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Executives

Christopher J. Calhoun - Co-Founder, Vice Chairman, Chief Executive Officer, Secretary and Member of Executive Committee

Marc H. Hedrick - President and Director

Mark E. Saad - Chief Financial Officer

Clyde W. Shores - Executive Vice President of Marketing & Sales

Analysts

John M. Putnam - Capstone Investments, Research Division

Stephen G. Brozak - WBB Securities, LLC, Research Division

Laura S. Engel - Stonegate Securities Inc., Research Division

Jason Kolbert - Maxim Group LLC, Research Division

Nathan Cali - Noble Financial Group, Inc., Research Division

Read M. Northen - Thompson, Davis & Company

David Brian Musket - ProMed Management, Inc.

Cytori Therapeutics (CYTX) Q2 2012 Earnings Call August 8, 2012 5:00 PM ET

Operator

Good afternoon, ladies and gentlemen, and welcome to the Cytori Therapeutics Second Quarter Earnings Conference Call. Today's conference is being recorded.

Before we begin, we want to advise you that over the course of the call and question-and-answer session, forward-looking statements will be made regarding events, trends and business prospects, which may affect Cytori's future operating results and financial position.

Some of these risks and uncertainties are described under the Risk Factors section in Cytori's Securities and Exchange Commission filings, which Cytori advises you to review. Cytori assumes no responsibility to update or revise any forward-looking statements to reflect events, trends or circumstances after the date they are made.

I will now turn the call over to Chris Calhoun, CEO. Please go ahead, sir.

Christopher J. Calhoun

Thank you, Keith. Good afternoon, and welcome to our quarterly business update. I'm joined today by our President, Dr. Marc Hedrick; CFO, Mark Saad; and Executive Vice President of Sales and Marketing, Clyde Shores.

Management has delivered strong results during the quarter and for the first half of the year in each of our 3 business areas, achieving many of the goals established for 2012 and setting the foundation for leadership and growth in the Cell Therapy field.

To review, the 3 principal objectives are to advance our cardiovascular disease pipeline, grow the commercial business, and achieve our operational and financial performance goals.

We have provided a shareholder letter that discusses our progress in greater detail. This is available on the homepage of the Investor Relations section of our website. Before we move into the question-and-answer session, I'd like to discuss some of the highlights from the quarter.

Let's start with our cardiovascular disease pipeline. Our FDA-approved clinical trial ATHENA for refractory heart failure continued significant momentum during the quarter. Along with some minor protocol improvements, FDA approved adding a 6th trial site. We're now actively working with 6 of the leading cardiologists and medical centers in the field, investigators that have led and/or have been involved in every major cardiovascular cell therapy clinical trial in the U.S., as well as many of the notable international trials.

Three of our investigators are members of the elite CCTRN, a network of physicians, scientists and support staff dedicated to studying stem cell therapy for treating heart disease that is sponsored and funded by the NHLBI, a division of the National Institutes of Health. We're honored and extremely pleased to report our 6 sites, including Dr. Tim Henry, one of our co-principal investigators with the Minneapolis Heart Institute Foundation; Drs. Emerson Perin and James Willerson, our other co-principal investigators with Texas Heart Institute; Dr. Les Miller with the University of South Florida in Tampa; Dr. Carl Pepine with the University of Florida in Gainesville; Dr. Farrell Mendlesohn with Cardiology PC in Birmingham, Alabama; and last but not least, just across the street from Cytori, Doctor Richard Schatz with the Scripps Green Hospital in Torrey Pines.

You may recognize Dr. Schatz from his extensive work in cardiac catheterization and stents as a co-inventor of the famous Palmaz-Schatz stent, the first-in-class balloon-expandable inter-coronary stent, the design of which all modern-day stents are based. He was also one of the first to develop a drug-coated stent.

Dr. Henry at Minneapolis is now actively screening patients, with the first patient anticipated to be treated in the next 30 days, and we will report that.

Later this month, we expect Texas Heart will begin enrolling, followed by the remaining 4 sites, so that all sites should be actively enrolling by our next quarterly update. These centers rank among the leading enrollers in previous chronic heart cell therapy trials, and our plan is to enroll, on average, one patient per month, per center. The trial remains on schedule to be fully enrolled by mid-2013.

Our pan-European advanced pivotal trial for acute myocardial infarction has been amended to meet current regulatory standards, improve the trial design and to expand the utility of the trial toward reimbursement. The details of the modifications were reported on our last call.

Subsequently, the revised protocol has been submitted to several target country and hospital-specific regulatory authorities for approval.

This trial is expected to begin enrolling quickly after those approvals are received, while simultaneously we work to expand the trial to approximately 8 countries and up to 35 sites. We can provide guidance on the enrollment rate and anticipated completion timeline once we have a critical mass of active sites and enrollment rate experience in this trial. The target countries include the G5, The Netherlands, Poland and Canada.

Regarding our CE Mark expansion, there were 3 key open items discussed on our last call, including the details of a proposed post-market patient registry, a request for additional supportive data to further assess the risk-benefit ratio of Cell Therapy in this patient population and agreement on the specific indications for use in claims.

The proposed post-market patient registry design has been completed and was submitted to the notified body for review during the quarter. We are providing additional supportive data recently requested by the reviewer and believe we're making progress toward approval. The final step, once the clinical review is complete, will be to define the specific indications for use in claims.

