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Athersys, Inc. (NASDAQ:ATHX)

Q4 2013 Results Earnings Conference Call

March 13, 2013, 04:30 PM ET

Executives

Lisa Wilson - In-Site Communications, Investor Relations

Laura Campbell - Vice President of Finance

William (B.J.) Lehmann - President and COO

Analysts

Ted Tenthoff - Piper Jaffray

Tracy Marshbanks - First Analysis Securities Corporation

Stephen G. Brozak - WBB Securities

Jason Kolbert - Maxim Group LLC

Christian Glennie - Edison Investment Research

Operator

Good afternoon. My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Athersys’ Fourth Quarter Year End Earnings Conference Call. (Operator instructions)

Thank you. I will now turn the call over to the Investor Relations for Athersys. Lisa Wilson, you may begin your conference.

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 is available on the Athersys’ website at athersys.com, or you may call Libby Abelt in my office at (212) 759-5665 to receive it via e-mail.

B.J. Lehmann, President and Chief Operating Officer; and Laura Campbell, Vice President of Finance of Athersys, will host today's call. Gil Van Bokkelen sends his regrets as he was unable to participate today to a family medical issue.

The call is expected to last approximately 30 to 45 minutes and may also be accessed at athersys.com. A replay will be available two hours after the call's completion and access 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. 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 March 13th of 2014. Since then, Athersys may have made announcements related to the topics discussed, so please reference the company's most recent press releases and SEC filings.

With that, I would like to turn the call over to Laura Campbell. Laura?

Laura Campbell

Thank you, Lisa. Good afternoon and welcome everyone. I’m Laura Campbell, Vice President of Finance at Athersys. I’ll briefly review our 2013 financial results and then turn the call over to B.J. for corporate update followed by a question-and-answer period.

For the fourth quarter of 2013, our contract revenues were $390,000 compared to $2 million for the same period in 2012. The decrease reflects the impact of our collaborative arrangements with RTI Surgical and Bristol-Myers Squibb.

Our fourth quarter 2013 contract revenue included a milestone payment from BMS and our fourth quarter 2012 contract revenue included the final license fee payment from RTI of approximately $2 million.

Absent any new business collaborations, our future contract revenues will be comprised of royalties and potential commercial milestone payments from RTI, potential license fees, milestone payments, and royalties from BMS, and any clinical manufacturing and milestone payments from Pfizer.

Our grant revenue increased to $530,000 in the fourth quarter of 2013 from $265,000 in the 2012 fourth quarter. Grant revenues may fluctuate from period-to-period with the timing of grant-related activities and with the award at expiration of grants.

Research and development expenses increased to $5.1 million in the fourth quarter of 2013 compared to $4.9 million in the previous fourth quarter. The increase was primarily due to increased personnel cost, stock-based compensation, and patent costs, partially offset by decreased preclinical and clinical cost.

General and administrative expenses increased to $1.6 million in the fourth quarter of 2013 from $1.3 million in the comparable period in 2012, which was due to primarily to an increase in non-cash stock-based compensation.

Also in fourth quarter of 2012, we recognized other expense of approximately $300,000 related to the final cash and stock-based milestone payment to our former lender.

Net loss for the fourth quarter of 2013 was $9.8 million, which included non-cash expense of $4 million related to the change in the fair value of our warrant liabilities, compared to a net loss of $3.2 million to the fourth quarter of 2012, which included non-cash income of $1.1 million related to warrant liabilities.

The remaining change in net loss between the two periods reflected the reduced revenue and moderately higher R&D and G&A expenses in the last quarter of 2013 compared to 2012. Actual cash used in operation was $4.5 million in the fourth quarter of 2013 compared to $3.6 million in the comparable period of 2012.

Turning to the results for the full year, contract revenues were $755,000 in 2013 and $7.4 million in 2012. Most of the decrease is related to the completion in June 2012 of the research and development support and the estimated performance period of our Pfizer collaboration over which the upfront license fee and other revenues were being amortized.

Additionally, the 2012 contract revenues included $2.2 million of license fees from our RTI collaboration. Our grant revenues increased to $1.7 million in 2013 from $1.3 million in 2012, reflecting the impact of increased activity under grant-funded program. Our more recent grant awarded supporting our clinical activity and later-stage preclinical project.

Research and development expenses increased to $20.5 million in 2013, up slightly from $19.6 million in 2012, due to increased patent legal fees, personnel cost, stock-based compensation, and facility cost, partially offset by decreased clinical and pre-clinical development cost.

We expect our 2014 research and development expenses to be higher than 2013 expenses, based on planned clinical development and manufacturing process development activity.

General and administrative expenses increased to $6.1 million in 2013 from $4.8 million in 2012 due primarily to increased stock-based compensation, outside services, legal and professional fees, and personnel cost. We expect our G&A cost to continue at similar levels in 2014.

In 2012, we recognized $1.1 million of other expense which was primarily related to cash and stock-based milestone payment to our former lenders that were completed in 2012.

We reported non-cash expense from the change in the fair value of our warrant liabilities of $6.3 million in 2013 compared to non-cash income of $2.4 million in 2012.

