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Geron Corporation (NASDAQ:GERN)

Q3 2010 Earnings Call

October 29, 2010 11:00 a.m. ET

Executives

David Greenwood - EVP & CFO

Thomas Okarma - President & CEO

Analysts

Joel Sandek - Lazard Capital Markets

Reni Benjamin - Rodman

Mark Monane - Needham & Company

Steve Brozak - WBB Securities

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Geron earnings conference call. My name is Kristal, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator instructions) I would now like to turn the conference over to your host for today, Mr. David Greenwood, Executive Vice President and Chief Financial Officer. Please proceed.

David Greenwood

Thank you. Good morning and welcome to the Geron third quarter call. I am David Greenwood. Tom Okarma is with me. This is an earnings related conference call, and we will begin with a summary of operating results for the quarter. Our agenda then includes an overview of recent operating highlights at the company and a summary of our operating plans for the remainder of 2010 and to 2011. Following that update by Tom, we will have a general Q&A session.

First, two informational items, in the event of forward-looking statements that are made during this call, please understand those comments are made subject to the Safe Harbor provisions of the Securities Act of ‘95. Any forward-looking statement involves uncertainty and we refer you to the risk factors detailed in our filings with the SEC. Secondly, participants are currently in listen-only mode, the lines will open for the Q&A, the call will be available for webcast replay until the end of November and we still have our website for constructions.

Revenues from license fees and royalties were up over the comparable three-month period in 2009 and the comparative number for nine months year-to-date is also up over 2009, but the 2.5 million level for nine months, these numbers are not overly significant. Other cash inflows to the company during the quarter included 220,000 of interest income, a smallish amount that reflects the positioning of the yield curve. Our marketable securities portfolio remains intact with no write-downs or provisions for write-downs.

Third quarter R&D expenses were flat period-to-period, but that is coincidental and mostly a function of timing differences in purchasing drug products and funding clinical trial sites. Nine-month R&D expenses were slightly below the 2009 number, but again coincidental and for the same reasons. G&A expenses were up for the quarter and the nine-month period which reflects consulting expense and of course non-cash stock-based compensation expense.

We end the quarter with 146 million cash on the balance sheet. Our current running rate net burn number is in the 48 million annualized. So, the company is funded for the near-term.

Thomas Okarma

Thank you, David. Good morning everyone and thank you all for dialing in. The big event in the quarter was really the October 11 announcement that Geron initiated the world's first embryonic stem cell trial in patients with subacute complete thoracic spinal cord injury. This was obviously a major milestone for Geron and for the field.

We got a great deal of global news coverage. Diane Sawyer's evening news program were covered in China, Japan, the U.K. and all over Europe. So, it was a nice celebration of a lot of work on having them accomplished. So, currently, we have two sites in the U.S. that are enrolling patients. They are screening patients. We expect to initiate two more before year's end and two to three more early in next year. And these sites will be with us for the complete program as we progress from low dose complete thorasics, through dose escalation studies and advancing the study into the cervical patients.

While we will not be commenting patient-by-patient or week-by-week, given that this was the first subject. But I will comment that the injection was completely uneventful. Patient is doing fine and the first repeat MRI showed no deleterious impact from either the injection or from the injected cells which is precisely what we have hoped and expect. So, we are off to a good start.

Secondly, in early October, we announced the launch of the GE Healthcare human cardiomyocyte product for drug discovery and tox screening. This was really another milestone for Geron in the sense that it is the second royalty bearing to Geron product that we launched this year. The first being was the being the Synthemax flask for. Growing without feeders for attachment proteins embryonic stem cells. That's deemed a co-development project between Geron and Corning Glass.

So, the GE cardiomyocyte product is a step forward, generally in the sophistication with which drug discovery and tox screening can be performed. And they know that before this product was launched, the only way to do tox screening was with animal Purkinje fibers, which are problematic. Their spectrum of sensitivity to different high-end channel blockers does not resemble that of man. There is a lot of extra work one has to do to normalize the base line before you get the read in these older animal assays.

