Asterias Biotherapeutics' (AST) CEO Steve Cartt on Q4 2015 Results - Earnings Call Transcript

Asterias Biotherapeutics, Inc. (NYSEMKT:AST)

Q4 2015 Earnings Conference Call

March 29, 2016 4:30 PM ET

Executives

Doug Sherk – EVC Group

Steve Cartt – Chief Executive Officer

Katy Spink – Chief Operating Officer

Russell Skibsted – Chief Financial Officer

Analysts

Bruce Jackson – Lake Street Capital

George Zavoico – JonesTrading

Christopher James – FBR Company

Bruce Jackson – Lake Street Capital Market

Operator

Good day, and welcome to the Asterias Biotherapeutics Fourth Quarter 2015 Update Conference Call. Today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. Doug Sherk. Please go ahead, sir.

Doug Sherk

Thank you, Tanisha, and good afternoon everyone. Thank you for joining us today, March 29, 2016, for the Asterias Biotherapeutics conference call and webcast to review the company’s results for the fourth quarter and full year of 2015 as well as recent corporate highlights.

This afternoon, after the market closed Asterias issued its results released which is posted on the company’s website at www.asteriasbiotherapeutics.com.

Today’s call is also being broadcast live via webcast. To access the webcast go to the Asterias’ website, click the Investors link and then click on Events and Presentation. There will be a taped replay of this call, which will be available approximately two hours after the call’s conclusion and will remain available for seven days. The operator will provide the replay instructions at the end of today’s call.

With us today are members of Asterias’ management team, including Steve Cartt, Chief Executive Officer; Katy Spink, Chief Operating Officer; Russell Skibsted, Chief Financial Officer. Steve, Katy and Russel will make prepared remarks and then we’ll open up the call for questions. During the question-and-answer session, please limit yourself to two questions and then re-queue if you have additional questions.

Before we get started, we’d like to remind you that during the course of this conference call, the company will make projections and forward-looking statements regarding future events. We encourage you to review the company’s past and future filings with the SEC, including without limitation the company’s Form 10-K and 10-Q which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

These factors may include without limitation, risks inherent in the development and/or commercialization of potential products, uncertainty in the results of clinical trials or regulatory approvals, need and ability to obtain future capital and maintenance of intellectual property rights.

And with that, I’d like to turn the call over to Steve Cartt, President and Chief Executive Officer of Asterias.

Steve Cartt

Thanks, Doug. And also thanks to everyone for joining us today. I’m pleased to be on my first investor call since joining the team at Asterias, and it’s definitely great to be coming here at such a crucial time in our company’s development as we are advancing three promising clinical stage therapeutic programs. As many of you know these three clinical development programs are based on our immunotherapy and pluripotent stem cell platform technologies.

These pioneering cell therapy programs have the potential to address areas of very high unmet medical need in the fields of oncology and neurology. In a few minutes, I’ll turn the call over to Katy Spink, our Chief Operating Officer, who will review the progress with our development programs. Then Russell Skibsted, our Chief Financial Officer will review the financial results for the quarter. At the end, we’ll open up the call for questions.

First, I’d like to share with you what’s attracted me to Asterias. Why I came to this company specifically. First, in learning about the science, the therapeutic potential and the commercial potential of Asterias clinical stage programs it became quite clear at the Asterias technologies carry the potential to be transformative. In other words, to entirely change the way that certain diseases and disorders are managed and treated.

And as a company, we have chosen to first address devastating conditions where there is a severe need for new treatments because few if any treatment options exist. Specifically I’m referring to AML, spinal cord injury, and non-small cell lung cancer, the therapeutic targets of our three clinical cell therapy programs.

Now let me briefly review the programs involving our immunotherapy technology platform which includes VAC1, a patient-specific cancer immunotherapy and VAC2, a non-patient specific approach to cancer immunotherapy. Both of these investigational therapies target the telomerase protein that is present in 95% of all cancers. So we believe there is potential for broad utility across multiple types of cancer with VAC1 and/or VAC2.

