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Fibrocell Science, Inc. (NASDAQ:FCSC)

Q4 2013 Results Earnings Conference Call

March 17, 2014, 8:30 AM ET

Executives

Laura Campbell - VP, Human Resources and Business Processes

David Pernock - Chairman and CEO

Greg Weaver - CFO

Analysts

Keith Markey - Griffin Securities

Greg Wade - Wedbush Securities

Ying Huang - Barclays

Operator

At this time, I would like to welcome everyone to the Fibrocell Science fourth quarter 2014 financial results conference call. [Operator instructions.] Ms. Laura Campbell, vice president of HR and business process, you may begin your conference.

Laura Campbell

Good morning, everyone, and thank you for joining us for our year-end 2013 financial release this morning. And we also filed our annual report and form 10-K for the year ended December 31, 2013. The form 10-K is available on the SEC’s EDGAR system and the company’s earnings release and form 10-K are both available on our website at fibrocellscience.com.

Today’s call will be archived. The replay will be available starting today at noon Eastern, and will remain available by phone until March 31, 2014. In addition, it will be on our website for 30 days.

Before we begin today’s call, we wish to inform participants that the forward looking statements are pursuant to the Safe Harbor provisions of the private Securities litigation Reform Act of 1995. You are cautioned that such forward looking statements involve risks and uncertainties including, without limitation, the risk of clinical failures, delays, unforeseen changes in the cost of our research and development activities, and clinical trials by others; possible acquisitions of our technologies, assets, or businesses; and possible adverse actions by customers, suppliers, competitors, regulatory authorities, and other risks detailed from time to time in the company’s periodic reports filed with the Securities and Exchange Commission. Our future results may differ materially from our current expectations that we discuss today.

Following our formal remarks today, we will open the call for questions. I’d like to now turn the call over to David Pernock, chairman and CEO of Fibrocell Science.

David Pernock

Thanks, Laura. Good morning everyone, and thank you for your interest in, and support of, Fibrocell. I am joined today by Greg Weaver, our Chief Financial Officer. We will provide an overview of key accomplishments for the year of 2013. I will take the opportunity to review 2013 accomplishments, 2014 goals, and our progress towards these goals, more specifically, our groundbreaking collaboration with the Intrexon Corporation and our Phase II label extension studies for vocal cord scarring and restrictive burn scarring. Following that, Greg will review the financials.

Fibrocell is unique because we harness the innate favorable characteristics of the autologous fibroblast to develop new therapies for rare diseases and conditions of the skin and connective tissues where there are currently limited or no treatment options. Autologous fibroblasts are the foundation of our proven technology platform, and they are the most common cell located in skin and connective tissue.

Fibroblasts have the unique capabilities to target the skin and connective tissue. Skin and connective tissue are typically difficult to treat. The blood flow is limited in these areas, therefore systemic treatments are not optimal. Our approach is ideal, because the autologous fibroblast cell can be used to attack the local site.

Fibrocell’s proprietary platform is based upon the autologous fibroblast cell. Our platform has two productive product engines: first, the Azficel-T autologous fibroblast engine, and second the autologous fibroblast protein expression engine.

Fibrocell’s Azficel-T autologous fibroblast product engine is based upon our company’s proprietary fibroblast technology. With the Azficel-T product engine, our focus is on the treatment of serious and debilitating scarring conditions, including vocal cord scarring and restrictive burn scarring.

With the autologous fibroblast protein expression product engine, we are creating biologic products by genetically modifying the fibroblasts to express target proteins that are inactive or missing from patients with rare skin and connective tissue diseases.

Fibrocell is expanding medical applications of Azficel-T, comprised of pure, non-genetically modified fibroblast cells, to treat conditions based on the inherent therapeutic characteristics of the fibroblast. Azficel-T is FDA approved through a biologics license application, a BLA.

Fibrocell initially introduced Azficel-T as an aesthetics product, but we have shifted our focus to serious skin and connective tissue diseases, which have much larger market opportunities. Fibrocell is well-positioned to advance Azficel-T in these conditions.

The BLA is very important, because we already established a CMC portion of the BLA, which is especially complex in biologics. Therefore, we have a leg up, as we do not need to repeat this registration related activity.

Currently, Fibrocell is conducting label extension studies with Azficel-T for restrictive burn scarring and vocal cord scarring it’s important to note, for both of these indications, Azficel-T is manufactured the exact same way as it is with our existing BLA.

