Athersys' (ATHX) CEO Gil Van Bokkelen on Q1 2014 Results - Earnings Call Transcript

May.12.14 | About: Athersys, Inc. (ATHX)

Call Start: 16:30

Call End: 17:32

Athersys, Inc. (NASDAQ:ATHX)

Q1 2014 Earnings Conference Call

May 8, 2014 4:30 PM ET

Executives

Amy Raskopf - IR

B.J. Lehmann - President and COO

Gil Van Bokkelen - Chairman and CEO

Analysts

Jason Kolbert - Maxim Group

Tracy Marshbanks - First Analysis

Steve Brozak - WBB Securities

Christian Glennie - Edison Investment Research

Operator

Good afternoon. My name is Tracy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Athersys’ First Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator instructions) Thank you. Ms. Amy Raskopf, you may begin your conference.

Amy Raskopf

Thank you, Tracy and good afternoon everyone. I'm Amy Raskopf 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’ Web site at athersys.com. Dr. Gil Van Bokkelen, Chairman and Chief Executive Officer and B.J. Lehmann, President and Chief Operating Officer will host today's call.

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 conclusion and access information for that 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 May 8, 2014. Since then, Athersys may have made announcements related to the topics discussed, so please refer to the Company's most recent press releases and SEC filings.

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

B.J. Lehmann

Thank you, Amy. Good afternoon and welcome everyone. I’m B.J. Lehmann, President and Chief Operating Officer at Athersys. I’ll briefly review our first quarter 2014 financial results and then turn the call over to Gil for a corporate update followed by the question-and-answer period. For the first quarter of 2014 revenues increased to $707,000 compared to $326,000 for the same period in 2013. The increase primarily reflects $421,000 increase in our grant revenue. Grant revenue has fluctuated from period-to-period due to the timing of grant-related activities and with the award and expiration of grants. Research and development expenses were $6.2 million in the first quarter of 2014 compared to $5.6 million in the prior year first quarter.

The difference reflects increases in personnel cost, stock-based compensation, patent legal fees and sponsored research, which were partially offset by a decrease in pre-clinical and clinical cost. General and administrative expenses increased to $1.8 million in the first quarter of 2014 from $1.5 million in the comparable period in 2013, due primarily to increases in personnel cost and stock-based compensation. The change in the fair value of our warrant liabilities resulted in expense of $4.1 million in the first quarter of 2014 compared to expense of $2.6 million in the same 2013 period, reflecting the impact of our January 2014 offering and changes in our share price.

Net loss for the first quarter of 2014 was 11.5 million compared to a net loss of $9.4 million for the first quarter of 2013. The increased net loss reflects the $381,000 increase in revenues offset by, first the $924,000 million increase in R&D and G &A expenses which included an increase of $463,000 in non-cash stock-based compensation expense and second, the impact of $1.6 million increase in non-cash expense from the change in fair value of our warrant liabilities. Excluding the non-cash warrant and stock-based compensation expense, aggregating $4.1 million for the quarter, net loss per share for the three months ended March 31, 2014 equates to $0.09 per share versus the reported net loss per share of $0.15 per share for the quarter which includes such non-cash expenses.

During the first quarter of 2014, cash used in operating activities was $7.1 million compared to $6.1 million in the first quarter of 2013. And cash provided by financing activities including warrant exercises was $20.5 million in the 2014 first quarter compared to $2 million in the prior year period. In January 2014, we completed a registered direct offering with net proceeds of $18.8 million from the issuance of 5 million shares of common stock and warrants to purchase 1.5 million shares at $4.50 per share which were sold in fixed combinations at $4.10 per unit. This financing puts us in a strong financial position to achieve important clinical development and business milestones. Taking into account the January financing, we started the year with approximately 50 million in cash and cash equivalents and ended the first quarter with $45 million.

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

Gil Van Bokkelen

Thanks B.J. and good afternoon everyone. As most of you are aware Athersys is committed to developing proprietary therapeutics that have the potential to address significant areas of unmet medical needs. Our current work is primarily focused on conditions where we believe that MultiStem, our patented allogeneic stem cell product has particular relevance in clinical potential. Our current regenerative medicine programs are focused on developing MultiStem as an off the shelf therapy for the treatment of inflammatory and immune disorders, neurological conditions, cardiovascular disease, and other areas where standard of care is limited and significant medical need exists.

We are evaluating our MultiStem product in multiple clinical staged programs as well as a range of preclinical programs. Our clinical programs are based on years of work that we have contacted both internally and in collaboration with leading independent labs, evaluating MultiStem in preclinical studies, designed to explore its potential relevance in various models of human disease and injury. Recently we reported the interim results from a double-blind placebo-controlled Phase 2 clinical study of MultiStem cell therapy to treat refractory ulcerative colitis or UC which was specifically focused on patients that have failed or developed resistance to other forms of treatment.

This exploratory trial was designed to assess whether a single dose of MultiStem could produce a robust therapeutic effect when administered to patients with longstanding active disease and that have previously failed, become resistant, or shown intolerance to other forms of treatment including corticosteroids, immunosuppressants, and anti-TNF therapy. This group of patients with advanced disease is an important target because it represents the UC patient population with the greatest unmet need. The results are anticipated that a single dose would give the MultiStem therapy the most compelling competitive profile considering other biologics and small molecules in the field’s overall development pipeline.

Admittedly this is a tough challenge. On average patients enrolled in the trial which suffered from UC for 10 years had pretty advanced disease as a result and has already shown treatment resistance to multiple therapies. It’s worth noting for example, that 67% of the patients treated with MultiStem had prior exposure to anti-TNF therapies, treatment which did not yield the desired clinical result. So clearly this is a very challenging patient population.