Let's move on to our commercial business. The commercial business continues to reflect the theme: We're doing more with less. This is a great point to take a moment and congratulate our team, who are working extremely hard to deliver these results. Based on the first half sales of $3.4 million and our current sales funnel, we reaffirm our $9 million product revenue target for 2012. Consistent with prior guidance, 2012 sales are expected to be weighted toward the second half of the year. Our strategy to drive hospital-based selling and consumable utilization is working. Some of the key trends in the first half include increased Celution consumable utilization among our customers and expanded device base into the new hospitals. Again, we have achieved record Puregraft sales.

In our shareholder letter, we detailed 3 MHLW-approved investigator-initiated studies in Japan under the Cell Therapy guidelines. These studies are in the plastic surgery, gastroenterology and urology specialties. There are a number of additional studies currently under review by the ministry. In parallel, we have an active dialogue with MHLW in Japan regarding Celution System approval for breast reconstruction.

In Europe, we have again expanded our CE Mark indications for use based on clinical data and guidance from our notified body. These complement our existing claims and include general surgery procedures to facilitate healing in patients with crypto-glandular fistula; deficiency of injury of skin, fat, muscle and fascia; soft tissue wounds, ulcers or fistula associated with trauma; diabetes; ischemia or radiation injury and tissue ischemia.

Now turning to our operational and financial performance. We are executing on our stated operational and financial performance goals. For the quarter, Cytori achieved the planned improvement in our operational efficiency and financial performance. Sales and marketing expenses were reduced by 29% in the first half of the year compared to the same period in 2011, and R&D and G&A expenses were tightly controlled.

Correspondingly, net cash used in operating activities was reduced by 18% in the first 6 months, down to $15.9 million. We will continue to keep downward pressure on non-R&D expenses and expect further reductions in cash operating loss in the second half of the year.

I'd like to spend some time now and go into some detail on our current cash, capital requirements and financing strategy. The company ended the second quarter with $26 million in cash and equivalents plus $2 million in accounts receivable net of reserves. Our internal budget and long-range plan for the company is expected to require an additional $20 million to $30 million in cash to reach breakeven. This calculation is based on a heavily discounted forecast of revenue growth.

After a significant investment in this technology to date, we can see the light at the end of the tunnel and believe the company is within striking distance of removing the balance sheet as a barrier.

But clearly, an outstanding question in the minds of shareholders is, when and how do we close the gap? The answer is pretty simple. Bring in capital while maximizing value to the company and its shareholders. The most preferred option is a strategic deal. As highlighted last quarter, there are half a dozen opportunities that are progressing toward completion. Most of these processes made clear and defined progress during the quarter. We also reported that we would be focusing on 2 of the most advanced deals, and that we anticipated closing at least one in the very near term. And by very near term, we meant that we expected one of these deals to be announced at least before our call today. This guidance was based on the most current information at the time, particularly related to the near-complete status of one specific opportunity and the increasing probability of a second.

Subsequent to the call, the counterparty underwent a surprise internal management change that led to an unexpected delay in the process. We believe we've successfully overcome the additional process requirements created by this change and are back on track with this partnership and expect it could be completed as soon as this quarter.

In parallel, several of the other opportunities have advanced as well, with one in particular moving rapidly towards completion. We have good transparency on both of these processes and believe it's likely that at least one will be achieved before the end of the third quarter.

Outside of the strategic options, which are clearly hard to accurately predict exact timing, we have several alternative plans, including parallel discussions with certain existing investors. Additionally, there are approximately 11 million shares in warrants and options that are set to expire within the next 24 months, which if exercised, would bring in more than $40 million in cash. We believe the success in any single deal above would lead to increased shareholder value and could likely stimulate at least some of these holders to exercise.

Finally, I want to note that the company added 3 new patents during the quarter, strengthening our intellectual property position to include 49 issued patents, 4 allowed patents and more than 75 additional applications under review.

Our first patent was issued in June of 2008. And during the subsequent 4 years, we have, on average, added a new patent every single month. Year-to-date, our IP portfolio of issued and allowed patents worldwide has grown by 26%, far exceeding our 15% goal. And we anticipate at least a few more patents will be issued during the remainder of the year.

In summary, significant clinical, regulatory, commercial and corporate accomplishments continue to define our progress and achieve a milestone-rich year. To date, we've achieved many key milestones, including: approval to initiate the ATHENA trial; expanded CE Mark indications for use in wounds and tissue ischemia; Puregraft 850, FDA and CE Mark clearance, as well as Puregraft 250 and 850 approvals outside of the U.S. in certain countries; Celution System approval in Russia and Croatia; publication of APOLLO primary 6-month data, as well as RESTORE 2 results at 12 months; and submission of the U.K. breast reconstruction medical technology assessment application.

The remaining value-driving milestones that we expect to achieve between now and the end of the year include the following: completion of a strategic partnership; initiating enrollment in the ATHENA trial; vascular CE Mark claims; publishing APOLLO 18-month data and PRECISE 6- and 18-month data; and achieving our revenue target of $9 million for the year.

Keith, now I'd like to take this opportunity to open up the call for questions that they may have for me or my management team.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from John Putnam with Capstone Investments.

John M. Putnam - Capstone Investments, Research Division

I was just wondering if you might elaborate a little bit on the ATHENA trial, how large it will be and -- you've said that it's on schedule to be completed by 2013. I am assuming that, that's just the patient enrollment.