These are completely normal human cardiomyocytes and they can be used for a variety of screens from manual patch clamping which is the standard way that drug companies examine the impact of a drug on calcium or hERG dual channel blockers all the way to high content screening where you can use some very sophisticated imaging software to clear a lots of metabolic pathways within the cardiomyocyte cell.

I think moreover, this is additional evidence on that once again. Cells that we make from embryonic stem cells are in all respects completely normal. You may remember that we are coming to the end of a major in-life pig study, these are large pigs. We already have a good evidence that after infarcting the pig, waiting for a month and injecting the human cardiomyocytes in to infarct zone, we have significant improvements in contractility. We are waiting to receive the data which will hopefully demonstrate that we do not induce arrhythmia with these injected cells. So, that report will come out, we think, in the first quarter of next year. So, that project is going really very, very well.

The next cell type that will be commercialize will be the hepatocyte which probably has a greater market opportunity given that this is the master cell that will be used to determine not only the effect of the drug on human liver cells but the way in which human liver cells metabolize and react to the drug.

So, that's coming in the future. And thirdly, we announced in September the progress with our collaboration on chondrocytes. We had initiated this project with U.K. funding at the University of Edinburgh. Brendon Noble, the principal investigator moved to the University Campus Suffolk, where the project is now underway. We have retained significant funding from the U.K. from the Suffolk County Council, from the East of England Development Agency and from the University Campus Suffolk itself.

You will recall that we reported that this chondrocytes which are articular, meaning they are designed to repair joint spaces showed excellent cartilage repair in injury in to the knee of non- immune suppression rats and we kept these animals alive for nine months. At the end of that period, you could not tell unless you used a human probe where the rat cartilage ended and the human cartilage begin. There was full integration and an absolutely normal biopsy and of significance is the fact that these cells restored subchondral bone which has never been demonstrated by any cartilage cell injection before.

I want to emphasize again that this cell type does not even need immune suppression in the xeno-geneic cells. So, this is also being done now with the large animal model, the sheep at University Campus Suffolk which is obviously, the iron-test of these cells in a larger animal and weight-bearing joint.

This is a testimony to the very protected immune status of these embryonic stem cell derived cells. We have demonstrated that human embryonic stem cells, the OPC1 product with spinal cord injury, cardiomyocytes and now chondrocytes are just not recognized by the human immune system

We are on track in terms of other ongoing projects to initiate three Phase II trials of our Telomerase inhibitor drug Imetalstat, a large randomize Phase II study in breast cancer and two smaller Phase II, one in multiple myeloma and another essential thrombocytopenia that will all happen by the end of this year. We are enrolling very well in the ongoing randomize Phase II for a non-small cell lung cancer. There are now 24 U.S. medical centers that are screening and enrolling subjects in that trial.

We have been very busy presenting the company. Just run down the talks that you've given. I gave a plenary lecture in Amsterdam at the Biospine Conference in early September. We presented at Rodman & Renshaw, Stifel Nicolaus and UBS, all in New York in September. I gave a plenary at the World Stem Cell Conference in Detroit in October. And that talk was filmed by C-SPAN which has since televised that lecture.

We presented last week at the NewsMakers in the Biotech Industry meeting in New York. I will be speaking next week in Singapore giving a plenary at the Stem Cell Society symposium. We will be presenting at Lazard in New York in November. And we will be presenting at the JPMorgan Healthcare Conference in San Francisco in January.

So, this is going to turn out to be a very good year for the company. We will literally have achieved all of the company's milestones that we set out to achieve at the beginning of the year, which in summary are initiating for Phase II studies of our cancer drug Imetelstat, completing the final evaluation of minimal residual disease disease-free survival in our Phase II AML study of the vaccine. And that will be presented at the ASH meeting in December.

We've initiated the Phase I trial in spinal cord injuries and we are well on our way to execute and finish the remaining preclinical studies in animals that will enable us to expand the trial to the much more common cervical injury patients.

We have completed the in-life phase of the large animal efficacy study for cardiomyocytes. We are now manufacturing cells for the IND enabling studies. And of course, I should mention in the context of the GE Healthcare product launch, we have successfully transferred the manufacturing process from Geron to the U.K. So those cells are being made in GE Healthcare's facilities under our direction.