The results of the trial provided additional evidence of the consistence in favorable safety profile with MultiStem confirming observations from the prior clinical studies that Athersys has conducted, but also indicates that a single dose of cell did not achieve the desired therapeutic effect at eight weeks in this group of patients suffering from this chronic inflammatory disease. While there was a specifically significant difference at four weeks in the proportion of responders in MultiStem treated patients compared to placebo as pressured by a greater than or equal to 1 point improvement in the Mayo rectal bleeding score. By eight weeks this difference was reduced, and no longer significant.

We are obviously disappointed by this miss. As we have said previously we will be very straightforward and candid when we or our partners conduct trials that are not successful. However, we also believe that it is important to keep things in the proper context. The results of this trial clearly tell us a single administration of MultiStem in this challenging patient population while safe was not sufficient to have substantial therapeutic effect. We and Pfizer realized from the outset that this was a difficult challenge clinically which is why it is an area of unmet medical need.

So what we have learned from the study is that it’s tough to tackle a chronic disease like UC with a single dose and expect a significant durable change, reversing a decade or more of damage in a chronic and block inflammatory bowel disease. However, we believe it is important to recognize what the study did not evaluate, whether a more aggressive dosing regimen might have made a difference to these types of patients. You’d be tempting to think that perhaps a second dose administered after eight weeks to roughly a quarter of the patients enrolled in the trial might somehow change the outcome or our perspective on the study.

First it’s worth noting that the primary endpoints weren’t eight weeks, meaning that formally the study outcome won’t change with additional data. Additionally, we and Pfizer do not expect that a second dose at eight weeks would significantly impact the patient’s disease because clearly one dose didn’t have a discernible effect through eight weeks. So administration of a second dose at that point should not be expected to meaningfully change things over the subsequent eight weeks. However, once again it should be recognized that this does not tell us whether a different dosing strategy might produce the meaningful effect overtime.

We do anticipate that additional data gleaned from biomarker analysis and other information from the 16 week clinical assessment could provide additional insight into the factors at work and the potential relevance for MultiStem in this area. And work by others, such as the ongoing Mesoblast study, evaluating multiple doses of Prochymal in patients with Crohn’s disease may provide additional useful information about the application of cell therapy in patients with inflammatory bowel disease.

As we have said repeatedly in the past while we do not expect to be successful in each and every study we conduct or opportunity we explore, we have positioned Athersys to advance multiple programs in a parallel and cost-effective manner. In our view the results from the UC study have no bearing on our other active clinical studies. Treating patients with longstanding chronic and refactoring inflammatory bowel disease is very different clinically and mechanistically from other indications we are pursuing, particularly acute intervention in areas including treating stroke, Myocardial Infarction and other forms of acute coronary syndrome or cardiovascular disease and prevention of graft versus host disease.

Based on the substantial evidence and data we have generated here at Athersys and working in collaboration with outside independent labs we believe that early and aggressive intervention with MultiStem in these areas will make a meaningful difference and improve clinical outcomes. We remain highly confident in our other programs and it made good and steady progress in many areas. Whatever the outcome however, we are committed to honest reporting of the successes we achieve as well as the disappointments we experience.

Turning to some of these other programs in clinical development, another key program is our ongoing Phase 2 trial involving intravenous administration of MultiStem cell therapy to patients who have suffered an ischemic stroke one to two days after the event. Ischemic stroke, which is caused by a blockage in blood flow to the brain accounts for more than 85% of all strokes according to American Heart Association estimates. Due to an aging global population the incidence and prevalence of stroke is projected to increase substantially in the next 20 to 30 years above the current number of more than 2 million individuals who suffer a stroke each year in the United States, Japan, and European Union, combined.

Neurological injury as a result of the stroke represents one of the leading causes of death and is typically the leading cause of serious disability in the United States, Japan, Europe and other regions of the world but MultiStem is shown to be a safe and effective therapy that can be administered into clinically practical timeframe and we believe within one to two days after a stroke represents both a critically important window for intervention and a clinically practical timeframe for the vast majority of patients. We believe it could change stroke medicine as we know it. We also believe the potential market for a new therapy to treat stroke represents to a $15 billion to $20 billion annual market opportunity or more. This is an indication that represents perhaps the greatest area of unmet medical need in medicine today, and it’s a priority for healthcare systems around the world.

Stroke is one of several areas that may benefit from recent international developments on the regulatory front. As we reported previously in November Japan’s parliament passed new legislation designed to promote the safe and accelerated development of regenerative medicine treatments using a novel conditional approval system. The legislation creates a new faster pathway for cell therapy product approval, providing the potential for rapid clinical and commercial development and subsequent entry into the Japanese market. Over the past few months we have been actively evaluating how we can utilize this new regulatory approach and it engaged prominent, experienced consultants and advisors in Japan and has also retained a leading Japanese CRO.

We are also active in discussions and diligence activities with several companies in Japan that are highly interested in stroke and other areas. We are committed to defining and implementing an appropriate clinical development path in Japan for stroke as well as our other programs that we believe have relevance there and doing so in a manner that we believe can create substantial value for our shareholders. It’s worth noting that other regulatory agencies have recently taken actions that appear to be following Japan’s leadership and approach. Several weeks ago European Medicines Agency or EMA announced the new program that like the program announced in Japan is focused on establishing a novel conditional approval pathway that is intended to speed development of new medicines for areas of great unmet medical need.

While this pathway was not designed specifically for regenerative medicine therapies like the framework in Japan clearly it could have potential relevance in this sector. So we believe that if we achieve clinical success in stroke and other areas we will be well positioned to achieve our development goals and subsequent commercial success. During the first quarter we accelerated enrollment in our ongoing Phase 2 stroke trial initiating enrollment in the United Kingdom and expanding United States activities. As we have stated previously completion of enrollment is currently anticipated to occur around the end of the summer and initial results are targeted for later in the year.

