Athersys, Inc. Q2 2008 Earnings Call Transcript

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 |  About: Athersys, Inc. (ATHX)
by: SA Transcripts

Operator

Good afternoon. My name is Vanessa and I will be your conference operator today. At this time, I would like to welcome everyone to the Athersys second quarter 2008 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator instructions)

I would now like to turn the call over to Ms. Lisa Wilson, Investor Relations for Athersys. Please go ahead, ma'am.

Lisa Wilson

Thank you, and good afternoon, everyone. I'm Lisa Wilson of In-Site Communications, Investor Relations for Athersys. Thank you for joining today's call. You should have a copy of the press release issued at the close of market. If you have not received it, please call Libby Abelt at 212-759-5665 and it will be sent to you immediately.

Gil Van Bokkelen, Chairman and Chief Executive Officer, and B.J. Lehmann, President and Chief Operating Officer of Athersys will host today’s call.

The call is expected to last about 45 minutes and maybe accessed through the company's Web site at athersys.com. A replay will be available after this call's completion by dialing 800-642-1687 in the U.S. and Canada and 706-645-9291 from abroad, and entering access code 56419772.

Any remarks that Athersys may make about future expectations, plans and prospects constitute forward-looking statements for purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by the forward-looking statements as a result of various important factors including those discussed in the company's Form 10-Q, 10-K and other public SEC filing.

Athersys anticipates that subsequent events and developments will cause its outlook to change while the company may elect to state these forward-looking statements at some point in the future the company specifically disclaims any obligation to do so.

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

B.J. Lehmann

Thanks, Lisa. Good afternoon and welcome to the Athersys second quarter 2008 earnings conference call. I'm B.J. Lehmann, President and Chief Operating Officer of Athersys. I will review our financial results for the quarter-ended June 30, 2008, and then I will turn it over to Gil Van Bokkelen for a corporate update.

In the second quarter of 2008, revenues increased to $776,000 compared to $723,000 for the same period in 2007. Our revenues are comprised in license fees and grant revenue. License fees increased by $140,000 in the second quarter compared to the same period of 2007 as a result of activity related to our collaboration agreement with Bristol-Myers Squibb.

Grant revenue decreased $87,000 in the same period due to a decrease in reimbursable expenditures during the period.

Our research and development expenses for the second quarter 2008 decreased to $3.7 million from $5 million for the same period last year. This $1.3 million decrease results from a $1.8 million decrease in stock compensation expense, and $412,000 decrease in other expenses as offset by $909,000 increase in clinical and preclinical development costs.

The increase in clinical and preclinical costs in the second quarter of 2008 relates to the preparations for the Phase II clinical trial of ATHX-105 which we plan to initiate over the next couple of months and to Phase I clinical trials and MultiStem for AMI and GVHD.

Overall, expenses for our clinical and preclinical programs total $1.5 million in the second quarter and are reflected net of $269,000 reimbursement from Angiotech Pharmaceuticals related to our MultiStem Acute Myocardial Infarction collaboration. We expect the expenses associated with our clinical programs to increase for 2008 as we initiate our ATHX-105 Phase II clinical trial and conduct our MultiStem clinical studies.

General and administrative expenses decreased to $1.4 million in the second quarter 2008 compared to $3.5 million in the second quarter 2007, primarily as a result of decreases in stock compensation expense, other expenses and personnel and facility costs.

Other income decreased to $17,000 in the second quarter 2008 compared to $1.5 million in the second quarter 2007, reflecting other income from the sale of non-core assets in the second quarter of 2007.

Interest income increased to $286,000 in the second quarter of 2008 compared to $175,000 in the second quarter 2007, due to the increase in our average cash and investment balances. We expect interest income to decline over the remaining quarters of 2008 due to overall declining interest rates, and lower cash balances as we continue our investments in clinical and preclinical activities.

Interest expense decreased to $31,000 for the second quarter of the year from $710,000 for the comparable period in 2007 which reflects interest expense associated with the senior loan and for the second quarter of 2007 interest expense associated with subordinated convertible promissory notes converted in June 2007.

During the second quarter this year we completed repayment of a senior loan. Overall, our net loss was $4.1 million in the second quarter 2008, compared with $7.1 million in the second quarter of 2007.