With these potential conditions, the autologous fibroblast cell offers new hope for patients suffering from these debilitating scars. We are very excited about our Phase II clinical programs to expand the label for Azficel-T, both for the potential impact on patients as well as creating shareholder value from this important product asset.

Now, I would like to discuss our fibroblast autologous protein expression product engine. The integration of Fibrocell’s Azficel-T autologous fibroblast product engine and Intrexon Corporation’s UltraVector technology enables the development of genetically modified personalized biologics to directly address the fundamental cause of rare and serious skin diseases.

Our concept is straightforward. The autologous fibroblast is the delivery vehicle, the Federal Express truck, to deliver the protein expression gene that is missing or deficient. We believe this straightforward concept can be readily delivered with the combined technologies of Fibrocell and Intrexon and deliver powerful advantages.

Most significantly, because we are using the autologous fibroblast cell, we can deliver the gene to the targeted local area in the skin or connective tissue, therefore avoiding the challenges of systemic therapies, including potential systemic toxicities.

Another advantage is that our approach is potentially a game changer because we treat the underlying cause of these debilitating, rare skin and connective tissue diseases. Remember that our goal is to replace the gene that is missing or deficient. We think our approach is simply better.

Let me describe in more detail how the unique technologies of Fibrocell and Intrexon work together. Intrexon’s UltraVector technology is designed to facilitate the assembly and delivery of necessary target gene constructs for delivery with the autologous fibroblast. Access to this platform allows Fibrocell a rapid method to screen and construct the best genetic therapeutic solutions for rare and serious skin diseases. This is a strong competitive advantage.

In certain therapeutic applications with the autologous fibroblast protein expression product engine, Fibrocell will also deploy Intrexon’s proprietary RheoSwitch therapeutic system, which is a biologic switch activated by a small molecule ligand that provides the ability to control the level and timing of protein expression in those diseases where such control is critical.

This is a very important potential safety advantage. The autologous fibroblast protein expression engine is distinct from all other genetically modified approaches, because the autologous fibroblast enables the targeted expression of a protein locally versus systemically. We have a better mousetrap.

Now for an update on where we are with key projects. We’re making important advances with our Intrexon collaboration. Our lead program with Intrexon is recessive dystrophic epidermolysis bullosa, referred to as RDEB. It is the most severe form of EB, a devastating, debilitating genetic disorder that causes severe blistering and areas of missing skin, which was a response of friction, including normal daily occurrences such as simple rubbing or scratching. Children who inherit the condition are often called “butterfly children” because their skin is as fragile as a butterfly’s wings.

Genetic disorders occur when a copy or copies of a defective gene are transmitted from parent to child. RDEB is an autosomal recessive disorder, meaning that a child has inherited copies of a defective gene from both parents. In the case of RDEB, a child of parents who both carry a gene has a 25% chance of being born with this devastating condition.

RDEB occurs when a mutation or error occurs within the collagen VII gene, which encodes the protein of the anchoring fibril. Anchoring fibrils hold together two layers of skin. As a result, there is a lack of adherence and disruption of the skin when any friction or trauma occurs to an area. Where the two layers separate, there is blistering and scarring.

The current RDEB population in the United States alone is between 2,800 and 5,600 people. There are no good solutions for this disease. RDEB has the highest rate of morbidity and mortality of all genetic blistering disorders and is often lethal before the age of 30. It affects both genders and every racial and ethnic background equally.

Our goal is to genetically modify the autologous fibroblast cell with the COL7A1 producing gene so that it can be used to treat the lesion on a local basis. The concept is the fibrils will keep the blister closed. We anticipate that the RDEB patient will need to be treated over their entire lifespan.

We are working with leading RDEB centers including Stanford School of Medicine and Cincinnati Children’s Hospital in preparing the IND and completing proof of concept animal work and study, with the goal of filing an IND in the first half of 2015.

We think this is a remarkable milestone in our company’s history, and we’re clearly demonstrating our ability to successfully genetically modify the autologous fibroblast cell and have a profound impact on a devastating disease.

In addition, with Intrexon, we are working on additional orphan diseases, including the following: morphea profunda and linear scleroderma. Scleroderma is the name for a group of rare and chronic autoimmune diseases that cause tightening and hardening of the skin and other connective tissues. Morphea profunda and linear scleroderma, both categorized as local sclerodermas, are the result of excessive collagen production.