Stroke is not the only clinical program where the new regulatory framework in Japan maybe relevant. As we mentioned in last quarter’s call, we plan to advance our acute myocardial infarction program into Phase 2 clinical development with support from a grant we were awarded last year from the National Heart, Lung and Blood Institute, which is part of the National Institutes of Health. Myocardial infarction or heart attack is caused by the blockage or one or more arteries that supply blood to the heart. This can result in significant injury to the heart muscle which can severally affect the patient’s overall health and quality of life, or cause significant damage that can ultimately lead to heart failure. While stent is other medication that clearly improved the landscape for patients at risk of heart disease it remains the leading cause of death for many countries and a leading cause of disability.

According to Datamonitor and other sources, there are an estimated 1.7 million myocardial infarctions that occur each year in the U.S., European Union countries and Japan combined. Effectively treating patients that have suffered damage from the myocardial infarction remains an area of great unmet medical need, and it also represents a significant commercial opportunity. We were exited to advance this third program into Phase 2 development and by the potential opportunity to capitalize and emerging changes to regulatory paradigms in the U.S., Europe and Japan in our effort to both benefit patients and create shareholder value.

Another clinical program in the development stage involves transplantation support. Clinical data suggest that the administration of MultiStem cell therapy may substantially reduce the incidence and severity of graft versus host disease referred to as GvHD particularly the patients suffering from leukemia or other blood borne cancers. Many of these patients after receiving radiation or chemotherapy to destroy cancerous cells also receive a hematopoietic stem cell or peripheral blood stem cell transplant which carries significant risk of GvHD and other complications. In the past several months the advanced planning and preparations for our Phase 2/3 GvHD prophylaxis study highlighted by our recent request for an FDA meeting to review the revised clinical trial design. We’re also engaged in parallel discussions and preparations with the EMA and we look forward to finalizing the design of the trials such that it will meet our objectives and rigorous standards.

Once that is done we look forward to the initiation of the trial as we achieve certain business development and financial objectives that will provide the necessary support. It’s worth noting that our GvHD program has been assigned orphan-drug designation from both EMA and the FDA which among other benefits assures us the seven years of market exclusivity upon approval. As B.J. mentioned we started the year with essentially $50 million of cash as a result of two successful registered direct offerings that were initiated by institutional investors who recognized that if we’re successful in any of the areas we’re currently pursuing we are extraordinarily undervalued. This is underscored by the recent regulatory initiatives that could accelerate our development path.

Our solid financial position enables us to execute on a number of development programs with our current resources. It also enables us to further progress our clinical development programs, advance our process development activities and expand our later stage development capabilities as well as pursue our business development discussions relating to certain regenerative medicine programs as well as to our novel 5HT2c receptor agonist program, to treat obesity and neurological conditions such as schizophrenia.

With our broad development portfolio and the important business and clinical catalysts that are coming up this year we believe we’re on a path to delivering substantial long-term value for our stockholders through the execution of well-designed, high-quality clinical programs and the advancement of existing collaborations and new partnerships.

It’s worth noting that we believe that the market response to the disappointing clinical result is an overreaction and in our view our current share price fails to reflect the value of our programs, or the fact that the UC study represents only a portion of the value of our entire portfolio. In particular if we were to be successful in an area like stroke which represents a much larger potential market opportunity with much less competition and is also a program that we retained full ownership of, we think the value creation potential could be far greater than other areas such as UC. It also fails to reflect the potential impact of the improving regulatory landscape and how that might help accelerate our ability to develop and commercialize MultiStem in multiple areas of unmet medical need.

In closing we remain committed to advancing our portfolio of opportunities and achieving our long-term goals and we appreciate the continued support of our shareholders.

With that we’d be happy to take any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from Jason Kolbert with Maxim.

Jason Kolbert - Maxim Group

Hi Gil, thank you so much and there’s a bunch of things I’d like to talk about, but I’d like to pick up on your last statement which is that it’s an overreaction to the stock, so just remind us a little bit that on the ulcerative colitis program in Pfizer that that was a milestone in royalty-only program to Athersys, so essentially if were to take that program out, that only reflects a small portion of Athersys’ over value, sorry, of Athersys’ the total value of the Company, so help me understand the -- just remind us what are the metrics that that program represented in its totality.

Gil Van Bokkelen

Yes, so, I’ll comment I’m sure B.J. will have some thoughts to add to that. So you’re correct the partnership was structured as a milestone, we received an upfront license fee of $6 million. We also received several years of research funding and support, in total I think it was in the neighborhood of about $20 million of capital that came into the Company over that initial timeframe. As we have reported previously the total milestone potential was just north of $100 million, about $105 million in various milestones that could be earned overtime which includes clinical development milestones, approval milestones and some post-approval milestones as well. And then at that point once the product reaches approval then we could receive either a tiered royalty structure or if we had elected to pick up some of the clocks in Phase 3 clinical development than we would get a bigger piece of the backend that relates -- that would be achieved through a profit sharing arrangement.

But here’s kind of one of the rules of thumb and I think it’s useful for people to kind of recognize. Unique price of partnerships, just a ballpark estimate is that the pharmaceutical company partner is usually going to capture about 90% of the value in a successful scenario. I’m not saying that’s the actual number I’m just saying that that’s kind of the general ballpark number that I think most people would kind of use or something in that neighborhood. But for our stroke program which we own 100% of and frankly for all the other programs that we maintain full ownership of. We own 100% of that value and we made the conscious decision to actually take that program through Phase 2 clinical development on our own precisely because we think it will actually translate to much greater value creation and of course we made that decision before the framework in Japan became a reality or before some of these other opportunities that actually surfaced in the past few months.