Cash used in operating activities was $22.8 million in 2013 and $17.7 million in 2012. Cash provided by financing activities was approximately $30 million in each of 2013 and 2012.

Our net loss for 2013 was $30.7 million, which included the non-cash warrant expense of $6.3 million compared to $14.7 million in 2012, which included non-cash warrant income of 2.4 million.

The remaining change in that loss between the two periods reflected the reduced revenue and higher R&D and G&A expenses in 2013 compared to 2012.

At December 31st, we had $31.9 million in cash and cash equivalent compared to $25.5 million at December 31, 2012.

In October 2013, we put in place a new equity facility with Aspire Capital to replace our prior two-year agreement. Under the new agreement, we have the right to sell up to $25 million in shares of common stock to Aspire Capital over a two-year period.

The equity facility has proven to be a useful tool for accessing capital, to help support our product development activities, and complement traditional fund raising and proceeds from partnerships and other collaborative activities.

In December 2013, we raised $18.4 million of net proceeds from the sale of 10 million shares of common stock and warrants to purchase 3.5 million shares of common stock at $2.50 per share. The securities were sold in fixed combination at $2 per unit.

In January 2014, we completed another registered direct offering with net proceeds of $18.7 million from the issuance of 5 million shares of common stock and warrants to purchase 1.5 million shares at $4.50 per share. These securities were sold in fixed combination at $4.10 per share per unit.

These financings put us at a strong financial position to achieve important clinical development milestones and strengthen our position in business development negotiation.

After the January offering, we began the year more than $50 million of cash on the balance sheet. As a housekeeping manner, we filed a shelf registration statement today to replace our prior shelf.

Consistent with prior years, the shelf provides us with additional flexibility over the next three years and we filed it now because it’s cost-effective to do so in conjunction with the audit of our year-end financial statements.

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

William (B.J.) Lehmann

Thanks, Laura, and good afternoon, everyone. Athersys is committed to developing proprietary therapeutics that has the potential to address significant areas of unmet medical needs and also have the potential to create substantial value for our shareholders.

Our current work is primarily focused on conditions where a growing body of data suggests that MultiStem; our patented allogenic (indiscernible) stem cell product has particular relevance and clinical potential.

Current regenerative medicine programs are focused on developing MultiStem for the treatment of inflammatory immune disorders, neurological conditions, cardiovascular disease, and other areas where standard of care is limited and significant medical need exists.

Each of the areas we’re pursuing represents a large market opportunity that is likely to grow substantially over time given current population dynamics. As people familiar with the company are aware, MultiStem is a patented biologic product that is manufactured from a class of human stem cells obtained from adult bone marrow or other non-embryonic tissue sources.

Unlike other cell types, after isolation from a qualified consenting donor, MultiStem may be expanded on a large scale for future clinical use and stored in frozen form until needed. As a result of the robust growth properties and distinctive profile, cells obtained from a single donor require no genetic modification and maybe used to produce banks yielding millions of doses of clinical-grade MultiStem, the amount far greater than other stem cell types can achieve.

Each bank is extensively characterized to ensure product consistency and safety. Over the past decade, we have conducted work with a broad network of collaborators at leading research and clinical institutions in the United States and internationally.

Our work has resulted in numerous publications and top rated peer review journals as well as presentations at leading conferences. In the fourth quarter for example, these presentations included the 2013 Society for Neuroscience annual meeting held in November in San Diego.

This work has demonstrated that MultiStem consists of a special class of human stem cells that have the ability to express a range of therapeutically relevant proteins and other factors and promotes healing in multiple ways.

A growing body has evidenced generated by Athersys’ scientists and independent collaborator shows that MultiStem promotes healing and tissue repair through multiple mechanism of action and importantly we have demonstrated a deep understanding of those biological mechanisms.

MultiStem conveys repair in several ways such as through the expression of factors that reduce inflammatory damage, enhancement of the formation of new blood vessels in the regions of ischemic injury, and protection of damage or injured tissue in areas where otherwise healthy tissue may be at risk.

Furthermore, research has shown that MultiStem regulates other cell types in key organ systems in the body from a tissue, repair and healing. Like drug or convention biologic, the cells are cleared from the body over time, although there are effects on promoting healing and tissue repair appear to be quite durable and long lasting.

The size of our MultiStem programs are now in clinical development including three programs in the inflammatory and immune disease space. Our most advanced program is evaluating MultiStem for the treatment of inflammatory bowel disease or IBD. This program is partnered with Pfizer under a global license agreement.

The current double-blind placebo-controlled Phase II clinical study is being conducted by Pfizer, involves administration of MultiStem to patients suffering from ulcerative colitis or UC with failed or developed resistance to other forms of treatment.

UC is the most common form of IBD with an estimated 1.9 million people suffering from this disease in the U.S., the five major European markets, and Japan combined. Other forms of IBD include Crohn's disease, which also represents an area of significant unmet clinical need and afflicts approximately 940,000 people in these same markets.

In the Phase II study, patients received either a single dose of MultiStem or placebo on day one and then were evaluated periodically up through week 16 following the initial treatment. The study required patients to undergo an endoscopic evaluation at baseline prior to treatment and again at week eight, in addition to other clinical assessments throughout the study.