We have now established proof of principal in a diabetic animal for our embryonic stem cell derived islets. It's a very nice study showing that the cells and graft. And after their endogenous islet cells are destroyed with the drugs streptozotocin the animals for weeks and weeks remain normal glycemic until they sacrifice to examine the graft.

We will complete the initial proof-of-concept study in large animal for chondrocytes by end of this year and we have pushed the button to begin our IND enabling studies on our Telomerase Activator small molecules GRN510.

So, a good year. This is now a clinical development company on both sides of the aisle in oncology and regenerated medicine and with that I welcome your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Joel Sendek with Lazard Capital Markets. Please proceed.

Joel Sandek - Lazard Capital Markets

Hi. Thanks a lot. So, for OPC1, it seems like you are going to have a lot of sites, can you tell us what your anticipated rate of enrollment might be and when we might get any sort of data from any of these patients? Thanks.

Thomas Okarma

Well, for the beginning, we are limited to one patient a month by the FDA. And that limitation will be lifted, we assume, after three or four patients are enrolled. The rationale was to be sure that the trauma of the injection would not exacerbate any of the patient's symptoms. And as I mentioned, we have good evidence now that first injection did not do that. So, as soon as we have two or three more patients enrolled, we will petition the agency to remove that governor from enrolment, which will enable us, we hope, to enroll this for a study of up to eight patients by middle of next year.

Now, in terms of data, we are going to wait until the appropriate follow-up period is accomplished for the whole group before we say anything about safety, feasibility or any efficacy that we see. And you have to remember that what we are doing is we are trying to rebuild with living cells the injured spinal cord and from the animal studies, we know, that it takes four to six months before these cells have fully amplified numerically. They divide before they have fully migrated within the lesion and before they have matured from the progenitor stage which is what they are at when they are injected. So, fully differentiated, integrated and myelinating on the oligodendrocytes.

So, this will require some patience not only to achieve that follow-up period for the group, but also equally important to determine if any clinical improvements are durable. So, it will be a while before we are reporting any data. I think the next major move for us will be to leverage the safety data that we generate hopefully in this first, low-dose thoracic cohort to start dose escalating and the thoracic and in the cervical cohorts.

So, as you remember, the thoracic-injured patients are relatively rare because of car air-bags in this country. But we started there at the insistence of the FDA which we agreed with because if there was any toxicity, which we don't expect. But if there is any, it will not be a significant long term impact on the patient because the thoracic injury is very far away from the respiratory centers. So, we do need to show safety in the thoracic patients before we move to the cervical patients. And frankly, it's the cervical patients where we do expect to see a greater amount of efficacy.

We've seen that now in the cervical animal studies. And the reason for that is in the cervical region, there are many cell bodies. And these glial OPC1 cells do more than myelinate. We now know that they induce neovascularization and they also secrete families of biologically active neurotropins. And the cell bodies sparing that we demonstrate in the animal model is not due to, in the cervical region, it is not due to in a cervical regions not due to myelination it's due to these neurotropins that the cells secrete which enable the cells themselves to resist the toxicity of the injury.

Joel Sandek - Lazard Capital Markets

Okay. That's very helpful. Thanks for the detailed answer. But, kind of, just sum it up then for the first eight patients. It doesn't seem like you are getting to these things maybe for at least a year, could it roll into 2012 before we see?

Thomas Okarma

No. I would say, you will hear something about this in the third or the fourth quarter of next year.

Joel Sandek - Lazard Capital Markets

Okay, great. Thanks a lot.

Thomas Okarma

Sure. You are welcome, Joe.

Operator

Your next question comes from the line of Mark Monane with Needham & Company. Please proceed. Mr. Monane your line is open. Alright, your next question comes from the line of Reni Benjamin with Rodman. Please proceed.

Reni Benjamin - Rodman

Hi. Good morning, everyone, and congratulations on a very incredible feeds. It is really a testament for you guys in your effort. And I guess, to start off with, regarding the final quarter trial, is there any additional details, Tom, you can give us regarding the first patient? Obviously, you want to get into too much of this. Can you give us a sense of, you know, where the thoracic break maybe and how severe of an injury was it? And has the patient already been discharged from the hospital or do they stay there throughout the first month. Can you give us any color along those lines?