So, there is the ownership potential but then there is also the absolute market potential and so just to talk a little bit about that and I know B.J. will add some thoughts here. The stroke market as we talked about before and as I mentioned today, every year in the core markets that we care most about, there are over 2 million people which suffer an ischemic stroke. And if you think about, I think it would be perhaps unrealistic to think that MultiStem was going to be applicable to everybody that has a stroke, so let’s just cut that market in half or that patient population in half and call it roughly a 1 million patients a year.

While 1 million patients a year depending on what your pricing assumptions are, that translates to a market opportunity that is just absolutely astronomical, I mean you could easily be talking about a $20 billion, $25 billion, or $30 billion a year market opportunity that’s every year. Now if you kind of compare and contrast that to the IBD market, you are talking about numbers that are still substantial but a lot smaller than what you would be looking at with something in the stroke area. In inflammatory bowel disease whether it’s for Crohn's or for ulcerative colitis, yes you are talking about several million patients across those markets that suffer from these conditions but the incidence rate, the annual incidence rate is a lot lower than what you are talking about with something like stroke. And you are also talking about focusing on the patients that are at the sickest portion of the disease spectrum.

So, may be you are talking about in total a target population of several hundred thousand patients and that’s not every year, that several hundred thousand patients in total. Now, you might be treating those patients for a long period of time but I think anyway you do the analysis, you are talking about an absolute market opportunity even if you are assuming 100% ownership this is substantially smaller than the opportunity that I think we are looking at in stroke and then if you further kind of calculate that a company like Pfizer who will be getting the lion’s share of the value from that type of a partnership. Again it further reduces what the upside value creation potential would be for us and for our shareholders, so, B.J. I know you may want to add some things on.

B.J. Lehmann

I think you are right there Gil, I mean it’s important to think about the actual patient populations you are going after. I think our stroke program is really focused on potentially broader percentage or proportion of the ischemic strokes that happen in any given year but I think the theme that Gil walked through applies generally for many of our other programs as well. There are some big market areas we are going after, cardiovascular disease. And there’s certainly reasonable therapies out there for heart attack and alike but there is substantial unmet need and we are bringing to bare I think something that would be a much more competitive than you would have in the IBD market. I mean it’s important to note that IBD, there is -- while there is a substantial unmet need. There are actually some pretty reasonably good therapeutic options for patients at least for a long period of time to address and mediate the disease condition.

And I think in cardiovascular disease, there’s substantially greater opportunity particularly with the diseases that developed into the chronic congestive heart failure and alike. I think in GvHD while we are going after a smaller patient population, we are going after absolutely very severe patient population with substantial need, significant cost. So, I think a theme that applies to many of the other indication areas we are going after is one of substantial unmet need, substantial market opportunity and perhaps a better competitive profile for the therapy that we do develop, given what’s out there today.

Gil Van Bokkelen

Yes, so just on stroke in particular, so a couple of points, on stroke in particular because there really is no effective therapy that reaches anything more than just a small percentage of the patients, I mean tPA only reaches about 5% to 10% of the patients there and there is also a small number of patients that will undergo thrombectomy. But you are talking about a very, very small percentage of patients that experience a stroke, and for the rest of them really they don’t have any good options available to them. So, this represents a quintessential area of truly unmet medical need, so anything that’s shown to be safe and effective that can be administered into clinically practical timeframe, we believe it’s going to get rapid uptake in the market. And that is what we hope to show with MultiStem in the clinical trial that we are running now and then subsequent studies that we would run after that. And…

Jason Kolbert - Maxim Group

So, Gil let me interrupt you for a second because that’s fantastic and I just wanted to bring out that point that the economics are vastly different on a wholly-owned program like stroke versus a partnered program like ulcerative colitis but you guys both mentioned something that I think is really important and it’s, I’d like the dial-in a little bit better understand the intervention with one dose on an acute disease like acute myocardial infarction or an acute stroke versus using one dose to shift a chronic disease and as you guys have described it one that’s been in place for maybe a decade and that is even biologically refractory. So, can you help us understand mechanistically why we think an intervention with one dose one time in an acute disease like stroke could be vastly different than a one-time intervention in a chronic disease like ulcerative colitis?

Gil Van Bokkelen

Yes. That’s a great question. And the answer to that is, is that in the case of stroke or in the case of -- it also applies actually other programs that we’ve got going on, for example, the GvHD prophylaxis study. What you’re really doing is you’re intervening early on in the disease paradigm if you will. Preventing the more serious things that can happen that create much more substantial damage. So the hyper-inflammatory cascade that occurs after a stroke or other things that might happen.

In the case of GvHD prophylaxis the objective there is literally to neutralize the -- potentially alloreactive immune cells before they really get off the launch pad and begin to inflict a lot of damage, which in some cases it takes time for them to get going. So in both of these instances, we believe that by intervening earlier in these types of acute indications, not only can we have a propound effect that is actually stopping things before they begin to get out of control and create a lot of damage. But we can also kind of focus scales in favor of the healing and repair process much, much sooner.

Now that’s very different than say and I will use stoke as an example. You can imagine that if you try and treat a patient that suffered a stroke, say 10 years ago and they have longstanding damage that’s a very different proposition for trying to seek to treat somebody that just suffered a stroke within the last 24 hours, right. You can intervene early on before that scar tissue has started to accumulate and before a lot of that inflammatory damage is really laid ways to a lot of issue in the brain, it might otherwise be safe. So it’s an entirely different biological mechanism if you will or paradigm but it’s fundamentally different than what you might want to be doing for patient that suffered a stroke a year prior to that.