Following the week eight assessments, patients received an additional treatment with either intravenous MultiStem or placebo resulting in four subgroups evaluable through week 16 made up of patients that received two doses of placebo, patients that received two doses of MultiStem, patients that received placebo at day one and MultiStem at week eight, and patients that received MultiStem at day one and placebo at week eight.

The primary endpoint for the trial are focused on safety and clinical evaluation at week eight including the endoscopic and rectal bleeding scores comparing the MultiStem treatment and placebo groups.

In December, we reported that enrollment of this study had been completed. We and Pfizer anticipate that the initial results of the study will be announced in late April or early May. These initial results will describe the primary endpoints in certain secondary and exploratory endpoints for all subjects through eight weeks following the initial treatment. Later in the second quarter, we expect additional data for subjects through 16 weeks following treatment.

Our expectations for the trial are first and foremost that we will see a favorable safety profile in patients who have received treatment with MultiStem as we have seen in other studies. We also expect to see meaningful evidence of therapeutic activity in these patients suffering from chronic UC that have previously failed or developed resistance to other forms of treatment.

While we expect that additional studies will be necessary to help inform us with regard to refining important parameters such as dosing and timing of administration, we’re optimistic that this trial will provide important evidence of therapeutic activity.

The other ongoing Phase II MultiStem trial involves the administration of MultiStem cells to patients who have suffered an ischemic stroke.

According to the American Heart Association, World Health Organization, Data Monitoring and other sources, each year an estimated 15 million people suffer stroke worldwide. More than 2 million individuals suffer stroke each year in the United States, Japan and European Union combined. Due to an aging population, the incidents and prevalence of stroke is projected to increase substantially in the next 20 to 30 years.

Neurological injury as a result of stroke represents one of the leading causes of death and disability in the United States and the rest of the world. We believe that the potential market for a new therapy to treat stroke would be 15 billion to 20 billion or more annually.

We’re focused on ischemic stroke which is caused by a blockage in blood flow to the brain. Ischemic stroke accounts for more than 85% of all strokes according to AHA estimates.

In current stroke treatment, thrombolytic like TPA must be administrated within three to four hours after a stroke. However, because of this narrow time window, only a small percentage of patients actually receive treatment, less than 10% here in the U.S. as well as most other countries where it is available.

The ongoing Phase II trial being conducted by us is evaluating MultiStem administered intravenously to patients one to two days after a stroke has occurred. Since in published preclinical studies, it was shown that administration of a single dose of MultiStem even several days or a week after a stroke resulted in significant and durable improvements.

It's shown to be safe and effective in the current study. Our approach would represent a significant extension of the treatment window relative to existing standards of care and can provide an important new therapeutic option for stroke patients.

We previously completed dosing of the initial cohorts for the study and the independent safety monitoring committee evaluated the initial data and found that MultiStem was safe and well-tolerated at both of the doses that were evaluated.

As a result, patients are currently receiving either single intravenous administration of placebo or MultiStem cells at the high dose level. Enrollment continues to progress in the study. We’re actively enrolling at leading stroke clinical centers in the United States, in the United Kingdom with approximately 30 participating sites in all and we’re preparing to add a few additional sites in the near future.

Overall, our enrollment rates improved in the latter part of 2013 and into 2014, reflecting the increase in participating sites, and the impact of some minor adjustments made to the trial design.

Provided that activity continued at its current pace, we anticipate enrollment to be completed around the end of the summer with the release of preliminary results targeted for later in the year. As always, we will provide periodic updates with regards to the continued progress of the study and while we continue to evaluate potential partnering opportunities in this and other programs.

Stroke is one of several areas that may benefit from recent international developments. In November, Japan's Parliament enacted new legislation to promote the safe and accelerated development of treatments using stem cells.

The new Regenerative Medicine Law and revised Pharmaceutical Affairs Law defines products containing stem cells as regenerative medicine products, allowing for the conditional approval of such a product if safety has been confirmed in clinical trials, even if efficacy has not been fully demonstrated. The legislation creates new faster pathways for cell therapy product approval, creating the potential for more rapid entry in the Japanese market.

This development in Japan is important for Athersys, our shareholders because it could enable accelerated development opportunities in several very important areas. For example, stroke is the leading cause of death and serious disability in Japan beyond the enormous clinical and quality of life burden it imposes on patients and their family. It also creates an enormous economic burden on the Japanese national healthcare system.

Demonstrating clinical proof of concept and achieving expedited approval in area like stroke could help many patients dramatically accelerate our commercialization path and result in substantial value creation for our shareholders.

Recognizing these developments, Japan's sizable pharmaceutical market and the expected growth and demand for more effective treatments of age and lifestyle related diseases and conditions, we continue actively exploring opportunities to leverage the new odds of speed development and commercialization of MultiStem and stroke and other potential indications in the high priority Japanese market. We are currently engaged with that Japanese regulators with possible clinical sites and with potential Japanese development and commercialization partners.

In January 2014, we announced the issuance of several key patents from the Japan Patent Office for a proprietary cell therapy technology. One patent covers non-embryonic multi-potent stem cells such as MultiStem and applies to all therapeutic applications.