Our immunotherapy technology is based on a unique mode of action that is complimentary and potentially synergistic to immune checkpoint inhibitor drugs that have shown promising results in treating patients across multiple advanced cancer types.

We have seen promising results in Phase 2 with VAC1. In last year’s annual meeting at the American Society of Clinical Oncology or ASCO, positive long-term follow-up results represented from a Phase 2 clinical trial of VAC1 in patients with acute myelogenous leukemia or AML.

The results show that 57% of many patients who received VAC1 had prolonged relapse-free survival, even patients with high-risk AML including those over 6 years old and patients in second remission. AML is the most common type of acute leukemia and remains a cancer for its treatment options are quite limited and the standard of care has not significantly advanced in over 20 years. Unfortunately, health outcomes for AML patients are poor. Particularly patients over the age of 60 were long-term relapse-free survival rates are only 10% to 20%. There are approximately 20,500 new cases of AML diagnosed annually in the U.S.

Unlike VAC1, which is derived from the patients over the white blood cells; VAC2 can be produced on a large scale and stored ready for use rather than having to produce a specific version of the drug for each patient. As a result, VAC2 may have the potential to dramatically improve the scalability, consistency and feasibility of cellular cancer immunotherapy as compared to VAC1.

With our VAC2 development partner, Cancer Research UK, we’re looking forward to the early 2017 initiation of the first VAC2 clinical trial of Phase 1/2 study in non-small cell lung cancer. Importantly, both VAC1 and VAC2 have the potential to eventually be used against a wide range of cancer types, not just our initial therapeutic targets of AML and non-small cell lung cancer.

So to me, coming in new to the company this month with a background includes successfully developing and commercializing products that can be used for multiple different indications. This makes these cell therapy programs, particularly exciting.

Finally, let me turn to OPC1 for the treatment of spinal cord injury, and more generally to our pluripotent stem cell platform technology, on which OPC1 is based. OPC1 has been shown in preclinical studies, they have three potentially reparative functions that are critical for survival of regrowth and conduction of nerve impulses through axons at the side of a spinal cord injury.

As I’m learning from Katy and the rest of the team here during the earlier stages of its development program we compiled quite a comprehensive preclinical data package. In addition, OPC1 has demonstrated a favorable safety profile to-date with up to four years of safety data for the previous Phase 1 clinical study and the first cohort of the ongoing Phase 1/2a clinical trial.

More than 12,000 people sustained spinal cord injuries each year. But there are no FDA approved therapeutics or devices that can potentially restore some function in these individuals. That is our therapeutic goal in developing OPC1.

I’m excited to be here as a new addition to Asterias, and I’m enjoying my first month of the job, getting to know the team members as well as our exciting and promising technologies and clinical programs. I’m also looking forward to once again work with Don Bailey, who is joined Asterias along with me as Chairman of the Board of Directors.

The two of us and the rest of the Asterias team are working forward to achieving further progress on these pioneering cell therapy clinical programs including important clinical and other development milestones during the remainder of 2016 and into 2017.

Now let me turn it over to Katy for a brief update on the progress with our development programs. Katy?

Katy Spink

Thanks Steve, good afternoon everybody. I’ll start with progress on VAC1. As Steve mentioned, we presented promising long-term follow-up data from the Phase 2 clinical trial of VAC1 in patients with intermediate and high-risk AML at the 2015 American Society of Clinical Oncology Annual Meeting. Based on these results which showed 57% of patients receiving long-term relapse-free survival for a median of over four years, we have worked over the past few months to define our clinical development plan to regulatory approval. In February, we announced the successful completion of the end of Phase 2 meeting with the FDA. In this meeting FDA agreed to consider VAC1 for an accelerated development pathway and BLA filing, based on a single randomized controlled Phase 3 trial.

We are now working towards a special protocol assessment process to refine the Phase 3 protocol in collaboration with the FDA. In addition, we are planning for operations with the Phase 3 clinical trial and preparing a peer-reviewed publication describing the Phase 2 AML results.