In terms of operating capital at June 30th 2008 we had $17.7 million in cash and cash equivalents, and $22 million in available for sale of securities. As we have noted in prior earnings calls, based on current business and operating plans we expect to have available cash to fund our operations into 2010. Gil?

Gil Van Bokkelen

Thanks, B.J. Good afternoon, everyone and thank you for joining our call today. I would like to start off by mentioning the Athersys' recently selected for inclusion to the Russell MicroCap Index, which has an industry leading 4.4 trillion in assets currently benchmark in the index.

Selection of Athersys represents an opportunity to further increase our visibility and exposure with fund managers as well as contribute to enhance liquidity over time.

It's also worth noting that since our public offering in June of '07 research analysts from four investment banking firms have published research and are now covering Athersys thereby recognizing the value and opportunity in our obesity and MultiStem programs.

Importantly, our cash position is robust, providing sufficient capital to fund our core operations into 2010 as B.J. described. It also gives us an adequate time frame in which to advance our clinical programs and make appropriate decision with respect to each of them.

We are actively focused on advancing our pipeline of products and development and our goal is to create shareholder value by bringing best-in-class products to market and by utilizing our “fast follower” strategic approach where appropriate.

Our fundamental goal is to develop products with outstanding therapeutic profiles that produce fewer side effects while delivering superior efficacy. Our lead product candidate, ATHX-105 for obesity is the furthest along in our development pipeline and represents a key example of our best-in-class “fast follower” approach.

Our progress to-date on ATHX-105 has been consistent with our expectations and we are looking forward to the commencement of our Phase II trial. To review briefly, ATHX-105, acts by simulating a key serotonin receptor in the brain. The 5HT2c receptor that is known to playing an important role in regulating appetite and food intake.

Furthermore, ATHX-105 is highly selective for this receptor relative to other serotonin receptors including the 5HT2a and 5HT2b receptors. Drugful activity is important as it relates directly to safety and tolerability, key factors in driving drug effectiveness and patient compliance.

In the first quarter of 2008, we released our Phase I results for ATHX-105 in which we revealed the key parameters of the study we met including excellent safety and tolerability with only mild-to-moderate side effects observed in higher doses.

In the second quarter, we made continued progress for achieving our goal of initiating the upcoming Phase II trial. We completed manufacturing of the API for the study and also completed a number of other important steps including selection of clinical centers that we will be participating in the study. As a result, we believe that we are on track with respect to the projected commencement of our Phase II trial.

As we described previously, we expect this trial to be double blind placebo controlled 12-week safety and efficacy study involving several hundred patients and approximately 30 clinical centers. We have designed the study to include an assessment of both QD and BID dosing involving several different dosing arms.

In addition to this study, we are focused on exploring formulation-based approaches to further enhance the profile of ATHX-105 as well as conduct research in other areas.

As we said before we did not typically announce the filing of an IND. We'd said we would make an announcement following receipt of authorization from the FDA in this case, indicating that we may proceed with the Phase II trial as proposed.

As we stated previously, assuming there are no unexpected issues that arise, we believe that we are on track to commence investigator training and site initiation visit after Labor Day which would put us in a position to start enrolling patients soon thereafter. If there are any questions or issues that arise during the FDA review process we will work to address them in a timely and efficient manner.

So just to be clear, while I can confirm that the IV hasn't filed we do not intend to make any further announcement until sometime after Labor Day.

Turning to our MultiStem program. We have also made continued progress here. We believe that the MultiStem represents another best-in-class opportunity and a potential breakthrough in cell therapy. While bone marrow transplantation and haemopoietic Stem Cell therapy has been practiced for many years, and is delivering a much needed clinical benefit in certain areas, existing Stem Cell therapy method has fundamental limitation.

Current approaches require either of the use of cells from the patient also referred to as a toligously [ph] derived cells or cells obtained from a donor that must be carefully tissue matched between donor and recipient, in order to minimize the potential for immune system rejection of the graft or the MTUs [ph] immunosuppressive drugs to help address potentially serious complications such as graft versus host disease.

Our MultiStem product is unique, and that we can produce it on a large scale and administer it without requiring tissue matching or giving a patient immunosuppressive drug.