And second patent covers the use of such stem cell therapies for the treatment of several immune system dysfunctions such as graft-versus-host disease referred to as GvHD and other inflammatory and autoimmune conditions like IBD.

A third patent covers the treatment of brain injury such as stroke and traumatic brain injury with such multi-potent stem cells. These patents will provide Athersys important protection for the use and commercialization of our cell therapy products in Japan.

We have also continued to develop our intellectual property portfolio in other geographies. Since the beginning of 2013, the company has been issued approximately 60 patents covering cell products and their use in more than 25 countries.

Moving onto other MultiStem clinical projects. In 2014 we plan to advance our acute myocardial infarction program in the Phase II clinical development with support from a grant we were awarded last year from the national Heart, Lung and Blood Institute, which is a part of the National Institutes of Health.

Myocardial infarction or heart attack is caused by the blockage of one or more arteries that supply blood to the heart. This results in significant injury to the heart muscle which severely affects the patient's quality of life or causes death. According to data monitoring and other sources there an estimated 1.7 million myocardial infarctions that occur each year in the U.S., European Union countries and Japan combined.

Prior to the ward of the NIH grant, which will provide up to $2.8 million in funding for the Phase II trial, the FDA had previously authorized us to conduct a 150-patient study in this indication. Currently, we are refining certain elements of this study designed in accordance with the aims and objectives of the recently awarded grant and we expect to begin patient enrollment later this year.

This study will build on the promising outcomes of Phase I data published in 2012, which demonstrated a favorable safety profile and encouraging signs of improvement in heart function among patients that exhibited severely compromised heart function following a heart attack in prior the treatment.

Although this initial trail was designed as a small safety study, one-year follow-up data suggested that the meaningful benefits observed in multiple clinically enrollment planners were sustained over time. We are excited to advances this program in the Phase II development and by the potential opportunity to capitalize on immerging changes to regulatory paradigms in the U.S., Europe and Japan.

Transplantation support is another area where clinical data suggest that administration of MultiStem can have significant benefits. Our most advanced program in this area focuses on patient suffering from leukaemia or certain other blood born cancers. Following radiation therapy patients receive a hematopoietic stem cell transplant. Such patients are at significant risk for serious complications including graft-versus-host disease.

Data from a 36-patient Phase I study demonstrated the safety of MultiStem in its indication and suggested that MultiStem may have a beneficial effect in reducing the incidence and severity of GvHD as well as providing other clinical benefits such as augmenting rates of platelet engraftment and time of engraftment.

We believe these positive outcomes support further development of MultiStem for this indication. We have had several interactions with the FDA regarding design of a further Phase II, III study with the potential to accelerate the path of product approval. Based on our current plans, we are preparing to be ready to start the Phase II, III study in 2014, but the initiation will depend on the progress in other clinical trials and the achievement of certain business development and financial objectives.

In December 2013 we announced the committee for orphan the additional products of the European medicines agency issued a positive opinion for a MultiStem therapy for the prevention of GvHD. This orphan designation in Europe has the potential to facilitate our development of MultiStem therapy to help patients at risk of GvHD associated with hematopoietic stem cell transplantation. It's worth nothing that our GvHD program has already been assigned orphan drug designation from the FDA, which among other benefits assures us seven years of market exclusivity upon approval.

Research is also underway to assess MultiStem providing support for solid organ transplantation. The risk of rejection and the requirement for long-term immunosuppression are key challenges in donor organ transplantations, which we believe could be addressed by administering MultiStem to transplant patients.

In preclinical models of solid organ transplantation patient, we and our collaborators have demonstrated that a treatment protocol that includes administration of MultiStem shortly after the transplant procedure enables durable organ graft acceptance without the corresponding requirement for the long-term administration of immunosuppressive drugs.

We are actively collaborating with a leading transplant group at the University of Regensburg in Germany on an institutional-sponsored clinical trial to explore the administration of MultiStem in patients who are undergoing a liver transplant. We plan to provide further updates on this small exploratory clinical study as it progresses.

We have also collaborated with RTI on the development of products for certain orthopedic applications in the bone allograft market using our stem cell technologies. RTI's product commercialization activities are progressing in 2014, and we expect to receive royalty payments from RTIs product sales and potentially commercial milestones in the future.

We are also applying our pharmaceutical discovery capabilities to identify and develop small molecule compounds with potential applications in indications such as obesity, related metabolic conditions and certain neurological conditions, such as schizophrenia. These represent major areas of clinical need, as well as substantial commercial opportunities.

To-date, our work in this area has centered on the development of potent, highly selective compounds that act through stimulation of a specific receptor in the brain, the 5HT2c serotonin receptor. In preclinical studies, our novel 5HT2c receptor agonist compounds have exhibited favorable attributes, including outstanding receptor selectivity and greater potency and activity as compared with other 5HT2c agonists.

We have also demonstrated that our compounds have a distinctive profile and are superior to other FDA-approved drugs, as well as complementary with certain other agents. We believe these features will enable development of a product based on our novel 5HT2c receptor agonist compounds to achieve best-in-class weight loss, as well as a superior safety and tolerability profile.