Marc H. Hedrick

Hi John. It's Marc Hedrick. Bottom line is we made great progress, thanks to the hard work of our team and really going from 0 to 90 on this study, going back to the FDA, adding in additional site. So now we have 6 sites. We'll make this go more quickly. As Chris said, we're actively screening on site 1 in Minnesota. The other 2 to 6 sites are at various stages. Assuming we get all those sites on board by the next 2, 3 months, we're striving for all by Q3, but a little bit of that's out of our hand. And we're really on track to enroll completely in about a year, assuming some pretty conservative enrollment philosophies.

On the trial itself, just to recap, and you asked, 45 subjects randomized 2:1, cells to placebo, and 6 centers in the U.S. And the 2 principal centers are with our 2 PIs, both at Texas Heart Institute and the Minneapolis Heart Institute. So the dosage is 40 million cells. And because it's a 2:1 randomization, 30 will get cells, 15 randomized to -- on an active placebo. And the key assessments are really geared towards things that really revolve around overall myocardial function, in particular, MVO2, which I think the entire field is showing is not only the best assessment to put patients on the transplant list, but to assess this group of patients, whose natural history, ultimately, is either death or transplant. And so our analysis is really built around MVO2, as well as other similar measures of the failing heart.

John M. Putnam - Capstone Investments, Research Division

Okay. And the follow-up period would be what, Marc?

Marc H. Hedrick

Well, patients would be assessed up to 12 months. But the MVO2 screening is 6 months, but we're going to follow these patients in clinical safety and so forth out to 60 months.

John M. Putnam - Capstone Investments, Research Division

Okay, great. And then on the ADVANCE trial, what -- how long do you think it will take to enroll 35 hospitals and get that up and running?

Marc H. Hedrick

Well, I think that's a harder question to answer because it's in Europe. It's a bigger trial. And in many ways, it's a much more challenging trial. So I'm not going to answer the ultimate enrollment time. We have internal timelines related to that. I can tell you that the key issue is how fast we get the G5 countries plus the other 3, Netherlands, Canada and Poland, up and running. Because once you get one country up and running, it's a relatively straightforward measure to get the other centers up and running in that particular country. So since the last call, we made pretty remarkable progress. Again, kudos to our team, for getting the protocol retooled for consulting with the competent authorities in those countries. So we've really gone to those authorities and said, look, how do we get this trial enrolled quickly? How do we navigate a changing regulatory environment? And we've incorporated in that into the protocol such that we've now refiled in 2 to 3 countries. And if we can get those countries onboard quickly, which we think the protocol is better suited to that, then that ought to have a downstream effect in terms of overall enrollment. So I think I would look towards maybe the next call or maybe one call after that, so that we can probably give you better guidance as to how long it's going to take to enroll and then process the data.

Operator

We'll go next to Steve Brozak with WBB Securities.

Stephen G. Brozak - WBB Securities, LLC, Research Division

I actually have a more complex question and then a follow-up I'd like to ask. Given the fact that you've been talking on the cardiac side, I'd like to go more towards the nonspecific sides, specifically, the other indications and what's your process is for the investigator-led studies. Because candidly, for instance, Japan, you've used that as a translational ramp up. How does that work as far as the proxy for what's happening with other clinical studies with your -- the CE Mark examples, and how it works as a proxy? And I've got a follow-up on that.

Marc H. Hedrick

Steve, these translational studies, and in particular, Japan, which is where our original breast study was from, really becomes almost a clinical research engine in a very safe way for rapidly developing this technology and bringing it to the clinic. As you may recall from about a year or so ago, we talked about the unwelcome MHLW stem cell guidelines, which we had a growing number of systems that we we're selling very actively Japan. MHLW introduced these stem cell guidelines. And so over time, we responded to that and really built our Japanese investigator-initiated strategy around it, such that we're kind of the gurus of these MHLW stem cell guidelines. About 10% of all the approved studies somehow incorporate Cytori technology. We have several more that we think are very close, and we're actively trying to expand it. We almost -- it's almost a turnkey system that we work with our investigators to help get that data to them, so they can get approval for these studies. And it's not only actively contributing to our current revenue in relatively high margin environment, but it's great positioning, not only in the market generally, but in these Japanese -- major Japanese academic centers, who typically acquire the technology. But it's also helped us in our positioning to PMDA. And PMDA is increasingly -- MHLW, PMDA increasingly looks to us as the leader and someone they can go to for questions, but also look to for leadership in the market.

Stephen G. Brozak - WBB Securities, LLC, Research Division

So can you give us an example, in following up on this, on anecdotal results as far as on -- I mean anecdotal clinical results that you've seen? Things that would be completely unexpected or things where you say, this is truly something that you would never have seen before?

Marc H. Hedrick

I can. And I think -- go back to breast reconstruction. That started as an investigator-initiated study, pre-MHLW stem cell guidelines resulted in 20 patients being treated under that in Japan. And then ultimately, was expanded to a Cytori-sponsored trial in Europe for a majority of patients that have a partial mastectomy. And now it's translated into cases treated around the world and an application for medical technology approval in the U.K. That's one example. Second example is stress urinary incontinence. Again, a physician pulling us -- pulling our technology into the clinic under a small feasibility study, starting initially with male incontinence, which is very uncommon, but happens in men with radical prostatectomy, showing good early results. The first 3 patients have been published, many more patients have been treated. And now we see behind the scenes, and hopefully we can talk about this soon, the progress that that's making, both in male post prostatectomy incontinence, but also in female incontinence, which represents a much bigger market need. So there are other examples of that, but I think that adequately illustrates the power of these studies.