An in fact, this is exactly how we describe the GvHD prophylaxis study, in fact the analogy that we always use is that the forest fire analogy. If you’re trying to treat a patient that has got all full blown graft versus host disease where you’ve got immune cells that are kind of raging out of control. That is a very challenging thing to do people have been trying to go after that for quite some time, in our minds that’s kind of like trying to put the forest fire out, when it’s raging out of control but what we’re doing is we’re trying to put it out of the camp fire stage. We’re neutralizing those cells very early in the process before they have really begun to inflict a lot of damage and when things can be contained than neutralized.

Now I don’t want to make it sound like we don’t believe that MultiStem is going to have relevance in chronic indications. We absolutely do, we just think that there’s a lot of questions that we need to sort out and additional information that we need to generate out, to figure out how best to do that. But we are still convinced today based on a lot of work that we’ve done. That it’s going to have relevance in a broad range of different disease areas. I think it’s really important for people to understand. The Phase 2 clinical trials are the riskiest stage of development, roughly two-thirds of the things that actually are advanced in a Phase 2 trials, this is the study doesn’t pan out the way you wanted to. But it doesn’t mean that the therapy doesn’t work necessarily in many instances it’s because there is -- you don’t know enough about the endpoints pr you haven’t optimized the dosing strategy or a whole bunch of others things that you need to kind of sort out overtime. So this is the painful experience it was a bitter disappointment, not only for everybody here at the Company, I know it was very disappointing for the team at Pfizer and also disappointing for our shareholders. I mean I -- believe me I feel for each and everybody…

Jason Kolbert - Maxim Group

I will tell you Gil as an analyst who follows when I see a trial take as long and I see as highest swings as you were taking for people who have had the disease for 10 years, who have been refractory I mean it would have been a grand slam had it worked. But in error of clinical science, I don’t look at this as a failure, I look at it as a success because it’s very clear to me, if I were going to be running the next trial, how I would run it how I would structure it right. I often want to ask you a question what’s your confidence level that if you could go run another Phase 2 proof of concept trial now based on what you know, that you could hit the endpoint I know you are speculating. But I just -- I am trying to understand how informative this clinical science was to you and to Pfizer?

Gil Van Bokkelen

Well, I mean I’ll give you my personal view I am certainly not going to speak for Pfizer and won’t speak for anybody else. But I believe today, that if we ran a study where we were administering multiple doses of MultiStem overtime in patients that have inflammatory bowel disease that we would see meaningful effect. And what I have been saying publicly over the past few months is look we’re running this study eyes wide open just looking for some evidence that a single dose provided meaningful evidence of activity, okay. We didn’t see that, we have to be honest about it, it’s brutally difficult, but the reality of it is, is that we saw some enhanced may be at some things but the reality of it is that we didn’t see what we were hoping for. But to answer your question, I think if we ran a study where we were designing it do a more systematic exploration looking at different parameters related to dosing and duration of dosing and plenty of administration and things like that, that we would ultimately get to a point where we could achieve a meaningful therapeutic effect.

B.J. Lehmann

You know Jason, I think it’s worth noting, we haven’t completed all the analysis for the data yet and I think that there will be additional information that’s generated from the study that’s going to be very informative I think with respect to this particular question biomarker analysis for instance. We may get some clues from the second dosing that we gate, we don’t think that’s going to change the outcome necessarily but it might give us an insight with respect to repeat dosing. And frankly I think the work that Mesoblast is doing with Prochymal has been very informative I mean they are doing that, a repeat dose study in a similar patient pollution in a similar indication and that will be informative. So I think we would speak with more confidence later when we have that additional information then.

Jason Kolbert - Maxim Group

Thank guys I really appreciate the rundown and keep up the good clinical work. We look forward to following the enrollment of the stroke trial and ultimately that data as well as the other trials like GvHD even solid organ transplant, I mean, there is some really exciting things in here. Thank you so much.

Gil Van Bokkelen

Thank you.

Operator

Your next question is from Tracy Marshbanks with First Analysis.

Tracy Marshbanks - First Analysis

Yes. Good afternoon guys. A couple of questions and a little bit building on the prior discussion. Could you just sort of remind us may be the two or three things based on all of your research and study on MultiStem -- is that the best added dressing and maybe just line that up against a couple of your programs and sort of mechanism of action of why it’s ideal and your thoughts on how you’d address some of the other beyond IBD diseases?

Gil Van Bokkelen

Right, one of the things that we’ve seen very consistently across many different collaborative research programs and the work we have done here internally is that when we administer the cells, whether we administer them locally or whether we administer them systemically, they have an amazing biological capacity to actually recognize when there are signals of tissue damage, and inflammation and injury. And in fact we have seen using studies where we label cells and track and see where they go overtime but these cells have the propensity to actually home just like the tissue damage and injury in sight of inflammation.

And furthermore we viewed some techniques where we can really analyze at the molecular level, exactly what the cells are doing overtime, in a range of different disease and injury settings. And so we know because we have developed techniques overtime that allow us to do this, that when we administer the cells, that they’re not just doing one specific thing. They’re actually doing a whole range of things. Whether it is sub regulating regulatory T-cells or other cells that are responsible, like empty macrophage for driving the healing process or down regulating activated T-cells or other activated cells in the immune system. I mean they clearly have the capacity and are doing these things across a broad range of different models, and we see consistency, looking across a lot of the neurological injury and disease models we have looked at for example.

We have seen it over and over and over again. I think one of the things that is exciting to us -- and that is in stark contrast to what people see with single modality therapy, whether it’s a pharmaceutical or biologics. You can have biologics and pharmaceuticals that are incredibly powerful drugs and are capable of actually managing very powerful pathways. They touch on different things that are driving disease or exacerbating injury or disease. But the remarkable thing about MultiStem and the cells that we work with is, they are dynamic living entities that have the capacity to home to trouble spots if you will or other relevant organs and tissues systems in the body and exert their effect in multiple different ways and that’s unlike traditional drugs. And we have seen that and actually published quite a few papers actually that illustrate that. And as I mentioned have developed a deep understanding across a range of different areas around it.