In addition, certain compounds we have developed exhibit an attractive selectivity profile and potent effects in preclinical models of schizophrenia and other neurological disorders. These are distinctive development opportunities for value creation and we tend to enter into a partnership to advance the development of our 5HT2c agonist program either for the treatment of obesity, schizophrenia or both indications. We also continue to explore collaboration opportunities for the development and commercialization of MultiStem for certain therapeutic areas.

It is also worth noting that our long-standing partnership with Bristol-Myers-Squibb also continues to yield value. In the fourth quarter, BMS notified us that they are advancing another program into clinical development from their drug discovery programs that used our patented RAGE technology which triggered a milestone payment to us.

We are also happy to report that in 2014 Athersys was ranked for the third year in a row on Deloitte's Technology Fast 500 ranking of the 500 fastest growing technology, media, telecommunications, life sciences and clean technology companies in North America.

We attribute our growth to the areas have outlined above, our technology leadership in the field of regenerative medicine, our record of establishing collaborative partnerships with leading pharmaceutical companies and other organizations. And, of course, our commitment to continuing to develop innovative therapies like MultiStem.

In summary, we are making substantial progress in several key areas. We are now rapidly approaching data from some key studies, while we continue to pursue other opportunities. We believe more than ever that we are well positioned to create significant value for our shareholders as we continue to advance our core programs.

With that, we'd be happy to take some questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Ted Tenthoff from Piper Jaffray. Your line is now open.

Ted Tenthoff - Piper Jaffray

Great. Thank you very much. So, lots of good progress. And I want to focus in on the stroke program, and get a sense on how enrollment is going there. I know that you've added some sites overseas; maybe you can give us a little bit of color about some of the institutions that you are working with overseas and how kind of bringing these groups on-board has helped or enhanced may be the enrollment of the overall study.

William (B.J.) Lehmann

Ted, happy to do that. Yeah. We've added stroke sites from overseas; in particular we're focused on United Kingdom. And we're working with several sites that are involved in our stroke network there. And different perhaps to some extent from the United States and the U.K. there's even more of a focus on channeling stroke patients to specialized sites for treatment.

And essentially we kind of brought ourselves into that network and have added several sites and lot of -- a couple of more over the next couple of months that really drive some additional volume of stroke patients from the U.K. That's going to augment the enrollment that we have. We already had some impact at this point in time. We think it’s really going to make a strong contribution as we're heading to the goal line here with respect to enrollment.

We've made real progress in other areas as well. In the U.S. we've added a few additional sites. We made some tweaks to the trial design last fall. We increased the age by couple of years. And we made some tweaks to the inclusion criteria as well, not material changes, but one is really focused on some of the operational aspects associated with treating this patient population.

I think that's also had a pretty positive effect and has driven increased momentum over the past couple of quarters. So we're spending a lot of time on the ground as well. We think that's very important being in front of the PIs and the assistants, nurses who are seeing these patients really to bring patients into our study. So we're seeing good momentum. We'll see more of it. And I think we'll see good impact from the United Kingdom sites as the study continues to progress.

Ted Tenthoff - Piper Jaffray

Okay, great. Now, when it comes to work in Japan, correct me if I'm wrong, but you do have to do Japanese specific studies or studies in Japanese patient. So would that be something where you guys would pursue partnerships in Japan, or do you think that something that you might even be able to at least get the ball rolling yourselves.

William (B.J.) Lehmann

We think it's possible. We could get the ball rolling ourselves, but we're also looking at partnership potential, so perhaps I can address both of those things in order. One of the potential opportunities we have is to wrap in clinical sites into our current study from Japan.

Now if we continue at our current enrollment pace, it's going to be unlikely that we would work through the regulatory processes in a timeframe that will allow us to add clinical sites from Japan. But I can tell you this, the team has spent time over in Japan talking to clinical sites and there is a substantial interest in this study.

And in fact, I think we visited folks from the company and the leading PIs from the study visited 12 of the leading stroke centers in the country. And every one of them wants to participate in the study. So I think there is a real need here recognized by the folks in the field.

Given that it's probably going to be unlikely that we're going to be able to get through the regulatory fast enough to include those sites into the current study. We'd certainly consider the possibility of Japanese-focused study on the heels of the results from our Phase II study. We're working through some of the planning and design issues associated with that.

With respect to the accelerated approval requirements which we would be focused on in that study and we certainly have to show safety in the Japanese population. We're going to want to show efficacy, but the burden on the efficacy side is certainly far different than they would be in the standard FDA kind of approval process.

That said, we do think over time it's going to be very important to have a Japanese development commercialization partner and we've been spending a good deal of time talking to companies in Japan who could be potentially good partners for the programs over in Japan. It's certainly going to facilitate development process.

We developed early on pretty good relationships with the regulators, we'll build on that but it's no substitute for somebody from the Japanese marketplace. So I think that will be in the cards for us as we continue down the Japanese development path.

Ted Tenthoff - Piper Jaffray

Okay. Excellent. Thank you very much.

Operator

Your next question comes from Tracy Marshbanks from First Analysis. Your line is now open.

Tracy Marshbanks - First Analysis Securities Corporation

Hi. Good afternoon. Just quickly following up on the Japanese opportunity, I mean, it really opened up some markets for you to getting patients much quicker. But what's your sense of just the timeline of forming the regulatory framework, developing your partnerships, getting the sites online, are we talking is something in 2014 possible or you think it's a bit beyond that. I'm just not sure how things may unfold. What's your thoughts?