Stephen G. Brozak - WBB Securities, LLC, Research Division

Great. Last question and I'll jump back in the queue. Can you go into safety because, obviously, the golden rule is first do no harm. And obviously, you've got literally thousands of cases that you can look at. Can you basically describe what you've seen on the safety side?

Marc H. Hedrick

I think, the key point to make is that -- we estimate 5,000 cases. This technology is clearly safe. But how do we think about safety? And how has that evolved over time? Step one is, the safety of retrieving the cells and processing them is basically the same level of safety that you have with that most common of cosmetic surgery procedures, liposuction. Very safe, lots of different doctors do it, local anesthesia or general anesthesia. It's a very safe procedure. So part one is just the liposuction, very safe. I think with a minimal amount of training, it can be accomplished safely around the world, even in clinics. The other part of the safety is really geared towards the delivery of the cells. And that's very different procedure to procedure. It's a very simple process in injecting it into the face or breast. But injecting cells into the heart, either during a heart attack or with a patient who has very severe heart failure, can be a very difficult -- different matter. So the safety is really predicated more on the delivery than it is on anything else. And we individualize that thinking depending on the application.

Operator

We'll go next to Laura Engel with Stonegate Securities.

Laura S. Engel - Stonegate Securities Inc., Research Division

I wanted to switch over to some to some financial information. Product revenues, a little bit higher than I expected. And I wondered, I guess, given the guidance, if you could comment on -- were any of these revenues that were expected in the second half of the year? Or should we just expect this trend to continue and maybe even be in excess of that $9 million mark?

Mark E. Saad

Hi, Laura. It's Mark Saad. So, yes, we are consistent with what we've said on the prior 2 calls, where we indicated, due to a variety of factors, in terms of building the market access and how we see our revenues coming from that the year will be second-half loaded. So that's what we've expected, that's what we've messaged. I think that's what you estimated. And the other reality is, given the nature of the commercial experience that we have, a significant portion, a very significant portion of our revenues in any quarter can tend to come in towards the end of the quarter. So there's a lot of late quarter variability as part of having really the state of the revenues where a lot of the systems are more translational in nature for those types of customers. And as we get in the future to where it's more predictive, consumable-based utilization taking the lion's share, which is driven by the market access, things we're working on, think the business overall gets more and more predictable. So that's the overall trend. We don't see, within our sales funnel, effectively robbing Q3 or Q4 revenues into Q2. And still, I think they're consistent with what we've said for the year, which is the sales funnel, the way it's tracking, the way the incremental approvals are tracking, such as getting Russia approval, which is meaningful for us, and we'll expect to see some second half benefit from things like that, and other things like that, expanded claims that was talked about on the earnings call in Europe and more expanded claims, ideally, coming soon. So those are the types of things that go into the mix when we look at the second half versus the first half. And I think we're just tracking well within where we described we would be, and, obviously I guess, within your estimates as well.

Laura S. Engel - Stonegate Securities Inc., Research Division

And then looking at margins, they're tracking well. Could you, I guess, remind me as far as the second half of the year, maybe even into 2013, expectations for those? And how you expect to see those trend going forward?

Mark E. Saad

Absolutely. So the existing manufacturing infrastructure that we have is where we make and assemble -- we make a lot of the elements of our systems and consumables. We outsource others as we get to critical mass where we can get leverage through outsourcing. But we still do a lot of physical manufacturing and assembly here in San Diego. And as part of that, your employee base, your physical footprint, your other costs, go into a base overhead of manufacturing, whether you sell $1 or $1 million or $10 million within a given quarter. So the first $1 million of revenue is at a very, very low margin, largely, to overcome that overhead associated with the presence that we have. As we go from there, the incremental revenue dollars carry a much, much higher margin. And certainly, the type of sale may be a translational system we tend to get a much higher margin on and incremental consumable at this level scale, perhaps lower, and you put it all into the mix. So in general, we were kind of in the high 40s for a little bit just shy of $2 million of product revenue. That's consistent with previous experience. And as we take 2 to 2.5 to 3 to 5 to 10, the incremental revenues go up a lot higher. So I would expect, to the extent we meet this year's goals, the second half margin should be meaningfully higher than the first half. And then as the market access factors come to play for the following year, I think that's when we can get start getting into high 60s, ideally into 70s and north of that over the next few years without unreasonable expectations.

Laura S. Engel - Stonegate Securities Inc., Research Division

Okay. And then on G&A, it's continuing to trend down. I guess could you comment on how much potential you have to continue to improve that? And maybe even where you see that leveling off as far as in that $3 million to $4 million range, maybe this year and even if you can discuss going into subsequent fiscal years?

Mark E. Saad

Absolutely. So the -- so if we look at SG&A overall, we've done a lot to get the sales and marketing side of that down pretty considerably, 30% roughly with between the first half or even in the most recent quarter, year-over-year. So I think Chris mentioned before do more with less. And that's really about understanding really where our revenues are coming from, where we're going to be able to get the best leverage, where maybe some efforts aren't going to pay off as well in the immediate term and position ourselves to benefit from the market access elements that should be coming together. So do more with, less and we're doing that, we think, very well, and the trend is very clear. The G&A is trending down as well. You see a modest reduction year-over-year in the current quarter. And we see that continuing as well. Clearly, we don't -- we want to minimize that. Where, if you were to look at the lion's share of G&A, yes there's staff, you've got your team and your management, your accountants and your lawyers and et cetera. You also have your professional services, your auditors and then the litany of legal groups that we work with. A lot of that can be things like intellectual property, and I think it's important to point that out because a substantial part of our G&A has been investing in our IP. I think Chris mentioned the degree in which that's really grown from 0 issued patents in June of 2008 to now, I think the number's 49. And that's been a meteoric rise. And really, it's credit to an extraordinary intellectual property team, both internally and externally. So that costs money. And so our protecting our asset with a robust and dynamic comprehensive IP has -- there's been a price to that, and that's in the G&A. So as we trend forward, I think we see really containment and pressuring that number further down incrementally over the next few quarters. We don't see anything noteworthy to drive it up at this point. We'll just try to keep clamping it down wherever we can.

