably pretty equivalent.

Steve Brozak - WBB Securities, LLC

Okay, I mean that that is a telling statement, but you also opened up something there, there is a payer system obviously there is a class within India that pays themselves but that’s a much-much smaller class and doesn’t lead to a large market opportunity by comparison to, and the constitution themselves sets it up in such a way as they can go out there and they can say, you’re going to charge this, no matter what’s your charge elsewhere, so how would you open it up if they decided to say when we want to open it up to more than just a self pairs. What would be your answer be to that and again I’ll jump out with that question.

Matthew Plavan

Okay. So, the middle and upper class in India is now over 300 million people and that is really the number of individuals going into private hospitals like Fortis. So, I think the concept that its demographics or significantly different than they are in the U.S. A middle class pays lower than it is in the U.S. through at the lower middle class level. But we factored all of those into our projections and when I mentioned 6,000 bone marrow transplants would be enabled in India alone with our haploid program that is factoring in ability to pay. That number actually would be more in the range of 100,000 out of 1.2 billion people if we factored in everyone might need bone marrow transplant. So we have built those into our business model.

Operator

And gentlemen at this time I’m showing no additional questions. I’d like to turn the conference call back over for any closing remarks.

Matthew Plavan

Well, again thank you everyone for spending the time on this Valentine’s Day. We won’t keep you any longer but we look forward to speaking with you again and giving you an update on our next call. Have a great weekend. Thank you.

Operator

Ladies and gentlemen, that does conclude today’s conference call. We thank you for attending today’s presentation. You may now disconnect your telephone lines.

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