William (B.J.) Lehmann

I'd say it's probably little too early to set a timeline specifically. We have multiple discussions underway with variety of different Japanese constituents including with the regulators, and I think we'll have some additional information we, may even be able to provide some updates in our next call in May on this front.

I think realistically we'd take good half year-to-a-year-to-get through the regulatory process. And we've already started that process. That would imply were through later in the year which will be behind over targeting for enrollment for the current stroke study.

Tracy Marshbanks - First Analysis Securities Corporation

Right.

William (B.J.) Lehmann

You know, that's where we come with that. I mean we are certainly -- we're talking to potential partners. And it is possible. We can do something in a timeline shorter than the regulatory timeline, but I don't want to provide any guidance on that at this point in time.

Tracy Marshbanks - First Analysis Securities Corporation

Okay. And clearly, discussing the trial with Pfizer with data coming up here in the short term, I think you're reminding us that is a proof of principle and things are probably not black and white, but you'll learn a lot. So if you could talk just a little bit more about thoughts there. And I also think the results you find there could have spill-over impact in informative in other areas. Is that correct, and could you remind me where you might find application from those results and other indications?

William (B.J.) Lehmann

Sure. Yeah. I mean I think that latter point is right on. And we're going to learn a lot from the study. We're gathering a lot of information and I think the information we gather is certainly have relevance in other autoimmune conditions and may be relevant in an area like (inaudible) we're already working.

Lot of the drugs that have been developed in this space, as you know, are not only developed for UC they are developed for Crohn's, but they often have utility in other autoimmune conditions like rheumatoid arthritis and a variety of others as well. So I think the learning we get out of this study it could be relevant for some of those other indication areas.

I think it is important to note is as you noted that this is a proof of principle, proof of concept study. As Pfizer went into this the study was designed with that purpose in mind. And we built in an opportunity to learn a lot about the biological activities to sell products.

And we have it built against a design that's common for ulcerative colitis. Remember Pfizer has done many studies in this particular space. They've got a portfolio of development candidates. They've got products and so forth. So they know quite a lot about opportunity here.

We're very optimistic about the results based on our preclinical results and what others have done. But that doesn't guarantee of outcome here. And we're very confident we're not going to -- we're going to strike out on this one based on all the data we have. But we are going to learn a lot from this whether it's a double, triple or something in that range.

It's hard to know right now, but the company Athersys will learn quite a lot. It's going be relevant in other areas. Pfizer is going to learn a lot about the potential of this cell therapeutic in this area, but also more generally, which again was one of their kind of core objectives when we start off on this study, and a creative set of opportunities I think going forward, potentially in this indication but also outside of that.

Tracy Marshbanks - First Analysis Securities Corporation

Final question, obviously with an enhanced balance sheet as you -- has it caused you to rethink your programs, accelerating some, may be adding programs, or are you really still focused on sort of the same suite that you've been pursuing and it just sort of fully funds your program.

William (B.J.) Lehmann

It's more of a ladder. We've been very cautious about our burn rate and spend; investment for years for a variety of different reasons. And we continue to be cautious. It's thoughtful about how we invest in our capital. The strategy right now is really to focus on achieving proof of principle as efficiently as we possibly can.

Of course, the stroke study and the IVD study are key elements to that. We're in the process preparing for an AMI study that we would plan to launch. So that's in the plan. We've been investing as well in process development. We've had really good progress there and really scaling up the platform, taking advantage of the basic biological advantages of the cell that we're using.

So that's where the investment is going. We don't, at this point in time, intend to expand shots on goal, if you will, in the clinic in any material way. Things that can change that course are the results of the studies that are coming up, the UC study or stroke. Partnership can change that as well. I mean we talked to potential partners about other indication areas.

So I'm not saying we won't go in expanded direction, but right now the current plan is to focus on proof of concept in the several areas that we've worked on in the past and continue to build out some of the core capabilities at the company foremost among those kind of the scale manufacturing that we're going to want to have in place as we get into kind of multiple Phase IIIs and beyond.

Tracy Marshbanks - First Analysis Securities Corporation

Thanks a lot.

Operator

Your next question comes from Steve Brozak from WBB Securities. Your line is now open.

Stephen G. Brozak - WBB Securities

Hey B.J., a question that has come up here that I'm looking at. You're going to have an unusual situation that's going to take place now where you're going to get data and then you're going to get data very quickly right after that.

And it's going to be something where given the configuration that you mentioned; you're going to see two wings of data on patients that are going to be tested and then provided with the second therapeutic and then tested.

And how do you -- how are you going to go out there and release that information, because this is going to be a very interesting situation in terms of dissemination and what you're going to see? And what are your thoughts on that? And I've got one follow-up after that.

William (B.J.) Lehmann

Our current plan is to release top line data based on the week-eight data. So that assuming we have those results internally in late April, in early May. We would communicate the top line results into the financial community thereafter.

Now, as I'm thinking about, I think it's important to note; one, we haven't seen any of the results yet and we're not going to see them up until that point in time neither will Pfizer. We're going to see the results as the same time they see the results. So we'll have access to this. And we're going to move pretty quickly with respect to sharing the topline results.