Laura S. Engel - Stonegate Securities Inc., Research Division

Okay. And then the last question. Based on everything you gave on the call. It looks like you all are or sounds like you all are kind of adhering to the timelines you've given and achieving some of the milestones. One thing I noticed in the shareholder letter, it looks like there's 2 additional studies approved by the Japanese Ministry of Health? I wondered if you could confirm that for me and then just give a little bit of color as to the significance of those 2 additional studies.

Marc H. Hedrick

It's Marc. So, yes, we have 3 studies approved for MHLW to the specific stem cell guidelines. That's by no means all the use of our technology that's going on in Japan. But -- well, we have some centers that are using the technology that had transitioned their use through the MHLW stem cell guidelines with existing systems, and then others that are coming online, buying systems as a result of that MHLW stem cell guideline approval. So just to reiterate, the points made previously to Steve Brozak's question. The significance is, in part, revenue, and those were high-margin sales. And there are, we think, other greater opportunities for those. The -- I mentioned stress urinary incontinence and breast reconstruction and how those have helped underlying feed subsequent areas of corporate and other research clinically that we've decided to promote. And then finally, in Osaka, where wound healing is an important area of our claims expansion that we mentioned, and we're actually seeing pull-through in Japan for that same indication, where some of the wounds that we now have indications for in Europe are actually very significant problems in the Japanese market. And we have major investigators such as the Chairman of Surgery at the most prestigious Department of Surgery in all of Japan in Osaka, who we used to work with in our very first breast trial is now bringing this technology into Osaka.

Operator

We'll take our next question from Jason Kolbert, Maxim Group.

Jason Kolbert - Maxim Group LLC, Research Division

Actually, a bunch of questions for you today, but I'd like to start out by understanding a little bit about what you're thinking on ATHENA versus ADVANCE. And where I'm going with this specifically is trying to understand the focus of a STEMI trial in Europe versus a CMI angina trial in the U.S. And when I look at those 2 markets, I just see angina dwarfing the opportunity in STEMI. So internally is there a -- and I understand STEMI is more advanced, but help me understand when you look at these opportunities, which one you want to focus on because you're doing both right now?

Marc H. Hedrick

You're right. And we have completed, as a reminder, we've completed 2 pilot studies in Europe. One for chronic myocardial ischemia and one for STEMI. And they're different opportunities, and we think both are very valuable and very worthwhile. And our trial strategy is in many ways, very geared towards our current commercial strategy. So I think it's hard to separate commercial strategy from clinical trial strategy. So if you look at Europe, for example, our strategy, very much, is built around things we discussed in the last call, 2 halves of the orange. Number one is that we had a very successful pilot study called PRECISE in Europe, statistically significant improvement in those patients. And we've gone to our notified body to ask for incremental claims, so that we could begin to sell in Europe, and then build a registry and ultimately get reimbursement. So that's -- so we've -- in some ways, we've been able to...

Jason Kolbert - Maxim Group LLC, Research Division

Please remind me what's the background on the PRECISE trial?

Marc H. Hedrick

What do you mean background?

Jason Kolbert - Maxim Group LLC, Research Division

We were talking about both STEMI and CMI. So what were the enrolled patients in PRECISE?

Marc H. Hedrick

PRECISE was a no-options CMI or refractory heart failure study, so very similar to the ATHENA study in the U.S.

Jason Kolbert - Maxim Group LLC, Research Division

And so now, what's the strategy with...

Marc H. Hedrick

So we've completed the PRECISE study. We've taken that data. We've gone to our notified body and we're trying to get claims. And then build a registry, and ultimately adoption in reimbursements. ADVANCE fits in because we have an extremely promising pilot trial called APOLLO in Europe that's been completed. We've reported that data out to 18 months, so roughly a 50% improvement in the size of the infarct. And that's a smaller study although randomized control. And now we're taking that to the next step, which is the advanced study. And so those advanced sites could also very well be commercial sites for chronic ischemia because they are trained in the technology and it's use of it, and so those 2 things work very well together. And that is our...

Jason Kolbert - Maxim Group LLC, Research Division

You're confusing me a little bit, though because you're switching back and forth between STEMI and CMI. So I'm trying to understand when you're talking about APOLLO and you're talking about STEMI and you're talking about reduction in the size of the infarct, are you not saying that you want to pursue STEMI? And wouldn't you have to pursue that in a pivotal trial format in order to get a STEMI claim?

Marc H. Hedrick

ADVANCE is a pivotal study.

Jason Kolbert - Maxim Group LLC, Research Division

I'm sorry. ADVANCE is a pivotal study with 216 patients?

Marc H. Hedrick

Correct. Is that -- was that a challenge?