Thomas Okarma

Very simply, Ren. This patient was spot on within the predetermined eligibility criteria which means that first the injury was severe, meaning it's a complete thoracic injury, yet injury, yet the comorbidity, in other words, damage to lungs, or abdominal organs was minimal, so that the likelihood of the patient surviving the trauma was high. So, that we have a follow-up period. That's the rationale for that. Clearly, we were able to visualize the patient's entire central nervous system with MRIs. So, that there was by any occlusion by any rod placements.

Generally speaking, the way spinal cord injury is treated in the United States today, they first get stabilize medically at the local hospital. They will then medevaced to one of the neurotrauma sites in the country. And obviously all of our sites are neurotrauma referral centers. And when the patient is received there, either there is further stabilization surgery or verification that the fracture or displacement has been stabilized. And then the patients are carefully examined by multiple physical exam modalities and MRIs and vivo potentials to confirm that the patients are indeed complete thoracic injuries, meaning between P3 and P10 as the last functioning segment. And that's all pretty specified in terms of the protocol.

After that point, the patients receive a second MRI and if they thus far qualify, then informed consent is applied on multiple occasions with patient efficacy to explain to the patients other options besides enrolling in the trial. Then if the patient can sense more than once, another MRI is performed. And then on day 14, after the injury, the actual injection takes place.

On terms of the follow-up, this really is a critical issue. So, all of the clinical trial sites that are a part of this trial, not only have premier neuro surgeons and neurotrauma support services, but they have affiliated rehab centers which is where the patients go within a week or two of the injury for rehab and stabilization post-op. That can take place anywhere from 7 to 21 days after which time, the patients are returned to home. So, that's a pretty dramatic change in the way severe spinal cord injury is treated in the United States. They use to be in rehab centers for months. In complete injuries there is really no benefit to that. So, once the patients are medically stable, they are discharged to home.

And that's what adds another level of complexity to this trial because we are following these patients with nine MRIs and monthly physical exams for the first year, which means that a trained group of investigators gets into a car and drives to the patients home every month to apply these instruments, physical exams and such in the patients home. And this is critical for both demonstration of safety and for the reliable detection of any clinical efficacy that these exams which are very laborious and take hours are performed exactly the same way hopefully by the same individuals for each patient overtime.

We have a central data base, where all of that information is channeled and analyzed by yet again another set of neuro-surgeons. All of the MRIs that are taken throughout the study at multiple centers are likewise evaluated centrally. So, what we are trying to do is minimize any observer or temporal related bias in the data collection, both, because we need to document safety in all progression as well as we need to be really sure if we see some early signs of efficacy that that is real. And that's why the inclusion criteria are so strict that this be a bonafide complete injury for which spontaneous recovery is vanishingly rare.

Reni Benjamin - Rodman

So, following up on that -- and that it seems that the patient has had their, I guess, it would be their fourth MRI after the injection?

Thomas Okarma

No. We have MRI after day one, after day seven, which is the MRI I reported on earlier. And then it's monthly.

Reni Benjamin - Rodman

Okay, okay. Got it. And I guess, now that the first patient is enrolled and I think we have talked about this in the past that maybe things have changed, you know, the first person to have come through. What in your mind are still the gaining factors for the enrollment of patients? Is it still the stringent criteria, since the first patient has come through? Maybe now there is a greater awareness and a greater interest not just for the sites but also from potential patients? Do you have any sense as to what's happening in the community and how it could affect enrollment?

Thomas Okarma

Well, I think, one of the hidden benefits of being put on hold again was the period of time, during which the community became aware of this option to treat severe spinal cord injuries. So, I think it is pretty evident that, lot of kids in grade school know about the embryonic stem cells spinal cord trials. So, I think that there is adequate dissemination of this availability out there. I can tell you for certain that all of the spinal cord patient efficacy groups have this trial front and center on their websites. And what normally happens in the horrifying period, right after such a devastating injury is that family members immediately contact the patient's efficacy groups wanting to know, where they should go? What should they do? What are the available opportunities?