Morphea profunda and linear scleroderma affect some 10,000 people in the United States alone. Linear scleroderma, although often benign, may lead to widespread lesions and debilitating joint contractures and significant complications. Morphea profunda shows little response to corticosteroids and tends to run a chronic, debilitating course for the patient.

Cutaneous eosinophilia is a rare and serious orphan autoimmune disease characterized by the inflammation and tough band of fibrous tissue beneath the skin referred to as the fascia. This is due to the accumulation of eosinophils, a form of white blood cell, in the layers of the skin. Cutaneous eosinophilia eventually causes the skin to swell and slowly thicken and harden. Total prevalence of cutaneous eosinophilia is estimated to be approximately 4,000 patients in the United States alone.

Ehlers-Danlos syndrome, hypermobility type is a syndrome and a group of disorders that affects the connective tissues. An unusually large range of joint movement, referred to as hypermobility, occurs with most forms of Ehlers-Danlos syndrome, particularly in the hypermobility type. Infants with hypermobility joints appear to have very weak muscle tone, which can delay the development of motor skill such that it makes simple tasks, like sitting, standing, walking challenging.

There are currently no therapies for hypermobility type EDS. Healthcare providers are only able to treat the severe symptoms of EDS by prescribing braces to improve joint stability and by assisting patients with the pain that they experience. There are approximately 2,000 to 6,000 patients with this disease in the United States alone. The problem is these patients are missing tenascin-X, and our goal is to replace it.

So, these three orphan diseases, morphea profunda/linear scleroderma, cutaneous eosinophilia, and Ehlers-Danlos syndrome hypermobility type line up behind our lead program in RDEB. In summary, we have a high level of enthusiasm and a sharp focus on our programs with Intrexon, and we see strong advantages of our technology as well as the opportunity to have a profound impact on otherwise devastating diseases.

Now let’s look at the opportunities and milestones for our programs with Azficel-T in vocal cord scarring and restrictive burn scarring. Vocal cords consist of two folds of tissue that vibrate or flutter to produce sound when air is exhaled.

Scar tissue on the vocal cords reduces their suppleness and can affect both voice tone and volume. Extreme scarring can leave those affected unable to verbally communicate. Patients often cannot be heard above background noise or even from across the kitchen table. The patient impact is significant. Many no longer become engaged in conversations and social interactions.

Vocal cord scarring can also be caused by aging, excessive vocal exertion as experienced by singers and public speakers, and is a frequent side effect of cancer radiation and surgical trauma. Scar formation can also occur from smoking, diabetes, acid reflux, and immune deficiencies. It is estimated that between 200,000 and 700,000 people in the United States experience vocal cord scarring, referred to as VCS.

Current treatment options are limited. There is an opportunity for Fibrocell’s product to meet a significant unmet medical need. We currently have two major voice centers enrolling patients at UCLA and Stanford University School of Medicine. We are also in discussion with the notable East Coast Voice Center.

Our goal is to have the trial fully enrolled, with 20 subjects, by Q2/Q3 2014. The framework of the trial design is that it is placebo controlled, a four-month efficacy endpoint, measuring before and after improvement in voice quality compared to baseline.

Restrictive burn scarring is one of the most debilitating aftereffects of serious burns. Doctors diagnose burns based on their severity and how deeply they penetrate the skin’s layers. The most severe burns cause restrictive or contracture scarring, because it can limit a person’s flexibility and therefore range of motion.

About half of hospitalized burn patients will develop some restrictive burn scarring that could cause disfigurement, decreased mobility, and continuous pain. In fact, restrictive burn scarring affects function and remains the most debilitating complication of burn injuries.

Approximately 40,000 burn victims are hospitalized every year in the United States alone. This estimate does not include military personnel, and does not take into account the large pool of patients with existing burns. Current treatment options are limited, and we see the potential for Fibrocell’s Azficel-T to address this important patient need with restrictive burn scarring.

As you know, we initiated a Phase II trial in 2013, and while initially patient enrollment was difficult, we have resolved this by modifying the protocol and expanding the number of centers to increase enrollment.

Our efforts have included the following: we revised the inclusion/exclusion criteria and made the following changes. A physician now has the ability to determine whether continued physical therapy would improve the joint or not based upon his own clinical experience. The protocol was updated to allow injuries less than three years old to increase the patient pool. The protocol was changed to allow patients with bilateral burns into the trial. In addition, placebo patients are being offered treatment in a separate open label study after the database is unlocked.