When it comes to what are the points of real distinctiveness relative to other things that are out there, well, again I think stroke in some ways really provides a compelling example of that. People have been trying for years to develop a therapy for stroke and it has been failure after failure after failure, neuroprotection next-generation thrombolytics that could potentially extend out the window beyond what is currently possible with tPA and a bunch of other things. The reason why it’s an area of tremendous unmet medical need is because nothing has really worked or extended the clinical opportunity to intervene in these typed of patients, right? So we know it’s a really challenging area. But we have data from the studies that we have run without setting independent labs. That shows that if we administer MultiStem even within a few days after a stroke has occurred, that we see profound dramatic recovery, and we understand the mechanisms that actually enable that.

So we put our money where our mouth is, we bet on this program ourselves after years of hard work because we believe that it can make a difference in patients that have suffered a stroke and that we could do that in a clinically practical timeframe. Can reassemble some of the leading experts in the field of stroke medicine that are part of our team, and that doesn’t guarantee our success in this clinical trial or any other area. But the point is, is that we have worked incredibly hard and very diligently over the past few years to really develop a game plan and refine our thinking about seeing how we can address an area of tremendous unmet medical need. And that’s how we approach each and every one of our programs. We have always said we will not be successful in every area. We will learn unexpected things, with more engaging in clinical development, things that don’t translate to the results that we saw in the best available preclinical models. And that’s to be expected because that’s been going out in the industry for a long-long time. But if we are successful in only a few of these areas, or even one area like stroke, it’s going to create extraordinary value and it’s going to improve medicine and quality of life for a lot of patients who have had no other options.

Tracy Marshbanks - First Analysis

Great. A little bit more to the mundane, I mean with about 45 million on the balance sheet, that sounds like a fairly substantial amount of capital, but you know some of the spending in the trials, can consume some of that fairly rapidly. What’s your outlook -- is that two years of capital and then maybe just highlight the cards that will be turned over in that period of time, if the timing is about right. So sort of like, what are we going to know before we sort of get through another capital raising event, and are we leaving out business development, that may ease the burden in some of the programs and maybe a quick update on that side?

Gil Van Bokkelen

B.J.?

B.J. Lehmann

Yes, when we completed the financing at the beginning of the year our perspective was we wanted to put the Company in a position to have two years account and I think we feel pretty comfortable with that. Importantly we have capital get through a number of important events and milestones the leading one of course is the stroke data. I think our expectation our target is to have top-line data around the end of the year and that’s based on completing enrollment around the end of the summer that will be very important of big value collection point for the Company. We will be launching an AMI Phase II study supported by NIH grant funding which essentially lays off some of that clinical development costs you’re talking about which meets our expenses. That will be launched in the second half of the year, I think that will be important obviously that will be generating clinical data inside that two year period.

I think business development actually is the potential to be a catalyst, as Gil mentioned we have a number of discussions in Japan and I think could prove to be fruitful. We have additional discussions outside of that as well and they involve different indications that you might expect. And I think that could be a meaningful driver also. I think we’ll get clarity on our GvHD study, remember the idea there is to have a study that could be potentially a registrational study, so Phase 2/3 type study.

We made a lot of progress in advancing the design of that study we’re engaged with the FDA kind of through this period, right now I think we will have a perspective on that while we have told folks in the past that remains we are not going to launch that study until we feel like we’ve got the financial ware with all to carry that through so it would be a rather large study several years in length, potentially upwards of $20 million or so in terms of investment. So while I think it would be an important milestone to have clarity around what that looks like and could be important to some of our discussions on the business side, again we don’t launch that until we have partnership funding, or we’re in a different financial position to get that done.

But I think it’s sure we feel like we’re in a good financial position. Obviously we’re going to continue to mine that store pretty closely here at the Company we’ll be focused on the value creating aspects of the spend clinical development is going to be key there getting a stroke study done as soon as possible, obviously very important. And then we’ll be making selective investment as well, really oriented to what’s going to be important as next step. So the scale up on the manufacturing side to allow us to be positioned for commercialization which we need to have in place for Phase 3 studies, with some additional capability development the launch of AMI and so forth.

Tracy Marshbanks - First Analysis

Alright, thanks.

Gil Van Bokkelen

Thanks Tracy.

Operator

Your next question is from Steve Brozak with WBB Securities.

Steve Brozak - WBB Securities

Thank you gentlemen, thank you by the way for the candor on the call it’s one of those things where it is genuinely appreciated. Two questions, the first one on the Pfizer study can you give us any color as to what your ideas would be because obviously it’s not that these were just sick patients, these were very-very sick patients but they also had been administered or exposed to anti-TNF products severely -- how should I put this, immune depressing immune-altering products. What are your thoughts on that as far as what it may have done? What kind of color? What do you think you’ve learned from that? And then I have a follow-up question based on what are you going to take away from that given the other side on the stroke trial?

Gil Van Bokkelen

Yes, so the short answer to the first question in terms of what we’ve learned with regard to the patients that have been exposed TNF alpha. We actually have a tremendous amount of data that we saw to work through at Pfizer. We really haven’t developed a perspective on it yet. But we’ve been building kind of a list of questions that we want answers to as we interrogate the data and there is actually a team at Pfizer that we’re working with, that we’ll systematically go through that overtime. Right now they’re focused on accumulating and organizing all the data from the 16-week clinical evaluations. So that they get battles word away and then we can begin to have kind of the next wave of questions that we have. So there is lots of things that we’re very keen to look at and kind of develop additional information on it and additional perspective on, but we’re just not there yet.