And there’s certainly going to be a lot of opportunity for kind of more substantial and fuller analysis of the data. There’s some substantial amount of data we’re collecting on these patients. And as you point out, we do have specific adrenaline at the week 16 end points that will be added to that.

We haven’t worked through with Pfizer what the communication strategy is going to be with respect to that second element of data. I do think we’ll communicate it. Certainly, we’ll provide some more guidance on that as things go along. I think it will potentially important to the story around the product, seeing potential durability effect and things of that nature, of course, is something we’re all very interested in and knowing about.

So, I suspect, we’ll communicate that as well relatively shortly after the first communication, shortly after we have the week 16 data. But what that form is and how we communicate that. We have to work that through with Pfizer just yet.

Stephen G. Brozak - WBB Securities

And in getting over that, you’re not going to have literally two bites at the apple in terms of finding out information and getting more specific information. So, it’s going to be one of these situations where you never usually typically know exactly what you’re looking for, but you start to get indications that become very, very strong. Would that be an accurate way of describing it?

William (B.J.) Lehmann

Yeah, I think so. I mean we’ll have some perspectives for sure after the week eight data and it certainly may raise awareness around certain themes that we’ll explore further in the week 16 data. So, that could well play out.

I suspect there will be a substantial amount of additional analytical work behind kind of both of the data readouts by us and by Pfizer. And frankly, it will take some time for us to have a refined perspective on the results, our expectation.

We’re certainly going to communicate the topline results and we’ll talk about what that means, but again, as I mentioned, there’s a substantial amount of data we’re collecting which I think is going to be important to mechanism clinical effect and so forth. And we expect it will take some time for us to fully kind of fill that and understand its implications.

Stephen G. Brozak - WBB Securities

Got it. All right. Obviously, we’re all looking for to the data. This is obviously is going to be one of the most important time zone on data release and it’s going to be a lot of material hitting you all at the same time. So, looking forward to then, good luck on it.

William (B.J.) Lehmann

Great. Thanks, Steve.

Operator

Your next question comes from Jason Kolbert from Maxim Group. Your line is now open.

Jason Kolbert - Maxim Group LLC

Hi, B.J., thanks and congratulations on so much progress in the quarter.

William (B.J.) Lehmann

Thanks Jason.

Jason Kolbert - Maxim Group LLC

I think -- talk about which is the difference in the data release in the economic associated with ulcerative colitis versus stroke. On ulcerative colitis, do you mind to take a few moments and just touch on how that data will be released?

We understand that it might come in two tranches, with the first tranche in April. So, help us understand what the first tranche of data would look like and what the second tranche of data will look like?

William (B.J.) Lehmann

First tranche of data will come when we have the interim readout and that's going to be late April or early May, right, so it will be surely after that.

The readout, in particular, the communication publicly is going to focus on the key endpoints and those will be the primary endpoints and it may include some of the key secondary endpoints. So, that's what ought to be expected in terms of the communication we’re going to provide.

I suspect with respect to the week 16 data, we’re going to focus essentially on the key secondary endpoints and to the extend its meaningful to provide some additional color on themes that we might seeing, we may share some additional data related to that.

So, that would be the expectation I would set right now with respect to what we have. This is--

Jason Kolbert - Maxim Group LLC

So...

William (B.J.) Lehmann

Go ahead.

Jason Kolbert - Maxim Group LLC

Yeah. So, B.J. when this data comes out, the idea is we’re going to see really multiple data releases for a 16-week. Pfizer is clearly going to be going through this data and my understanding from our prior discussion is that the idea here is to use this data as an informative design to move forward potentially in Crohn’s disease and another pivotal program that Pfizer will initiate.

I just want to make sure that I understand that and should be looking at the Phase III data release not as binary, but as informative data that will help us build a successful pivotal program.

William (B.J.) Lehmann

Yeah. I mean that's absolutely right. I mean I think the expectation is we’d have to dose range finding and some of the other things that one would expect to do in biologics development. That's not a surprise for anybody on the phone and its certainly consistent with the way we’ve been thinking about how Pfizer might move this forward.

So, there would be additional work for sure. What that looks like in -- what's warranted, it’s certainly going to depend significantly on what the data looks like.

Jason Kolbert - Maxim Group LLC

So, I think for me, it’s really important to understand that ulcerative colitis in this Phase II trial is really going to be informative in nature and not binary. And I look at that data release and the economics, since this is essentially a royalty back to Athersys. And if I remember my math right, it’s a little over $100 million in potential milestones back to Athersys as well, versus the stroke program which is fully owned.

I guess that's more of statement than a question, but may be you could help us with going pivotal, does that trigger one of the Pfizer milestones? I think it’s a $105 million outstanding?

William (B.J.) Lehmann

Let me talk about the milestones generally. So, we haven’t been able to describe specifically how these were laid out, but yes, your aggregate number is accurate.

As you would imagine the milestones are waited more to further development, approval in commercialization and that's not a surprise anybody. The timing of milestones is really driven by what Pfizer elects to do.