Jason Kolbert - Maxim Group LLC, Research Division

No, it's not a challenge, I'm just trying to understand. And what's the -- and the primary end point in ADVANCE? I know the secondary end point is MACE, but reduction in the infarct size is the primary end point for a STEMI trial with 216 patients?

Marc H. Hedrick

As measured by MRI, yes.

Jason Kolbert - Maxim Group LLC, Research Division

Has there been a proven correlation between the size of the infarct and mortality?

Marc H. Hedrick

Yes, absolutely. I think the bigger infarcts correlate with the worse outcomes, smaller infarcts below about 15% do much better.

Jason Kolbert - Maxim Group LLC, Research Division

I don't want to spend time on this call going over this, but...

Marc H. Hedrick

We're happy to follow-up with you later, and we...

Jason Kolbert - Maxim Group LLC, Research Division

I think that would be really helpful, because I'm confused a little bit in terms of how a 216-person trial can be a pivotal trial for STEMI. I'm a little confused as to why size of the infarct is a primary end point in that kind of trial. And I'm trying to understand -- by the way, I'm very excited. I'm very excited by what you're doing. I think it has tremendous potential, but I just am not connecting it to, kind of, the clinical strategy. And I'm not connecting it, I'm thinking, in terms of the U.S. regulatory environment. Maybe that's what's screwing me up a little bit. But when I look at CMI, I'm trying to understand also in CMI, kind of -- it's a huge, it's a gigantic market potential. But you're absolutely right, and I loved your comments. Probably the most dangerous thing in CMI is NOGA. And so I'm trying to understand kind of where you want to go in CMI versus where you want to go in STEMI. And I'm trying to understand at some point whether the agency will view this more like a drug and a BLA than a device, and kind of how that approval pathway will evolve because, ultimately, the potential here is gigantic.

Marc H. Hedrick

Jason, thanks for your enthusiasm and your detailed questions. And I completely agree that the next best step, probably just spend some time with you explaining our device regulatory strategy that's been validated not only in Europe but in the U.S.; explaining our commercial strategy in Europe, which is very different than it is in the U.S. because of completely different regulatory factors; and then also we can explain why 216 works in Europe, probably wouldn't work, certainly not at this stage, in the U.S., and why we're focusing on STEMI versus CHF. So we'll get back to you and have a comprehensive follow-up on those exact issues.

Jason Kolbert - Maxim Group LLC, Research Division

Okay. Great. And I'm sure at that time, too, we can talk a little bit about breast reconstruction in Japan, which is an interesting market. I spend a lot of time in Japan and I'm just wondering why you would do that indication in Japan.

Operator

We'll take our next question from Nathan Cali with Noble Financial.

Nathan Cali - Noble Financial Group, Inc., Research Division

I just got 2 quick questions. In the CMI trial in the U.S., if I have this correct, what type of MAX VO2 data would you be looking for or would you be happy with, with that regard on that data point? And then what would you say are the salient forthcoming catalysts near term over the next 12 months would be for the company?

Marc H. Hedrick

Hey, it's Marc. I'll take the first one, and then hand off the second one. So mVO2 is critically important in these chronic refractory heart failure patients, who have an element of ischemia, but whose heart is continuing to fail. The natural history of the disease is characterized by these areas of chronic ischemia that ultimately don't get enough blood supply, die, they go into heart failure, and they either die at about 20% per year or they end up on the transplant list. One of the important things in terms of stratification on the transplant list is mVO2. And it was a little controversial in our first study when we selected that as a key outcome measure. But I think since, in other Cell Therapy studies, it's validated and it was also used on the -- in stratifying patients for transplant, and that it's a very good overall objective quantifiable measure of overall cardiovascular, oxygen utilization, which correlates not only to the functional demise in these patients. But also below about 14, they tend to have a much higher mortality, which is approximately the cutoff for patients that -- to be listed on the transplant list or not. It's more complicated than that, but I think you get the picture.

So what's important and what range are we at for this ATHENA study? It's the same as our PRECISE study, and that is we're trying to take patients that are above, roughly, that 14 area and stabilize them or improve them by improving the blood supply to that hibernating myocardium and then block the continued demise or downward spiral that they have as the natural history of that cardiac disease progresses. So it's right in that sort of 17, 16, 15 range that we're trying to stabilize or improve that patient before they get listed on the transplant list.

And then the other question, regarding milestones? Chris, you want to...

Christopher J. Calhoun

So I think probably the most important milestone that people are really looking for relates to the balance sheet as I described in some detail in the script. And so a completed milestone -- completing a partnership is clearly probably the top milestone that'll be value driving. It really gets people to look away from the balance sheet of all the other success and what we're doing as a company. And as I mentioned, I think we're nearly there from a cash consumption point of view after a pretty long road. There's a lot of other value-driving milestones. I think these -- expanding our CE Mark claims to vascular indications, as Mark mentioned, we're already kind of building the foundation to be prepared for that. And it could have a commercial impact even this year, and we're confident we're on the right track towards that. Publication of our data from these other trials is important. It's validating. That tends to have an impact on shareholder value. It also has an impact on partnerships because the validating effect of getting this published in peer-reviewed journals is important. A little bit later toward through the year getting -- hitting our mile, continuing our financial performance, hitting our revenue guidance, cost containment, those kind of things, I think, are going to be important, again, kind of fundamentally going to the balance sheet and performance. And then ultimately, there's a whole cast of potential headlines here in terms of regulatory beyond the expansion of the CE Mark, which we've just expanded today, in fact, for a broad category of wounds and tissue ischemia, which is, I think, very impactful. There's country-specific approvals that are pending. Canada, Australia, New Zealand. We're working on Japan. So there's a number of country-specific approvals that are significant markets that we're getting close to, we think, winning approval in that will really open up some new markets and growth for us. So I think, there's a whole combination of lots of different things that are in our pipeline yet to be delivered this year. And we're pretty confident we're going to hit a lot of these.