And these are the folks who advocate it will be too strong but they allow or enable the family to become aware of where these trials are being done and what the status of them is. I don't know, Ren, that having one patient in under the bar, is going to significantly help subsequent patients decision making or not. I mean this is such an emotionally wrenching event to happen to a completely healthy, normal active 25-year old or 35-year old. That's the general age range at which these severe injuries occur. That is hard to predict. And I think, each patient is going to have their own story, quite honestly. I think the point you are driving at, Ren, is valid, you know, after we are able to report that the first six patients have had no untoward effects over a period of time, from this intervention. I think then the barrier to entry will be significantly lower. But until we know we have the data to report, all of the issues are really defined and controlled by the regulatory clinical protocol, that, you know, is rigorously designed for the patient safety.

Reni Benjamin - Rodman

Got it. Just switching gears to the GE collaboration. Can you talk a little bit about, just maybe some of the details of the collaboration? Is it a royalty based collaboration or is it more of a sort of profit sharing, 50-50? How are these -- In your talks with GE, how are these cells going to be priced? And it seems like the numbers or the potential market here could get quite big, especially when you are screening for toxicity. And so, is it possible to just give us a better sense about this?

David Greenwood

Well, I will answer this question in sort of reverse order. I think you can predict that GE Healthcare can't engage in a technology development program if they don't anticipate that the market size warrants that. So, as you know, we have known of this application, this utility for themselves for metabolism tox screening forever. And we wanted to work with the best partner and that's someone who bring sophistication, brings technology platform, knowledge awareness, and marketing distribution capability. So they were a good choice, I think. I will tell you we modeled the different applications and markets that we thought would make sense and GE didn't say much more thoroughly than Geron can do that and I would tell you their numbers end up more aggressive than ours.

I can't disclose what they -- I have seen the market. The respective markets and applications would be. But they are enthusiastic. I think with respect to guidance, you know, I have to say, we will see what we book quarter-to-quarter and how it grows. Tom mentioned that hepatocytes will follow. And that's a very important cell obviously and it doesn't stop with two cell types. And there are potentially more applications then just doing retrospective studies with known drugs and trying to amplify from there and so on. There is a number of ways these cells can be very useful and one of the things that GE is doing is to establish some relationships with the larger pharmaceutical companies to explore all of those applications. So, they have been testing a number of different utilities. And I think we'll learn about those as we go forward. We know more than I can describe right now because obviously we work closely with GE on this. How are they selling in a couple of different classic ways? They are short catalogue items at the end of the day, you can buy the cells and at the same time, you can subscribe to a relationship with GE and then work with you as I was describing a minute ago. So, we are delighted that this is off the ground in good hands and we will see what develops from it.

Thomas Okarma

And all of that is correct. I just need one addition. We are highly confident that this is going to be a successful first product launch. Because we had these cells pressure tested by ChanTest which is of commercial concern not connected to either GE or Geron that performs cardio tox screening. So, they did head-to-head comparisons of these cells versus dog and rabbit Purkinje fiber system and for a number of important commercially relevant parameters, these cells were superior. So, the product is distributed as a frozen stab of human cardiomyocytes which when thought and cultured are certifiably good to go for a period of two to three weeks after they are fine.

So, it's a very simple point of sale. It is shipped frozen and the user can put it in their deep freeze for six months or use it, the next day after receive. So, there is user friendliness in all of this. So, we will see how this progresses. There might be opportunities to alter the format of the cells such that the product is sold at different way. That would make it a little more amenable for medium throughput screening and that would considerably enlarge the market opportunity. That's particularly relevant for the hepatocyte product. So its early days. We are not going to make predictions. But we are confident in the functionality of the cell and its superiority to all of the standard methods of cardio tox testing that are available worldwide.

Reni Benjamin - Rodman

Maybe this is a follow-up and maybe I just missed it, but when do you think that sales will begin and how should we view the collaboration? I mean is it a royalty? Is it something more that you are providing themselves for cost and then they are selling it on their own? Can you give us some sort of sense there?

David Greenwood

Well, you can buy the cardiomyocytes today and our structure is a license arrangement and it is royalty-bearing?

Reni Benjamin - Rodman

Okay.