All of these changes in the restrictive burn scarring study have been made and broaden our patient pool. Importantly, we have also expanded the reach of our trial by adding notable burn centers. Since late last year, we have had IRB approval at three additional sites, including the University of Miami, the University of Washington, and Long Island Plastic Surgery Group, Nassau University Medical Center, and we’re in the process of signing potentially five other key burn centers.

We believe that by accessing large burn centers and making these protocol changes, we have a larger pool of patients to screen and we will enroll patients sooner. Our goal is to have the trial fully enrolled with 21 subjects in Q2/Q3 2014. The framework of the trial design includes a placebo controlled study, six-month efficacy endpoint with the primary efficacy endpoint being mobility.

I would like now to turn over the call to Greg Weaver, our chief financial officer. Greg?

Greg Weaver

Thank you, David, and good morning everyone. Let’s begin our financial discussion with cash. We reported total cash and cash equivalents at December 31, 2013 of $60 million, as compared to $31.3 million at the end of 2012. The operating use of cash in 2013 was $20.1 million. We finished the year with a strong balance sheet reflecting resources to execute on the Phase II trials and to drive development of our multiple orphan drug opportunities in collaboration with our partner, Intrexon Corporation.

Our capital structure is clean. We have no debt, with approximately 41 million shares currently outstanding today. In addition, we have 6 million warrants and approximately 2 million options outstanding. Our cash runway is sufficient to meet our business plan well into 2015.

I’d like to highlight our fundraising and equity activity for the year to give a clear perspective. First, we issued 12.3 million shares in a broadly marketed follow-on offering, which closed in October 2013, raising a net $47.1 million, including the greenshoe shares net of fees and offering expenses.

Next, we received $2 million from a prior year 2012 equity sale as proceeds receivable from the common shares issued. And, we had two important equity issues with our partner, Intrexon. First, we issued 1.2 million shares to Intrexon in 2013 as the up-front technology payment valued at $6.4 million for rights to the autoimmune skin disease field, and then subsequent to year-end, in January 2014 we issued an additional 1.1 million shares valued at $5.2 million for the technology payment to Intrexon for the hypermobility indication tenascin-X deficiency.

Our reported GAAP net loss for the full year 2013 was $30.6 million. This amount included $8.5 million of the following noncash accrued costs: the $6.4 million Intrexon stock issuance, plus stock compensation, depreciation and amortization, and warrant revaluation expense. Adjusting for these noncash items, the non-GAAP net loss for the year was $22.1 million, which is flat with the prior year 2012 on a comparable basis.

R&D costs for 2013 of $12.6 million included the same $6.4 million noncash technology license fee paid in common shares to Intrexon. The pro forma presentation of R&D expense, omitting the noncash payment, was $6.2 million for the year. These R&D costs included the clinical CRO expenses incurred working on the Phase II trials throughout the year, along with regulatory and medical affairs consulting costs, costs related to spending with Intrexon and fees for service payments on our gene modification programs, mostly RDEB, and other R&D costs.

One of the trends of note in our income statement is the decrease in SG&A spend year over year, which reflects a discontinuation of selling and marketing expenses related to the aesthetics business. G&A expenses totaled $10.1 million for the year, reflecting a drop of $2.1 million from the prior year.

I’d like to provide an explanation of our accounting for cost of sales for Azficel-T, brand name LAVIV. We’re required under GAAP rules to record all the manufacturing, QA, QC, and related costs of aesthetic Azficel-T product manufacture into our cost of sales. This number was reported as $8.1 million for the full year 2013, while the revenue from product sales in 2013 was de minimis.

Our business model has since pivoted to focus on rare skin and connective tissue diseases and the BLA label extension scarring indications. Going forward, in 2014 we’ll see a significant drop in the cost of sales due to the following: first, significant lower aesthetic product sales activity; second, efficiencies in production processes instituted throughout the year to reduce time and cost of production; and three, a focus on driving marginal or unproductive costs out of our business. Our goal is to move cost per unit manufacturing down and to deliver Azficel-T, within regulatory guidelines, at the most efficient cost point possible.