Stephen Brozak - WBB Securities

Okay, obviously the next question, because now we’re talking about an equally debilitated population but in a different way. On the stroke side you know that one of the key things that you always understood and that you know for sure now is that the safety is not a concern in any way shape or form. So on the stroke side now it gives you a lot of flexibility in terms of different approaches either higher titration, either different focuses. What are your thoughts there in terms of how you’re going to approach it? Because obviously any kind of improvement in stroke is immense and it just takes even a small subset of population responding in a certain way give you something no one has ever seen before. What can you tell us about that?

Gil Van Bokkelen

Well so -- actually that is a good point, in terms of the dosing strategy that we employed with stroke, what we did was we first ran a couple of small cohorts early on in that trial where we did a low dose of 400 million cells and then a higher dose of 1.2 billion cells and then the independent data safety monitoring committee looked at that date and made the recommendation that we conduct the remaining part of the study at the highest dose level of 1.2 billion cells administered IV. The dose that was used in the Pfizer study we went as high as 750 million cells IV. So the dose is lower than what we used -- than what we are using actually in the stroke trial.

Whether or not that’s a factor here, I don’t know. I mean there is something again, the right way to explore that is to actually do a more rigorous evaluation and kind of dose ranging and looking at a whole range of factors overtime, and that’s not how this study was designed, hence it’s always 20-20 obviously. But I do think those are relevant questions to ask and I do think again it underscores that difference between trying to do something acutely, we believe for a variety of reasons that intervening in the stroke patients with the dose that we’re using would put us in a really solid position to generate a meaningful clinical effect. And we still feel that way and so we’re excited to complete the study, we’ve actually seen I think a lot of people participating in this study are actually very excited about it, we’ve seen a very good increase in enrollment over the past few months. And that doesn’t prove anything but frankly we think that there is excitement around the program and certainly we’re excited about the program for a good reason.

Stephen Brozak - WBB Securities

Well, that will put me into the last question. You obviously have now been exposed to a whole host of different clinicians, different types of clinicians. I’ll jump back into the queue if you don’t mind answering it. What has been the overall feedback, because obviously a lot of times clinicians look at data and they start to say if you did this or if you did that, has there been anything even if it’s just anecdotal now, where clinicians are coming back to you and saying, hey listen I have got an idea here. What kind of feedback have you gotten? And again thank you for the candor and for the update on this call, I’ll jump back in the queue after you answer that. Thank you.

Gil Van Bokkelen

Well before you leave Steve, are you talking about the stroke program in particular or are you talking about other programs?

Stephen Brozak - WBB Securities

Both, because obviously everything has been very topical as far as everything you have done, everything you are doing right now. You are on the…

Gil Van Bokkelen

Well okay, just in terms of clinical feedback overall we have historically seen a tremendous amount of engagement in each one of the clinical areas that we’re focused on. But in the case of the UC trial really Pfizer was responsible for managing those clinical and investigator relationships. And so really feedback that was generated was really kind of coming through Pfizer, because we weren’t directly interacting with those folks. We obviously have our own team of advisors that we interacted with, but not as sites in the study if you will.

We’ve had more direct interaction with people on the stroke clinical trial and again I think people are very excited about the program but what it could mean? On the other programs on a cardiovascular front and on the GvHD front, yes there has been kind of a constant flow of ideas and suggestions and people thinking about hey maybe we can go after this patient population and this would be a good next step or this is how we ought to think about approaching this particular type of indication and this is where major area of unmet medical need exists.

One of the great things about this technology is that this is the clinical experts and the scientific experts I think really understand what the potential of the technology could be and that’s why they want to work with us and be part of the clinical program and why they are keen to put ideas on the table and say hey here is how we can go after myocardial infarction patients or here’s how we can go after some of these other indication areas. And frankly we’ve seen and been exposed to a lots of good ideas in the various clinical areas.

For us what we’ve always tried to do is shrink it down to something that is clinically straight forward or as straight forward as possible and something that we believe is going to have real world utility. I’ll give you just a quick kind of for instance I know you probably dropped back in the queue. But we started doing work in the stroke area years ago. The first approach we took was to actually administering self locally directly into the brain. And for us that was about asking some basic scientific questions about what happens if we administer a small dose of cells directly into the brain, do we see evidence of any therapeutic effect? And it was very clear. We saw very strong evidence of therapeutic effect and we also got a good idea of what the relevant dose range was using that type of model. But we also knew from talking to clinical experts that that is not a very practical way to think about treating patients that have just suffered a stroke by sticking a needle into their brain, and administering cells directly into a pretty harmful environment.

So then we asked the next set of questions, what happens if we do -- if we administer the cells systemically and we do dose ranging there. And that is what ultimately provided us with a very strong foundation of evidence that says that we didn’t have to administer locally, or that if we have delivered systemically that we can see very consistent very profound effects there. Maybe that those two things are actually complementary to one another, we don’t really know that yet. But I think the point is, is that we’ve gotten lots of good ideas from experts and key opinion leaders over the past decade and we try to systematically explore these things but always with an eye towards looking at things that are clinically practical that we think could be implemented in a straight forward way to benefit patients and using kind of clinical simplicity as the order of the day if you will.

Stephen Brozak - WBB Securities

Well again thank you for the candid form.

Gil Van Bokkelen

Thank you.

Operator

Your next question is from Christian Glennie with Edison Investment Research.

Christian Glennie - Edison Investment Research

Hi. Good afternoon guys. And just on the upcoming events in terms of the way to plan out the next stages of your portfolio development I guess for MultiStem. Is there a sense at this stage that some of the other programs that you have looked into preclinical setting particularly around maybe like traumatic brain injury or MS or maybe other cardiovascular studies that you might look to advance some of those programs at this stage within given the UC trial outcome or in reality is it more likely that you will obviously you will wait for the stroke data for example before reassessing those kind of programs?