Turning to VAC2, our non-patient specific cellular cancer immunotherapy, the development program continues to advance with our partner Cancer Research United Kingdom or CRUK. In January, we announced the successful completion of the transfer of the manufacturing process for VAC2 to CRUK. Under our ongoing partnership CRUK will perform cGMP manufacture of VAC2 at its Biotherapeutics Development unit. CRUK Center for Drug Development or CDD will submit a clinical trial authorization application to the UK regulatory authorities for a Phase 1/2 clinical trial in non-small cell lung cancer, which will be sponsored, managed and funded by CDD.

The clinical trial will examine the safety, immunogenicity and the activity of VAC2 and may position the immunotherapy to be tested in numerous clinical indications. We are working with CRUK to refine the clinical protocol and preparation for this regulatory filing, which we expect to occur by year-end. The study is expected to begin enrollment in early 2017. In October, we also signed a deal with the cell therapy Catapult in the United Kingdom to further scale and refine our manufacturing process for VAC2 to support advanced clinical trials and eventual commercialization of this product.

Turing to our OPC1 program, 2015 was a year of significant progress in this program as well. In March, we initiated patient enrollment in dosing in our phase 1/2a clinical trial in complete cervical and spinal cord injury patients, known as the SCI-Star study. Subsequently we concluded enrollment of the initial safety cohort in which three patients were administered a low dose of 2 million OPC1 cells.

Following review of the 30-day post-injection safety data from the initial cohort, the data monitoring committee recommended dose escalation of OPC1 to the second 10 million cell dose cohort, which represents the first dose cohort designed to bracket the predicted efficacy dose range for OPC1 based on our preclinical studies. Patient recruitment for the second cohort is currently ongoing. We anticipate reporting the first efficacy readouts from this cohort by year-end.

As a reminder, the cost of this trial as well as certain process development activities for OPC1 are covered in part by a $14.3 million grant from the California Institute of Regenerative Medicine. As Steve mentioned, we have extensive preclinical data on OPC1. In September, a manuscript on our preclinical safety studies of OPC1 in models of thoracic spinal cord injury was published in the Journal of Regenerative Medicine.

The positive preclinical results support the general safety of OPC1 and indicate minimal risk of the transplanted cells reaching on unintended locations. We are preparing two additional manuscripts: one describing preclinical safety and efficacy results in cervical models of spinal cord injury, and the second reporting the clinical results from the OPC1 Phase1 trial in thoracic injuries.

In subsequent events since year-end, this February the FDA granted orphan drug designation for OPC1 for the treatment of acute spinal cord injury. Orphan Drug Designation is a special status that the FDA may grant a drug intended to treat a rare disease or condition. Orphan Drug Designation qualifies the sponsor of the drug for certain benefits and incentives, including seven years of marketing exclusivity following regulatory approval, and financial incentives such as potential tax credits for certain activities and waiver of certain administrative fees.

I’ll now turn the call over to Russell, who will discuss our financial results. Russell?

Russell Skibsted

Thanks, Katy. Good afternoon, everyone. I’ll provide a brief review of our cash position and usage. Asterias had cash and cash equivalents of $11.2 million as of December 31, 2015, compared to $3.1 million as of December 31, 2014. In addition, Asterias held approximately $17 million in available-for-sale securities as of the end of 2015. For the fourth quarter net cash used in operating activities was $4.0 million.

Before I turn the call back to Steve, I’d like to note that we previously announced our intention to distribute to Asterias shareholders the 3.15 million warrants to purchase common shares of Asterias received pursuant to the previously announced Asset Swap with BioTime. BioTime, which holds 58% of Asterias shares, will not be receiving any of these warrants. Under New York Stock Exchange market rules, we are required to issue a news release when this warrant distribution is made and plan to do so by the end of this week.

Now, I will turn back the call to Steve for some summary comments.