And that's really all I can say about it at this point in time. But in terms of magnitude, expect the milestone to be smaller near-term and getting bigger as we progress through development ultimately in commercialization.

Jason Kolbert - Maxim Group LLC

Okay. Thanks. And let's just transition over to stroke. I mean stroke is an exciting area. It’s an unmet medical need. I love Ted’s question which is what does it take in order to include Japan in a regulatory program? And I just like to pick-up on that.

Am I right in understanding the new Japanese regulation that if you had a few operational clinical sides as part of the next study that it might be possible to bridge this over at Japan or some hybrid thereof?

William (B.J.) Lehmann

I think it depends on what you’re asking. I think the expectation is that you’re going to have Japanese patients in a study. Whether -- what's efficient with respect to the accelerated development is an open question, that's one we’re trying to explore with the regulators right now.

So, to put it more sensely, if we had time to include Japanese sites, we don't know if that's going to be sufficient or what would be sufficient in terms of number of patients that meet the requirements there.

They’re certainly going to look at our non-Japanese data, but we don't know the answer to that question. So, we’re still working through that Jason.

Jason Kolbert - Maxim Group LLC

Okay. My last question is we know you completed the enrolment in ulcerative colitis like Pfizer did, it sounds like your -- I just want to confirm is the enrollment completed in the stroke trial, or it’s almost completed?

William (B.J.) Lehmann

What we talked about earlier -- I wish it were completed today, but it’s not. We talk about targeting enrollment completion if we continue to roll at the current pace around the end of the summer. So, that's as precise as we’ve been on that at this point. As we get closer, we’ll dial-in with more on what the timing looks like.

Jason Kolbert - Maxim Group LLC

All right. Terrific. Thanks so much for the update.

William (B.J.) Lehmann

Thank you, Jason.

Operator

(Operator instructions)

Your next question comes from the Christian Glennie from Edison Investment Research. Your line is now open.

Christian Glennie - Edison Investment Research

Hi, good afternoon. Yeah, most of my questions in terms of UC and stroke studies have been answered. The -- there's one question I had is around GvHD study in terms of the protocol review with the FDA, just not there on that status and what are the -- you talk about -- obviously that study is starting being dependent on other factors. If you could just talk a little bit in more detail about what triggers would be required for that study to start?

William (B.J.) Lehmann

Right. We’re doing all the prep work associated with the study and that obviously is getting final FDA sign-off on the protocol trial design. We’re also thinking about some of the basic operational challenges associated with that to getting -- thinking just the manufacturing requirements, and timing, and so forth.

So, we’re working through all of that stuff. We’ve spent a substantial amount of time actually on the trial design. This is our first potentially registration study and we want to be absolutely certain that we design the study the way it gives us the best shot, one that to generate the data we need, but also to allow us to make incredible case. We have that data with the FDA.

So, we spend a lot of time on that and we’re right now going to be engaging with the FDA again on the kind of -- let me say, the design that has reflected the FDA and so we’ve to-date and our thinking on this.

With respect to the second question, Christian, the real point here is this is -- this would be a significant study. We haven’t talked about the numbers of patients, but its hundreds of patient. And from a cost-perspective, it would be a substantial cost -- much more expensive than other studies we’ve done to-date.

And we really like the area, there’s substantial unmet need. We think there’s justification if you have the right product profile for significant reimbursement. It’s a small area in terms of patient we can potentially serve at ourselves.

We like it in many different dimensions, but the investment requirement is substantial. And I think our view is we want to be in a different financial position to make that kind of bigger investment in a clinical trial.

Ideally, we would do that in context of a partnership and we’ve had a fair amount of effort actually on that front, trying to find the right partner for this particular program.

Christian Glennie - Edison Investment Research

Okay. Thank you.

William (B.J.) Lehmann

Thanks.

Operator

And your final question comes from Tracy Marshbanks of First Analysis. Your line is now open.

Tracy Marshbanks - First Analysis Securities Corporation

Yes, thanks. I had a quick follow-up on the more mundane side. I thought a heard some guidance as far as expenses in 2014 versus 2013. I guess you’ve been burning may be, $5 million, $6 million, is that a run rate that sort of starts the year out and maybe goes up at some additional trial start? Any guidance you could give on sort of expenses and levels and [reps] with these? Thanks.

William (B.J.) Lehmann

Yeah, I’ll give you what I can. I think it’s fair to say that our expenses will go up over the course of the year. We’re preparing for an AMI Study. We’re continuing to invest in manufacturing side. We’ve already incurred a substantial part of that stroke cost that will have a fair bit of class this year. So, there would be some increase in burn if you will through the course of the year.

I’m not going to give specific guidance on that. I feel like we’re in a good position from a balance sheet perspective to get pretty far down the road with our current strategy. But, yeah I would expect to see some increase in burn investment this year associated with the current clinical development activity and some of the investment we’re making on the process development side and so forth.

Tracy Marshbanks - First Analysis Securities Corporation

Okay. Thank you.

Operator

And we have no further questions. At this time, I’ll turn the call back to our presenters.

William (B.J.) Lehmann

Well, thank you all for participating today. We appreciate it, and happy to take any follow-up offline. Thank you.

Operator

And this concludes today's conference call. You may now disconnect.

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