And finally, 2013 was a really important transformational year for the company. I’d like to make three quick points in my closing remarks. First, our common stock offering that raised $47 million enables the company to fund operations through the reporting of the top line results of our two Phase II clinical trials of Azficel-T and the restrictive burn scarring and vocal cord scarring indications, and to deliver the very important proof of concept animal data on RDEB. These are expected to be significant milestones for the company in the near term.

Second, we are intently focused on controlling our use of cash, and third, we appreciate having a strong institutional shareholder base to support our future growth, which complements our retail holders.

Thank you very much. I’d now like to turn the call back to David.

David Pernock

Thank you, Greg. As I hope our comments have made clear, the company is moving forward and focused on a very promising future. We have a robust pipeline of promising therapeutics in various stages of development. We’re enthusiastic about the potential of our partnership we enjoy with our colleagues at Intrexon.

We will continue to focus on our critically important work and look forward to reporting our progress as we go throughout the year. Our milestones in 2014 are as follows: complete enrollment of the Phase II restrictive burn scar study between Q2 and Q3 this year; complete enrollment of our vocal cord scarring study in Q2/Q3 of 2014; regarding RDEB, proof of concept animal study completed by the end of 2014; key publications expected from our UCLA collaboration on two areas, both BMP2 and genomic stability in the second half of 2014. We’ll also be applying for orphan drug status for multiple disease indications in the second half of 2014.

As we move into 2015, we’ll report the Phase II clinical results for both restrictive burn scars and for vocal cord scarring, we’ll file our IND for RDEB and have Phase I results reported, and we’ll continue to advance our preclinical work on other important rare skin diseases: morphea profunda and linear scleroderma, cutaneous eosinophilia, and tenascin-X deficiency.

By achieving these milestones, we hope to create value for our shareholders, and most importantly, make a significant difference in the lives of patients and families, in fact tens of thousands of families around the globe for rare skin diseases, and hundreds of thousands of people for restrictive burn scars and vocal cord scars.

As always, we greatly appreciate your interest in our company. We look forward to updating you on our continued progress. Operator, we’re ready for questions now. Please open the line.

Question-and-Answer Session

Operator

(Operator instructions) And your first question comes from the line of Keith Markey.

Keith Markey - Griffin Securities

I was just wondering if you might be able to elaborate a little bit on your expenses for this year, break it out between R&D and G&A?

Greg Weaver

The G&A, I’d indicated in my comments it was $10 million for the year, and the balance of our expenses were a split between the manufacturing, QA, QC, and cost of goods sold and R&D expense. I think as I mentioned, I think the opportunity going forward is that you’ll see a significant reduction in cost of sales, as we’ve pivoted into the R&D indications and drug development in Phase II and preclinical.

Keith Markey - Griffin Securities

So what you’re saying is that for 2014 the G&A expenses basically are going to remain at about $10 million?

Greg Weaver

That’s a good assumption, yeah.

Keith Markey - Griffin Securities

And I was wondering, can you give us a sense as to when you actually will be able to report the data from your burn, scar, and vocal cord trials?

Greg Weaver

The burn scar and vocal cord readouts from the Phase II efficacy data would be in the first half of 2015. And I think basically the takeaway here is that we’re driving these studies as hard as possible, to get results as soon as possible. We’ve done whatever is possible to open these enrollments up, to get hands on with the centers, to really attract the best KOLs in each of these indications. And we have their full alignment to get these studies enrolled quickly, and we’ll report out the data ASAP. Maybe it’s first quarter, but I would say not later than first half of next year.

Keith Markey - Griffin Securities

And then can you tell us a little bit about the Chinese collaboration that you’ve got?

Greg Weaver

The Chinese collaboration, essentially that was related to the aesthetics business. And strategically, the company has pivoted away from the aesthetics business. That is something that, at this point, we are not pursuing aggressively.

Keith Markey - Griffin Securities

Not even in China?

David Pernock

Basically, our Chinese partners, they’ve built their factory in China, and they’re still pursuing Chinese SFDA approval. So we’ll keep you updated on it as best we can.

Operator

Your next question comes from the line of Greg Wade.

Greg Wade - Wedbush Securities

David, I wonder if you might be able to drill down a little bit into the RDEB program. Could you just tell us what the status of the research is with Intrexon around the transvection methodology that’s going to be used, where you guys are at with respect to manufacturing? And what really are the rate limiting steps to getting the IND filed?