Nathan Cali - Noble Financial Group, Inc., Research Division

What type of wound care targets are you going after? Or what type of indications?

Christopher J. Calhoun

I think Marc's talked a little bit about the fistulas already. There's been a number of clinical series on different kinds of wounds, venous stasis ulcers, diabetic foot ulcers with pretty remarkable healing in Europe that's been completed and is, I believe, in press. Tissue ischemia, so this is both related to damage from radiation, from cancer therapy, radiation necrosis, which is a very significant type of wound that's probably nearly impossible to heal in many of these patients. And some of these are more niche markets that, in many ways, going after these niche markets may be easier to really get a footprint in and get a beach head in and get reimbursement for. So they really represent, I think, meaningful, near-term revenue opportunities.

And broadly, one of the claims we added is tissue ischemia. And so the fundamental mechanism for a lot of this relates to blood flow. And these cells have been proven over and over in different indications that beneficial impact in blood flow-related conditions is where these cells really contribute. So adding the tissue ischemia claim, I think, was important for us.

Operator

We'll take our next question from Buzzy Northen, Thompson, Davis Asset Management.

Read M. Northen - Thompson, Davis & Company

There was an article this morning in the Wall Street Journal. It was titled The FDA Wants to Regulate Your Cells. And on the surface a little disturbing. Could you all comment on that? Then I have a follow-up question.

Marc H. Hedrick

It's Marc. The article was, I think, regarding the ruling for U.S. versus regenerative scientists. And that's just -- for those who are unaware, that court decision in the U.S. district court, recently in the last week or so, described a group position that used cultured bone marrow cells for orthopedic indications. And the ruling basically said that cultured cells are a drug, and the patient's own cells processed only by the doctor, but -- although cultured, is a drug. And I think that was, in some ways, an unexpected and troubling decision, and I think that's likely to be appealed. And so we may not be -- they have the final word on that yet, but a couple of comments on that. One, I think it highlights FDA's aggressiveness, and we've sensed that. Take a look at our 510(k) matter, which we have at federal courts regarding the -- whether our device can be approved as a 510(k) or not. We recognize that aggressiveness over the last several years. And that's why we made a very strong stand to protect our ability to be regulated as a device. And I think we've been very successful in doing that. The FDA has said we are definitely a device. We need to keep 1271 regulations because we don't culture the cells. They're minimally manipulated. They're used in the same surgical procedures. So I don't think that ruling applies to us. And so I think in some ways, it might be considered a fortunate decision for us. And I think that device distinction has been something that we've been able to leverage on a global basis not here -- just in the U.S. The other thing I think that, that article shows is the aggressiveness on the FDA's side and the uncertainty and risk it creates for companies because I think that also validates our decision not to just be a U.S. clinically focused company. In fact, we've carried the burden, but we also are beginning to reap the benefits of being a global company. And I think this helps validate our strategy to go into places like Japan and Europe and begin to not only build our clinical dossier but build a commercial operation and a regulatory base outside of the U.S.

Read M. Northen - Thompson, Davis & Company

My second question, basically, is a follow-up on a comment about size [ph] earlier, and that has to do with the news this afternoon on expanded claims in Europe. You briefly mentioned talking about commercial liability in the second half of the year. What I'd love to hear is, could you clarify a little bit more, expand a little bit on what this could mean, commercially, to the company?

Clyde W. Shores

Sure. It's Clyde. So in follow-up to that, what we've stated is, really today, our revenues come from aesthetic and reconstructive use from patients who are self-pay. And then a large part of it is really through those translational research studies that are funded within an institution or a hospital by an investigator. And so commercially, certainly, these claims are very important to us because they help us generate revenue now, but they also start to really strengthen our broad base of data that we've got in multiple indications. And that sets us up to head down the path as much as we've done with breast reconstruction in the U.K. to get market access and ultimately to get reimbursement for that procedure. And that, then, of course, will drive broad commercial utilization. So we've seen that the process is really well defined. The breast reconstruction is a good example of that. We sell the system or place the system into an institution, the investigators at the hospital purchase the consumables. We develop feasibility data at the point of care. And as we get that data, and it's published and we have additional investigator-driven studies, so we may choose to move into a clinical trial, we gather health economics data. And all of that builds our dossier across multiple indications for the platform to get broad utilization. And that's not just in Japan, but globally, that really has a positive brand impact with our key investigators, key opinion leaders and the different specialties and with hospital systems, and ultimately with patients. It's similar to what we talked about at Cytori before, like GE's model of design and/or it's like Apple having a platform and then generating lots of applications. And we're seeing that now in the hospital settings, where we place a solution device. More and more, it's beginning to be used across specialties. It's not just in plastic surgery but in other areas. So those new CE Mark claims enable those physicians in multiple specialties and the institutions to utilize the system. And that's a real validation of our technology today and certainly in the future.

Operator

And we have time to take one final question. We'll take our last question from David Musket with ProMed.

David Brian Musket - ProMed Management, Inc.