David Greenwood

We are manufacturing the product. We transferred the cardiomyocyte manufacturing process to them last summer.

Reni Benjamin - Rodman

Got it. Okay. And I guess, just moving on to GRNVAC1 and the expected results. Are we still expecting those results at ASH this year and just sort of your thoughts regarding the program going forward?

Thomas Okarma

Yeah. I mentioned in my comments that the data will be presented at ASH. They are now embargoed. So, I can't talk about the data. They are positive. And we're not going to comment much today on what the development path going forward is. Clearly, the commercial potential of VAC2, the embryonic stem cell dendritic cell product far exceeds that of VAC1 for all of those reasons that you know as well as I. Moreover, the cost of goods is much lower for that two. The ability to load that two cells with multiple cancer antigens is quite real. VAC2 will be a frozen, ready-to-go, ready-to-be injected, preparation unlike VAC1, which is frozen, but it's prepared on a patient-specific basis. And unlike VAC1, VAC2 is unencumbered by patient genetics and patient's disease or patient prior chemo-therapy? So, I think from those comments, you might be able to guess what we are thinking?

Reni Benjamin - Rodman

Got it. And just one last question, the Non-small cell lung cancer trial that's ongoing. Can you give us a sense of -- you know how that's progressing and when enrollment maybe complete? When we may see some data?

Thomas Okarma

Well, the program is powered, structure and sized to have the first significant readout in mid-2012. And thus far we are on target for that.

Reni Benjamin - Rodman

Okay. Thanks. Great, thank you very much and congratulations.

David Greenwood

Thank you, Ren.

Operator

And our next question comes from Mark Monane with Needham & Company.

Mark Monane - Needham & Company

Hi, can you hear me?

David Greenwood

Yeah, Mark. What did you do, fall asleep?

Mark Monane - Needham & Company

No. I am having technical challenges with the buttons on the phone, which brings me to my next question on challenges in conducting the Phase II trials. You spent a lot of time updating us, thank you, on the embryonic stem cells. How about an update please on the progress of the Phase II trials especially, any update on difficulties with the quadruplex I think you described before has that been resolved?

Thomas Okarma

Well, I mentioned that we are now enrolling 24 U.S. medical centers that randomize Phase II non-small cell lung cancer and that the enrollment kinetics are going fine. Remember that we are simply taking Class 3B and 4 non-small cell lung patients, putting them through standard of care platinum doublet induction and then randomizing them two to one into the Imetelstat arm versus standard of care.

So, there is a very little alteration in the standard flow of patients with non-small cell lung cancer, which is why we don't expect any issues in the enrollment kinetics. The issue you ask about G-quadruplex, we have structured and arrived at a dose and dosing interval for the non-small cell lung that, in our Phase I studies after which this design was modeled had minimal toxicity to bone marrow. Here, unlike the breast cancer program, patients are being treated with Imetelstat in the maintenance setting with Imetelstat alone. Other than the small minority of patients who will come in with adenocarcinoma who will be induced with Avastin as well as platinum doublet. So, if those patients are randomized to the Imetelstat arm, they get Imetelstat plus Avastin in the maintenance arm and we have shown that there is no additive toxicity between Imetelstat and Avastin and. In fact it is the opposite. There is an actually an anti-VEGF activity that we have demonstrated from Imetelstat. We don't expect to see any dose limiting tox that would prevent us from having patients in the non-small cell trial be treated with multiple cycles of Imetelstat.

And obviously this is a direct test of the cancer stem cell hypotheses because this is designed to de-bulk the tumor with standard induction chemotherapy times four, and then in that de-bulk setting, use Imetelstat to wipe up the residual chemotherapy resistant cancer stem cells and that's why we powered this study with a hazard ratio of 0.5 to demonstrate a doubling of the progression free survival in this disease. The breast cancer study is similar, but here we are adding Imetalstat to the standard of care. And this study is also designed after a very successful Phase I, which we presented at ASCO this year that showed a 53% response rate with a median duration of 21 months.