David Pernock

Very good question. With RDEB and with Intrexon, we’re working 24/7 on this fantastic project. As you know, there are a number of big steps. The first thing was basically getting the gene construct, which we believe we have. The second step is being able to successfully transvector, transduce the construct into the cell itself, and we’re making fantastic progress on that as well. And then we’re working with a number of partners to help us out with that as well.

Most likely going to be using a lenti 2.0 type virus, basically for two reasons. One, that virus is basically able to handle the payload of the gene. The gene that we’re using for collagen VII, as you know, is a relatively large gene compared to other genes. So we looked at a number of different viral vectors, and we think that the lentiviral one is optimal for us.

And it also gives us the advantage of being integrating, so that basically the progeny cells, as the cells divide, will continue to go along with the cell. The advantage of that is that you’ll get greater persistence of effect, we believe. So between the autologous nature of the fibroblasts we’re using, and therefore having less rejection on the part of the patient, and having an integrated plasmid as we will with the lentivirus, we think we’re going to get a nice, long-lasting effect. We’ll know more as we complete the clinical trials.

Also, the other part of that is obviously conducting our animal studies. So we’ll be working with leading universities including Stanford and Cincinnati Children’s Hospital, and getting their great advice, because they have been in front of the FDA many, many times on RDEB programs and EB programs.

They have a very good feel for what is going to be required for us to enter Phase I and we have a really good design of our animal study, we believe, which will basically, just top line, be taking cells from RDEB patients, transvecting them with the COL7 producing gene, and basically injecting the mice and using endomicroscopy to look at before and after effects. So we think that is sufficient for Phase I.

Also, likewise, as you know, as part of the Phase I package, which is a monumental task to put together, is the manufacturing of the project, and we’ll be manufacturing that most likely at an offsite location, because it’s very separate and distinct from the manufacturing that we do here currently for current burn trials, whether it be for burn scars or for vocal cord scarring, or for making LAVIV itself. So it needs to be separate and distinct from that.

So we’re in discussions with several leading cell-based manufacturing companies that can handle this on a basis for us, and we’re working on the technology transfer and also close collaboration with Intrexon every step of the way.

So we think we’re making really good progress on this, and we’re really looking forward to that. We think it’s going to be a very, very big step in the right direction, because of the unique nature of the disease we’re focused on, because of the profound impact we think we’ll have, and the significant lack of any therapeutic options for these patients. So we can’t wait for this to happen, and it’s clearly a major, major priority for us.

Operator

Your final question comes from the line of Ying Huang [Barclays].

Ying Huang - Barclays

First of all, what resulted in this patent extension? What drove that? And then secondly, can you tell us the planned enrollment size for the restrictive burn scarring trial, and where are you now? And then also, the placebo patients, are they getting any supportive care or any background therapy at all? And then lastly, it sounds like you guys are discontinuing the sales and marketing activities for LAVIV in cosmetic use. What is the remaining commitment you still have as a company? Do you still spend any manufacturing or R&D effort there?

David Pernock

With restrictive burn scarring patients, you asked basically are placebo patients getting any other treatment at all? No, basically they’re getting saline injections, essentially. But the placebo patients will be able to get treated with LAVIV once we’ve unlocked the database. So patients, they like the aspect of being able to be treated eventually, if they should get in a placebo group.

Our major efficacy point is range of motion, and we have four centers now enrolling patients. We just recently got University of Miami, University of Washington, and Long Island Medical Center. And we’re basically in various stages of discussion with a number of others, which will come on board hopefully in the next month or two.

So essentially what we wanted to do is be in a position of just having to get a couple of patients from each one of these major burn centers, which we think is very doable. Our goal is to complete enrollment in Q2/Q3, with the idea of getting a total of 21 patients, 14 active, seven placebo. The FDA has given us the flexibility to go up to 30 if we need to or want to. So we could enroll up to 30 patients, which we think is a good thing.

In terms of LAVIV and the aesthetic marketplace, what we’re doing is in the U.S., specifically, we’re not doing a sales and marketing effort per se right at the moment. What we’re doing is we’re accepting patients from doctors who have used LAVIV before, and still have an interest in that. So we’re spending virtually almost no dollars on sales and marketing efforts behind LAVIV in the U.S. marketplace at this time, focusing our efforts on the R&D and the new indications, and also improving the cost of manufacturing and the efficacy of manufacturing, combined.