Gil Van Bokkelen

Well, we are constantly going after grant funding opportunities or other forms of support whether it’s through partnering discussions or other things that where people have the recognition and an appreciation for how the technology may have relevance in an area that they care about and that includes not only the neurological but cardiovascular, inflammatory, immune and other areas. So, I wouldn’t say that there is really anything off the table at this point. We are systematically exploring a range of these other areas including the ones you mentioned in the neurological space. And if we can get, by being able to garner a significant financial support for some of these programs it allows you to do more with your existing resource base.

But we also have kind of an order in mind in terms of how we want to attack things in various different areas and there is no perfect science to that, if you will, you have to be very thoughtful about your strategy and the package you want to employ overtime and we always try to be. And so, we try to, I mean really what we have done is we picked lead indications across several broadly defined therapeutic areas in cardio, neuro, inflammatory and immune, transplantation and alike. And we think that those lead indications are going to guide our thinking about the next wave of opportunities that we would advance in the clinical development. But around that we have been continuing to do extensive preclinical work and publish papers, make presentations and garner additional grant funding to support things that we are doing in each one of those areas. Does that answer the question?

Christian Glennie - Edison Investment Research

Surely, great. And then if you could just remind us of the AMI study and talk to bit of the size and scope of that trial?

Gil Van Bokkelen

So, basically that design is a well controlled blinded Phase 2 study and we are still refining some of the specific particulars around that, so I am not going to get too much into the detail there. But basically it’s designed to look at different doses as well as the controlled group, so that we can actually build-off the data that we generated from the prior clinical study that we ran. It’s focused on a slightly different patient population than we used in the first clinical trial but again that’s based on information and experience that’s been generated overtime. So, if you recall in the initial clinical trial that we ran with the Cleveland Clinic and some other leading clinical sites like Henry Ford and Columbia-Presbyterian in New York.

We saw some pretty meaningful evidence in fact some of it was statistically significant, understanding it wasn’t a double-blind placebo-controlled study. But we saw some improvement that was statistically significant in patients that showed a pretty profound improvement actually in heart function after treatment with MultiStem. And in fact the effects of that following a single dose were sustained. We followed those patients out for a year and in particular we were looking at them at four months in one year and what we saw was pretty meaningful robust improvement in heart function in these patients and that’s exactly what we are hoping to see. I mean it was designed as a safety study, it wasn’t designed to be powered to look at efficacy but even despite that we saw pretty statistically impressive performance improvements in patients that were in the study.

B.J. Lehmann

Yes I think as we approach launch there perhaps even in the next quarterly earnings call, we will provide a little bit more clarity in terms of expectations around that program.

Christian Glennie - Edison Investment Research

Okay, great. And then finally just if I may, an update a bit more on Japan, you mentioned them having sign up a CRO or to start like getting the ball I think on that side and how about other things like the sort of discussion with the regulators and development partners I guess?

Gil Van Bokkelen

Yes, so we are busy in both fronts, I mean we have had numerous discussions with folks at PMDA and we are engaged in the process right now. And PMDA recommended to us that we actually engage a CRO in Japan which we did and so we have been busy working with that team over there and have meetings upcoming and other things that are ongoing as we look to refine our planning around what we intend to do clinically over there. The initial focus is the conversation that’s revolving around stroke but as I mentioned in my comments earlier, we are very much focused on kind of the next wave of clinical activity which will revolve around what we are doing in the AMI study and then other things that we could be doing behind that as well. I mean I honestly believe that almost any of the areas that we are thinking about doing clinical development in with MultiStem that Japan is going to be relevant for us.

And the thing that is, I think exciting to see is that two years ago when we were talking to companies over there or frankly trying to engage in meaningful discussions with companies over there, a very few of them had any level of interest if you will in the field of regenerative medicine because it was an area they just hadn’t been exposed to, they really didn’t understand that it, they weren’t familiar with it well that’s changed pretty dramatically over the past few months. And now we’d say that it’s the majority of companies in Japan that are actually exploring opportunities in the Regenerative Medicine area.

And frankly, it’s not just too similar from what’s happened over the past several years here in the U.S. the lines for Regenerative Medicine just recently published its annual report, where there was a survey conducted of the top-20 or so big biotech and major pharma companies and every single one of them with that exception has an effort in Regenerative Medicine now. And three years ago if companies had a program in Regenerative Medicine very few of them were talking about it publicly.

So I think it reflects a growing appreciation and recognition of the fact that Regenerative Medicine has tremendous potential and can reach into some of the areas that these have not really been able to get into, as reaching the way that they would like using more traditional approaches. But it does not mean that we’re going to be successful in each and every area that I say we I mean the field or it does not mean we’re going to be successful in each and every opportunity for each and every these indication we latter that will not be the case. And we’ve said that for a long time.

Christian Glennie - Edison Investment Research

Sure. That’s great. Thank you.

Gil Van Bokkelen

Thanks, Christian.

Operator

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

Gil Van Bokkelen

So just to conclude and wrap-up, we will provide additional updates as appropriate related to our clinical and partnering progress in the weeks and months ahead. And in the meantime we would like to thank everybody for their continued support. I know this has been a very difficult time for our shareholders, it’s been a difficult time for us here at the Company, but I can assure everyone who is listening in today that we just as committed as we have ever been with respect to developing our programs and our technology. And we’re going to continue to keep at it. And in the meantime we’d like to thank you for your support.

Operator

Thank you for joining, ladies and gentlemen that concludes today’s conference call. You may now disconnect.

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