Based on extensive research results collected from the preclinical studies over the past several years we believe MultiStem avoids the limitations, risks, and complications of traditional Stem Cell therapy. Our proprietary product is obtained from adult bone marrow or other non-embryonic sources and then rigorously characterize and validated for subsequent clinical use.

The MultiStem product displays drug-like properties in several key aspects working primarily for the production of proteins and other trophic factors that may suppress inflammation and regulate immune system function help promote tissue repair and promote the formation of new blood vessels as examples.

Importantly, the product is extensively characterized from the safety perspective undergoing a full range of test including characterization to ensure absence of pathogen as well as absence of any evidence of tumorgenecity or other safety issues.

Our preclinical work to-date indicates that MultiStem has the potential to deliver therapeutic benefits across a range of disease indication, including cardiovascular disease, cancer treatment support, stroke and other neurological indications as well as other conditions.

Currently, we have two clinical programs involving MultiStem. One for treatment of acute myocardial infarction and the other for providing bone marrow transplant support in oncology.

With regard to the use of MultiStem for the treatment of acute myocardial infarction, we are conducting an open label study that is expected to include 28 patients and has been conducted in partnership with our co-development partner Angiotech Pharmaceuticals and is taking place at several leading cardiovascular treatment centers.

The other IND is for an open label Phase I clinical trial involving the use of MultiStem in support of bone marrow or manipulating Stem Cell transplant and patients receiving treatment for certain types of cancer including leukemia, and lymphoma. This trial is expected to include 36 patients and will be conducted at several leading bone marrow transplant and clinical centers in the U.S.

Since our last earnings call, we are working in conjunction with our CROs. We have negotiated and entered into contracts for participating clinical centers that have completed initial investigator training sessions and obtained the appropriate institutional review board approvals to commence these studies. We now have multiple clinical sites up and running and look forward to providing additional updates as appropriate as these studies progress.

Ina addition to our clinical activity, we are excited by the recent progress in our preclinical programs. As we described previously we look forward to filing an IND later this summer for MultiStem for a Phase I study for ischemic stroke and selecting a clinical candidate for H3 antagonists program some time this fall. Both programs have continued to advance and we look forward to making additional advancements in the months ahead.

The successful advancement of our key programs puts us in a better position to create significant shareholder value, and we believe ultimately enabled us to bring important new therapeutic products to market that will address obesity, damage from cardiovascular disease, cancer treatment support and other areas.

In summary, we are pleased with the recent progress in our key programs and we look forward to making continued advances as the year moves forward. We appreciate our shareholders continued support and look forward to updating you as we move forward.

With that in mind, we intend to host our first ever investor day in New York during the first week of October. Invitations and more specific information will follow shortly.

For now, we would like to open it up for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Leland Gershell.

Leland Gershell – Cowen and Company

Hi, good afternoon. Thanks for taking my questions. First, I want to ask a clarification around just time lines on the ATHX-105 Phase II, you guided to a Q3 initiation enrolment, given where we are in the progress there. Could this time line slip for the first patient entry into early part of the fourth quarter or how should we think about that?

Gil Van Bokkelen

Well, I think we're still on track to get things started in the third quarter. We're frankly right where we expected to be. But again, just given the logistical difficulties of doing things in late August, when a lot of people around on vacation including many of the people at various clinical centers I think we said in our last earnings call we were anticipating getting the sites up and running shortly after Labor Day and then getting the patient enrolment going right after the sites get initiated. And we are still comfortable and we are fully on track with that.

Leland Gershell – Cowen and Company

Okay. And you mentioned formulation work around 105, any more detail you can shed light on that?

Gil Van Bokkelen

Well, as we described previously, we're interested in achieving a number of objectives over time. And we think in using formulation to our advantage to enhance the profile of the drug, is something that maybe irrelevant and the potential importance over time. I don't really want to get into the details around what we're thinking about doing as the various approaches we're taking, but I will say that we're confident given the overall profile of ATHX-105 that we're going to have multiple options in terms of what we might be able to achieve. And I think that having multiple options is the best way to make sure that you got a highly effective and extremely well-tolerated obesity drug.

Leland Gershell – Cowen and Company

Okay. Fair enough. And one last question if I may. On MultiStem, with the AMI and the GVHD trials underway these are open label, how should we think about data releases from those trials as we go forward?