Steve Cartt

Thanks, Russell. So to summarize we are focused on addressing major unmet medical needs in oncology and neurology by bringing our promising cell therapies to patients, who currently have few if any effective treatment options. We’re excited about the potential of our cellular immunotherapy and pluripotent stem cell technologies and anticipate achieving further progress on advancing our clinical stage cell therapy programs in AML, non-small cell lung cancer, and spinal cord injury during the remainder of 2016 and into 2017.

We look forward to updating you on our continued progress. In addition, Don Bailey and I will be a New York and Boston next week and look forward to meeting with many of our investors in those two cities during that time. Operator, you can open up the call to questions now.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we’ll go ahead and take our first question from Bruce Jackson with Lake Street Capital. Please go ahead. Your line is open.

Bruce Jackson

Hi, guys, nice quarter. So if I could just start off with the VAC1 program. It looks like this is going to be taking a more prominent role than it was previously. So, if you could just tell us a little bit more about some of the major milestones that we should be looking for over the course of the next couple of years. So when do you expect to have the trial protocol nailed down? When might you begin enrollment? And then do you have [indiscernible] broadly speaking a launch target that you can talk about. And then if you can also remind us if this is – I believe this is an accelerated development program, so will you be able to book revenue while you’re doing the Phase 3?

Steve Cartt

Yes, thanks, Bruce. This is Steve. So, it’s exciting for a company like ours to have a clinical development program that set proceedings towards Phase 3 for sure. I’ll let Katy talk about to give some color on what we’re looking at in terms of milestones, but we’re in the process of preparing for initiation of that Phase 3 ideally by the end of next year, but we’re working on the timelines for everything and what those milestones might look like. Beyond that, I’ll let Katy comment on VAC1s for a progress.

Katy Spink

Yes, so Bruce, there’s really two things that we’re going to be doing this year in preparation for the pivotal trial. So the first is that we are going to be working to refine the clinical protocol, and then going into the special protocol assessment process with the FDA. And secondly, we’re going to be performing certain process development activities that will designs to give us a process that is ready for commercialization since of course coming out of the Phase 3 trial that would be our intent. So we anticipate that the lead time on those activities shall be such that we’re projecting sometime in 2017 as the start date for the pivotal trial.

Bruce Jackson

Okay. And then with the accelerated development, are you going to be able to book revenue during the trial?

Katy Spink

Yes, accelerated approval would enable us potentially to get approval based on the results of a single Phase 3 trial and then we could book revenue during on essentially a confirmatory Phase 4 like study.

Bruce Jackson

Okay, got it. And then from my second question just a quick housekeeping question. What’s the anticipated burn rate for 2016?

Steve Cartt

Yes, I’ll let Russell comment on that.

Russell Skibsted

So, it’s a good question. We haven’t given guidance for the burn rate for 2016 yet, but as you look at the cash that was burned in operations. In the fourth quarter of last year, we burned about $4 million. We had a good deal of financial resources behind us at that time. I think once we give Steve a little bit of a chance to come up with some of the further plans as he mentioned earlier, I think we probably can give a little bit more guidance. But for the time being, I think we feel pretty comfortable with where we stand in terms of cash and in terms of the burn going forward.

Bruce Jackson

Okay, thank you. I’ll hop back in queue.

Russell Skibsted

The other thing I wanted to mention is to also keep in mind that we do have the serum grant, which has offset a good deal of the OPC1 trial that we have. And then as Katy mentioned, we also have the arrangement with CRUK, which is also offsetting really a good deal of the development work that’s been done for VAC1.

Steve Cartt

VAC2.

Russell Skibsted

I’m sorry, VAC2.

Steve Cartt

Thanks Russell.

Russell Skibsted

Thank you.

Bruce Jackson

Thank you.

Operator

Thank you. [Operator instructions] We’ll take our next question from George Zavoico with JonesTrading. Please go ahead. Your line is open.

George Zavoico

Hi, thank you. Hi, Katy. Hi, Russell. Hi, Steve.