And in that study we were able to show better, early uncontrolled small sample results, even though there was a Taxol sparing effect. And since, this hasn't been published yet, but we have demonstrated synergy in vivo between Taxol and Imetelstat. So, the simple take on point is that all of the elements of these two randomized studies are based on both Phase I clinical trials experience in man and in vitro evidence, demonstrating synergy and the absence of additive tox of Imetelstat with the companion drug.

Mark Monane - Needham & Company

Now, that was helpful. And then a follow-up also on the safety issue. When one say safety, one is left with a very challenging, and technical problem when one has to just prove something that doesn't exist or prove something that isn't there. And when we are thinking about safety, as a position, I want to know who you are, I am thinking about the embryonic stem cell trials. Are there going to be any earlier indicators which may suggest that safety of the product meaning that do early new problems happen earlier rather than later and if they know problems earlier or later, how do you think about this safety issue overall?

David Greenwood

Sure. That's a good question because everybody is worried about that, right? And also, you are right to ask the question. So, the first index of a form of toxicity would be from the MRIs. So, if we see multiples small cystic structures that would be worrisome. Because we have a baseline and an immediate post-injection MRI, that should delineate the beginning of the initial cyst. Okay? And if we should see over months the formation of a growing secondary cyst, that would be worrisome. And those were consistent with symptoms of alodinea, increased neuritic pain, or spreading of the area of anesthesia or dysfunction, we have a protocol to intervene, surgically to reduce the swelling in the cord.

Conversely, what we would hope to see is a diminution in the size of the central cyst which is what we saw in all the animal studies because the cyst fills with these human cells that are remyelinating the demyelinated axons. So, that's the purpose of the MRIs to look for structural evidence. These are adverse events that may or may not be reflected clinically or histologic -- radiographic events suggestive that the graph is taking and expanding.

The physical exams though are the most direct way to determine if efficacy or toxicity is having a clinical impact. So, we are monitoring this patients routinely with a battery of neurologic algorithms, physical exams, evoke potentials, new instruments that have been developed, some by our principal investigators. So, these patients are getting incredibly, aggressively scrutinized from a neurological perspective monthly. So, the comfort we have in terms of the patients is that we will be using every available intervention to detect early any adverse events and to detect and monitor any positive clinical impact.

So, the scrutiny that these patients are undergoing which frankly is one of the issues in the informed consent form because these patients normally go home and they are not seen again for a while. This is quite the contrary with patients that are in this trial. For some, that's an attraction that we monitor closely with the therapy that in animals that was very promising. For others it's a burden because they have to be examined and come back to the hospital for repeat MRIs more often that would be the standard care.

Mark Monane - Needham & Company

That's very helpful. Thanks very much for the added information. We'll look forward to the progress unfold.

Operator

And the next question comes from the line of Steve Brozak with WBB Securities. Please proceed.

Steve Brozak - WBB Securities

Hey, good morning gentlemen. I apologize for phone problems here. But it seems like everyone is having difficulties on our end on the East Coast. I want to basically ask a question that is 90-years old really. About 90 years ago, the advent of insulin took place and there was a real problem in the very beginning in terms of manufacturing when people realize the great potential that it had and there was a bottleneck took place. And that bottleneck really put a damper on the expansion, the research and the utilization for patients. And obviously there is many, many different indications. Can you address what type of issues you might see, obviously if we should start to see some results that are positive in addressing that bottlenecking issue? And the second and more important question would be, given positive results, there would be a large number of potential collaborators that would be willing to work with you. What kind of bottlenecking issues you might just see there as well?

Thomas Okarma

Well, first of all, the clinical development plans for all of the embryonic stem cell programs are integrated with the manufacturing plants. So, to be trivial, we already have stored here enough cells to get through the entire Phase I program in spinal cord injury. So, we will always be ahead of the utilization curve for the clinical demand. That doesn't include commercialization. I will come to that in a minute. We are also taking steps to increase the efficient utilization of the cells we have already manufactured.

So, for example, the syringe positioning device that we invented and qualified, it was part of the IND acceptance, has a commercially available needle, which has a very large dead volume. So, we have a 2X loss of cells due to the dead volume in the needle compared to a new needle that we are developing that has few microliters of dead volume.