Marc, can you just help me clarify the advanced trial dynamics again? Because that trial started like over a year ago, and then you stopped to get this unification on the terms. How many patients were enrolled before you stopped?

Marc H. Hedrick

Yes, David, very small number. I think it was approximately 4 patients.

David Brian Musket - ProMed Management, Inc.

Four?

Marc H. Hedrick

Yes. A small number. Our hope was that those patients can still apply to the final study. But we had a tough time enrolling that study for a variety of reasons. And most of which were the reasons I discussed on the last call, which was GMP-related concerns that were different country to country. And those were evolving. In other words, it was a moving target.

So we --- yes, so that prompted trying to get alignment, not only with where the GMP regulations are with all the countries, how they've moved since we originally started and formulated that trial, but also try to look forward, anticipate emerging trends by direct one-on-one consultation with the G5 competent authorities. And I think we've done that, and ADVANCE is a much stronger trial. It's a smaller trial in many ways. I think it's a more robust trial because we've taken that time period to evaluate new data in the field and try to address pharmacoeconomic concerns to make the impact of that study greater than it would have otherwise been.

David Brian Musket - ProMed Management, Inc.

Right. Well, you just answered part of my -- it started off as 360-patient trial. Did you drop a dose? Is it just 1 dose now?

Marc H. Hedrick

Exactly. We dropped 1 dose.

David Brian Musket - ProMed Management, Inc.

So you're in -- so the $20 million or the $40 million, are you going to do the same as the ATHENA?

Marc H. Hedrick

Basically the same as the ATHENA, based on the data that we evaluated from that study, such as the 20 million cell dose.

David Brian Musket - ProMed Management, Inc.

Got it.

Christopher J. Calhoun

Same as APOLLO.

Marc H. Hedrick

Yes, same as APOLLO, sorry.

David Brian Musket - ProMed Management, Inc.

Okay, so 20 million, single-dose...

Marc H. Hedrick

2 to 1 randomized, double-blind, 2 to 1 active therapy to placebo, approximately 30 sites, around Europe, focused on the G5.

David Brian Musket - ProMed Management, Inc.

Okay. So down from 35 as well. So fewer sites and there's fewer patients?

Marc H. Hedrick

Well, it's a-- there is approximately 30 sites. We can have up to 35.

David Brian Musket - ProMed Management, Inc.

Okay, and so -- and we're still using the same primary, so that's -- it's going to have to -- you will use that 6-month infarct size reduction with the MRI, but we'll be getting some of these other end points at a more regular basis, right?

Marc H. Hedrick

Exactly. So that's the primary performance end point that we've negotiated with our notified body related to MRI. But we've extended some of the additional time points out to 36 months. And we're looking at things that evaluate less ventricular remodeling, such as echocardiographic follow-up and looking at the cardiac volumes. And by that time, we ought to see a decompensation with these patients. If we're really making a difference by lowering the myocardial infarction size, then we ought to -- it ought to result in healthier hearts in the ones that receive cells and hearts that are continuing to decompensate in those that receive placebo. It should be measurable and directly read on the overall economic impact of the treatment.

David Brian Musket - ProMed Management, Inc.

And then the ATHENA trial, just switching gears for one second here, that's -- you're going to do direct myocardial injections, right?

Marc H. Hedrick

No. ATHENA's direct intramyocardial injection through a growing cannulation into the LV.

David Brian Musket - ProMed Management, Inc.

So you're going to spread out the 20 million -- is it 20 million cells there as well? Through what? 10 injections or something, some number like that?

Marc H. Hedrick

It's a little higher number because of the nature of the delivery and based on data that -- not only our data, but data in the field. So it's 40 million cells, 15 intramyocardial injections delivered via the NOGA system based on areas of reversible ischemia as measured by preoperative studies or pre-procedural studies.

David Brian Musket - ProMed Management, Inc.

So that's twice the number of cells as you're using in the ADVANCE?

Marc H. Hedrick

Yes.

David Brian Musket - ProMed Management, Inc.

Got it. And on the -- one last question here on the partnering agreements, Chris. I fully appreciate that the preferred option would be to bring in nondilutive capital. Do you -- as these deals have been winding their way, I know they're not -- until they're signed, they're not -- we can't comment. But with these 2 deals, as you've configured them in terms of the terms you have on -- in some level of discussion, bridge this gap to breakeven that you described earlier?

Christopher J. Calhoun

Dave, yes. The way they're defined right now, they would. As you were kind of alluding to, the trick is the timing. And that can be tricky because this is a dynamic process. And so we're working very closely with the board. They're getting sometimes, daily, but weekly and often more current updates, and they have basically through the whole year about progress in all these things and really trying to balance when the right time is, if we needed to do something additional to that, and the confidence in when these deals are getting done. So it's a little threading the needle, but the board's very involved, and we're looking at this near daily on how these things are coming and where these processes are.

Operator

And ladies and gentlemen, this does conclude today's question-and-answer session. At this time, for closing remarks, I'd like to turn the conference back to Mr. Chris Calhoun.

Christopher J. Calhoun

Great. Thank you, guys, again for your time, support, great questions and for being shareholders in our organization. For the remainder of the year, we remain committed to executing across all 3 core areas of the business: advancing our cardiovascular pipeline, growing the commercial business and strengthening our balance sheet through strategic partnerships. We look forward to seeing some of you next week at our annual shareholder meeting and updating you again in the fall on our next quarterly business update. Thank you very much.

Operator

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.

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