Steve Cartt

Hi, George. How are you?

Russell Skibsted

Hi, George.

Katy Spink

Hi, George.

George Zavoico

Good, good. Thanks. Thanks for the financial update, much appreciate it. A couple of questions about – well first question – do with AML trial for VAC1. Is this – there has some new developments from new trial results for some earlier stage compounds on those first line. In thinking about the Phase 3 trial, which you’re going to start in 2017, as you said, is there a chance that there might be some new drug that might be approved for first line treatment. How are you going to – are you thinking about that and how are you going to take that into account for the Phase 3 trial design?

Steve Cartt

Well, so, thanks for the question, George. So, I’ll kick it over to Katy in a second, but I think it’s important to keep in mind that a lot of drugs, in fact most of them that are being developed for AML unlike ours are more for induction. And so, we could be use right alongside them to maintain remission – relapsed free remission after those drugs are employed. So, it’s really a complimentary situation. We really don’t view that as competitors at all. We would be hopefully use together, but that’s - from a strategic standpoint I think that’s an important thing to note, but I’ll hand it over to Katy for additional thoughts.

Katy Spink

Yes, now, I think Steve’s comments are exactly right. And I think the only thing that I would add to that is that in fact as better therapies are approved for induction, more patients will enter into remission and that will actually increase the market size for VAC1 as of remission maintenance therapy.

George Zavoico

Yes, as well as hoping to say, yes and thanks for underscoring that. Your VAC1 is unique in that regard for maintenance therapy. And in that regard, I mean you did mention that you’ve got BFS for your primary end point, which is – I think that’s pretty extraordinary. Do you have any clue, can you say now whether it would be a randomized double-blind trial or is it’s too early to say what might you get away with a single-arm trial?

Steve Cartt

Yes, I think George, I think right now, we’re developing all that’s what the details that we’re working on and that needs to be, we’re working on with the FDA.

George Zavoico

Okay. Then with regard to CRUK, you mentioned that you transfer the manufacturing process. I imagine they have the cells now, as well and they’re starting to do a couple of them.

Steve Cartt

Katie you want to comment there?

Katy Spink

Yes, that’s right. They are actively in runs to make that too in their site. So we’re excited to see that underway, it’s a kind of exciting for us to see our process in the hands of partner at this point.

Steve Cartt

George again it is the target for beginning the trial in VAC2 is early 2017?

George Zavoico

Right, for small molecule drug and antibody along the center, you need to do – to really do three batches and prove that they’re pretty much identical. Is that pretty much the same process for cell therapy?

Katy Spink

Yes, pretty similar.

George Zavoico

Okay, great. And one last question if I can Steve, perhaps it’s too early for you to mention, but you did mention you came Asterias because of all the indications, potential indications beyond AML and spinal cord injuries that are already in process. It’s probably too early for you to give guidance as to when you might hope to advance another indication that’s probably too early, right.

Steve Cartt

Yes, I’d love to be able to tell you, but yes little bit early now we’re still in the information gathering and evaluation mode there. I mean, our priority for sure right now is progressing these three current clinical stage programs. So we’re excited about the potential for other things down the road.

George Zavoico

Okay and me too. Okay well great I can’t wait for you will be able to say more. Thank you very much.

Steve Cartt

All right, thanks, George.

Operator

Thank you. And we’ll go ahead and take our next question from Christopher James with FBR Company. Please go ahead, your line is open.

Christopher James

Hi, good afternoon and thanks for taking the questions. And congrats on your progress. Just a question for Steve, you’ve obviously done a lot of due diligence coming in, you’ve looked at a lot of opportunities, just what’s your view on really the opportunity of VAC1 as an autologous dendritic cells, versus VAC2 as allogeneic?