That actually has a huge impact on the consumption of cells in the clinical trial. As an example of our investment in process development sciences, another example is the Corning relationship. So, the Synthemax surface which is today commercialized in flask format, which is how we are using it in our manufacturing facility. Well that's probably starting. That can be fabricated in the bead format for -- and this is the part of commercialization. We could never satisfy even a meager commercial demand for any of these applications by manufacturing in flat surfaces. So, we have to go first to the GE wave bag. But these are anchorage-dependent cells. So, we need a solid support to enable the cells to grow and expand in the bag and that's where the bead format of the Corning Synthemax surface comes in. We already have beads with the synthetic peptide on them and we demonstrated for cardiomyocytes that we can expand the undifferentiated cells on the bead and do direct differentiation to fully functional beating cardiomyocytes on that bead. And that's how we segway from the current manufacturing capacity to a very large bio-reactor. First the wave bags, and then standard bioreactor likes are used in the manufacturing of monoclonals or recombinant products.

So, it's really important that everyone understand that this is the only cell therapy platform that can be adapted to bioreactor growth. So, that ultimately the production runs for each of these cell types will be sufficiently sized to service hundreds of thousands of doses. And the expandability of the master and working cell banks is virtually infinite.

So, we've already calculated that if we were to consume all 250 vials of H1 master cell bank of undifferentiated cells, dedicated at today's scale for OPC1, we would have enough material to service the entire spinal cord injury marketplace in North America for 22 years. So, if this scalability, low cost of goods, large lots size, quality control, uniformity of product elements of our manufacturing program are very, very strong. So, it will require investment. It's requiring process engineering now which is undergoing today to anticipate all of these. But we have all the technology and intellectual property rights in hand to address the question that we hope we have to answer.

Mark Monane - Needham & Company

Okay. That was a succinct 22-year answer there. So, that gives you the answer to what happens if the hope for success takes place. You know, that brings us to the next part. There are only 24 hours in a day, seven days a week and you guys are going great work, I think. What would then happen with that fact that, obviously success brings success. You would then have a situation where other people, other researchers both, private institutions, hopefully corporate America would finally get on the dime. And possible even, and definitely, other potential entities that are actual nation states, might become very interested. What would be a hypothetical there in terms of being able to expand your bandwidth?

David Greenwood

Well, I am not going to get too far down to speculate the pathway with use fee. But obviously, the capacity to scale the manufacture this product can be viewed, because of its efficiency in similar fashion to the monoclonal and recombinant DNA industries. We can have contract manufacturers. We can do joint ventures with other parties and create a jointly operated and funded manufacturing facility. We can expand our own manufacturing capability here. We have all of the traditional options to collaborate, outsource the manufacturing that any biological use today has. And that's the point I am trying to make. This is not an adult stem cell program. This is a cell therapy product that can be scaled in exactly the same way as a biological.

Mark Monane - Needham & Company

So, to recap the platform itself can be scaled and the only rate limiting step is the “Venture Collaborators Creativity” in terms of what indications they decide to go after.

Thomas Okarma

Well, sure. I mean, we are currently working with four different academic centers on line extension opportunities for OPC1, right?

Mark Monane - Needham & Company

Fine.

Thomas Okarma

And now that we know what these cells do, we are looking at stroke, we are looking at Alzheimer's, we are looking at leukodystrophies and we are looking at multiple sclerosis. So, we control that. Right? I mean. We have all the IPs. It was our choice as to whether we do or do not follow these academic collaborative leads. But we control all of that. We would hope these leads are positive. And some of that data is going to come out in early 2011. And we hope that we have, we will regroup our investment in OPC1, many fold over, not just from spinal cord injury, but from some of these much larger central nervous system, regenerated medicine opportunities that are approachable using these very same cell.

Mark Monane - Needham & Company

Great. I will jump back in the queue. Gentlemen, I look forward to you guys having a scalability execution on details in the future with good results. Take care.

Operator

That concludes today's question-and-answer session. I would now like to turn the call back to David Greenwood for closing remarks.

David Greenwood

Thank you all for joining us, Tom, at the outset of his remarks mentioned when we will next be presenting at various conferences; scientific and investor conferences. We hope to see you there. Thanks again. Have a good day.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.

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