I think I may have missed a question in there.

Ying Huang - Barclays

Just one question on the patent extension. What led to that extension?

David Pernock

Our patents got extended to 2031 for LAVIV, and I think that was a very, very good amount of work that we did with our patent counsel and also our internal people. And largely what we were able to do was take full advantage of the fact that not only did we have the process of manufacturing the cells clearly covered within the patent, but we also got things like the dosage form and the dosage interval as key components of our patent, which gives us a very big leg up. So we’ve got protection all the way up to 2031. So we’re very, very happy with that effort. I think also we’re able to get some of the work in there around IPSC cells that we’re doing at UCLA, etc.

And along the patent front, too, because of our research collaborations with UCLA and MIT, we have exclusive rights to a couple of other patents which we think are going to be very important. One, for example, UCLA developed a cell growth media supplement that preserves the genomic stability during the IPSC cell cultivation period. And we think that could be very important, so we’re excited to get that publication out and also get that.

And also, UCLA was able to transvect a fibroblast cell with BMP2, and basically in animal studies has shown that it was not only safe, because of no inflammation, but it was very effective at growing bone. And we think this could be ultimately a very nice alternative to recombinant BMP2, and could be an interesting opportunity down the road for us.

So we’re expanding our IP portfolio very smartly, and in a very wise fashion, and we’re very happy with the 2031 extension.

Operator

And we have a follow up question from the line of Keith Markey.

Keith Markey - Griffin Securities

I just wanted to ask if you could elaborate a little bit more about the BMP2 program. For example, give us a sense as to when you might go into a clinical trial with that.

David Pernock

With the BMP2 program, a couple of key points. With recombinant BMP2, as you know, there always seems to be the issue of inflammation and side effects. So what the concept from UCLA was is essentially to basically take the BMP2 producing gene and basically insert it into the fibroblast cell with the idea of the fibroblast cell, in essence, helping to control the rate of release of BMP2.

So what’s been shown, and what manuscripts are being prepared right now, is that basically we showed the ability to grow good bone, and we also showed very little inflammation, which is also very important. So potentially this could be the beginning of an important biologic-based orthopedic platform, and which theoretically you could use it not only in BMP2, but in other BMP2s that target ligaments and pendants as well as joints as well. So very, very profound work.

So what we’re doing is our focus at Fibrocell is clearly on rare skin diseases and on these scarring conditions, largely for a couple of reasons. One, there’s big unmet medical needs, and two, the size of these studies doesn’t have to be all that significant, so it’s sort of in our wheelhouse.

For a BMP2 development, obviously, that requires an awful lot more money and more focus, and what we’ve been able to do so far is obtain grants through the UCLA initiatives, and grants through the California Center for Regenerative Medicine, and we have a number of grants outstanding right now that will hopefully advance us into large animal studies so we can duplicate the fantastic work that we’ve seen in mice in large animals like monkeys, for example. And we think that will be another proof step.

And ultimately, this offers the potential for a potential partnering aspect, too, because this is the type of program that would require pretty extensive studies in Phase II and Phase III, and probably would need more expertise than we’d have within the walls of Fibrocell. But I think it would be a very interesting opportunity in the area of orthopedics. And as you know, that’s an area that’s been searching for biologic solutions to difficult problems. I think we may have a really good idea here.

Keith Markey - Griffin Securities

So would you try to outlicense prior to going into the IND stage? Or possibly after Phase I?

David Pernock

Yes. Driven by shareholder value, you know. It’s all driven by shareholder value. The company’s at a stage where it’s a lot more visible than it was just six to 12 months ago. We have parties that like all of our programs in any given week. In the case of something like this BMP2, this special relationship we have with UCLA, where we have essentially they’re doing a ton of work funded by CRM grants. We have a very small number, less than $500,000, inside of our P&L this year, with a ton of upside there. Depending upon the momentum and the pace of that program, when it creates a partnering opportunity is to be determined. We’ll just be ready for that when it arrives.

Operator

There are no further questions at this time. I will now turn the call back over to Mr. David Pernock for any further comments or closing remarks.

David Pernock

Thank you, everybody, for participating in this call. Really appreciate your interest and support of Fibrocell. I hope you can tell that we’re extremely excited about the width and breadth of our product and our portfolio, and we believe that we can help people in a very, very significant way. Thank you, we look forward to updating you throughout 2014, and goodbye for now.

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