Steve Cartt

Well we kind of view VAC2 as a potential follow-on to VAC1 that could possibly broaden the application in a variety of cancer types. But VAC1 is a very exciting program on its own, it’s patient specific as you know. We think there’s application and some potentially in some tough to treat AML cases, as well as other cancer types too. So it’s further along than VAC2, obviously VAC2 is just going into the clinic this next year, but VAC1 already has Phase 3 data and is getting pressed for Phase 3.

So it’s a matter of timing, I mean, VAC1 is definitely further along. There could potentially be roles for both of them down the road being commercialized simultaneously. So I’m still learning about the programs, there’s a lot of detail, there’s some really good science being done here. They’re both exciting programs, they’re a little bit different. With a lot of applications in a number of cancer type so exciting work being done.

Christopher James

Great. Thanks for taking the questions.

Steve Cartt

Sure.

Operator

Thank you. And our next question comes from [indiscernible] please go ahead. Your line is open.

Unidentified Analyst

Good afternoon. Thanks for taking the questions and…

Steve Cartt

Yes sorry Dale [ph] good to hear from you…

Unidentified Analyst

No problem sorry I was off line. Just a few quick questions regarding the AML studies, was that mostly for transplantation eligible or ineligible patients either for the VAC1 or VAC2 or you have not yet decided [indiscernible].

Steve Cartt

Yes, I’ll let Katie comment on those details.

Katy Spink

Yes, the Phase 2 trial did not specify as to transplant eligible or ineligible patients that enroll both, the qualification was just intermediate or high risk patients in remission.

Unidentified Analyst

Going forward would you guys especially for the Phase 3 study for the VAC1 is that becoming you want to be more specific or you want to go a sort of broad base, you can share your thoughts.

Katy Spink

That’s something that’s still under consideration in our protocol refining process and we’re not really – we’re not ready to comment on that just yet.

Unidentified Analyst

Okay, thanks. I appreciate it.

Steve Cartt

Thanks Dale [ph].

Unidentified Analyst

That’s all.

Operator

Thank you. And our next question comes from Bruce Jackson with Lake Street Capital Market. Please go ahead, your line is open.

Bruce Jackson

Hi, thanks for the follow-up question. If we could go back to the AML program real quick. This is an area where there is a fair amount of activity not just with the checkpoint inhibitors, but also with the cART therapies things like that. And by the time you get to market it’s going to be a much more hard to landscape. Can you just tell us whether you envision as therapy fitting into the treatment regiment?

Steve Cartt

Well, I think, as we noted earlier the difference here is this is for maintenance, and we’re treating for maintenance of relapse-free survival, we’re suppose to induction. But, I’ll let Katy comment she may have some additional thoughts on that?

Katy Spink

Yes, so you know that the therapies to that are at similar or later stages of development on to us as Steve mentioned they are all induction therapies and so do not compete with us anything that increases our market size. There are some therapies like cART therapies that are well behind us in the pipeline, we have Phase 2 data, and those therapies are in very early stages of development.

Bruce Jackson

Okay. And then, moving over to the AST-OPC1 program, how close are to finishing up the ten million cell dose cohort?

Steve Cartt

Well, we don’t give interim progress updates there. We are in the 10 million cell cohort and the plan is to, it’s been long and we’re anticipating that will continue to be the case that will have six-month data sometime around the end of the year.

Bruce Jackson

Okay. Then last question on VAC2. Last time what we checked you’re looking for a regulatory go-ahead in the UK, around Q3 and then starting enrollment around Q1 2017, or is that still the latest thinking?

Steve Cartt

Yes, that’s still accurate.

Bruce Jackson

Okay. Thank you, very much.

Steve Cartt

Thanks, Bruce.

Operator

Thank you. And that does appear we have no father questions at this time. I will now hand it back over to Management, for any additional or closing remarks.

Steve Cartt

Great. Well, all I have to say is thanks everybody for joining us on the call. And, we’re excited about our programs and looking forward to giving updates in the future. Thanks everybody.

Operator

And that does conclude today’s program. We would like to thank you for your participation. Have a wonderful day, and you may disconnect at any time.

Steve Cartt

All right, take care.

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