B.J. Lehmann

Yes, I think our plan right now is to as we make progress update you probably some time before the end of the year as it relates to general progress with clinical trials, enrolment rates et cetera.

Leland Gershell – Cowen and Company

Okay. Great. Thanks again for taking the question.

Gil Van Bokkelen

Thank you.

Operator

Your next question comes from the line of Adam Cutler.

Adam Cutler – Canaccord Adams

Hi, thanks for taking my question. Just wondering if you can just remind us as the design of the Graft Versus Host Disease study from MultiStem and then maybe the same thing for the stroke study?

B.J. Lehmann

Let me start with the GVHD study, so Gil made a few comments about that. What we anticipate is that this open label study will involve about 36 patients; it's got two arms to it, single dose arm, and a multi-dose arm. We will obviously initiate with single dose we're going to have the opportunity to step into the multiple dose arm well before we complete the single dose arm. So we are going to stay as started. We're working with the number of clinical sites here.

One of the interesting features of this particular opportunity is we're actually going to co-administer the product with the transplant whether it's a bone marrow transplant or a peripheral blood stem cell transplant so this is distinctive from say what Osiris Therapeutics is doing, which is treating GVHD. So I think that's going to give us some interesting reads about the performance of the product, and safety of product in that context and is going to create a greatest flexibility as we move forward with clinical development. We have not commented on ischemic stroke, we do intend to file an IND in the relatively near-term, we do have some early perspectives on clinical trial design, but those are not yet fully formed. I think our expectations as we authorize to move forward we would be in a position that to comment a little bit more in detail about what we intend to do with ischemic stroke.

Adam Cutler – Canaccord Adams

Okay, thanks. Maybe just one other question, have you wind up sites for the Phase II for 105?

Gil Van Bokkelen

We have. We actually have – it will be a 30 center study with a handful of backup sites in addition to that. And so we got pretty good clarity in terms of where that study is going to be conducted. All sites are in the United States spread out across the U.S. in different geographies.

Adam Cutler – Canaccord Adams

Great. When you get the green light from the FDA be able to move pretty quickly than presumably?

Gil Van Bokkelen

That's true. That's right. And basically what our plan is this once we get the green light from the FDA we intend to provide much more specific information in terms of the specific arms of the study, the overall precise numbers and the details, if you will. We want to get that feedback from the FDA before we actually disclose the information.

Adam Cutler – Canaccord Adams

Great. Thanks a lot.

Gil Van Bokkelen

Thank you.

Operator

Your next question comes from the line of Matt Osborne.

Matthew Osborne – Lazard Capital Markets

Hi, guys. Thanks for taking the questions. If you can apprise perhaps timing on the formulation were. Would you wait until the end of the Phase II trial to begin that or would that be done in parallel?

Gil Van Bokkelen

I am assuming that you're referring to clinical work around the formulation?

Matthew Osborne – Lazard Capital Markets

Exactly.

Gil Van Bokkelen

Yes. I think we would probably – we certainly wouldn't do it before we complete the Phase II study, because I think there is a number of things that we actually want to examine over time and we want to see what the phase II results are. And frankly, I think what we intend to do is conduct preclinical investigations in a range of areas supported by some other work that we're doing, and then kind of see where we're at. As we've said previously, our intention really is to take a close look at our partnering options post Phase II, because we think we're going to be in a strong position at that point in time, for our Phase II data, provide the kind of information that we think it's going to provide. And so, I think that you can imagine that a potential partner may have perspectives on how they might want to proceed with those types of activities.

Matthew Osborne – Lazard Capital Markets

Got you. And then on the upcoming Phase II trial what type of patient are you seeking to enroll? Those with high risk, (inaudible) or basically all comers?

Gil Van Bokkelen

Well, in the Phase II study, we're actually – we have exclusion criteria so the study design is going to be very similar to what (inaudible) did. So in terms of prior history related about (inaudible) for example, those types of individuals would not be included in the study. But again, we will be doing active screening, prescreening as well as characterization of follow-ups to the course of study and the study conclusion.

B.J. Lehmann

And we might be able to comment more on this when we get back to post Labor Day.

Gil Van Bokkelen

That's right.

Matthew Osborne – Lazard Capital Markets

Okay, great. And can you just comment on some of the partner discussions that you had any since the release of the locatarine [ph] 12 months safety would – achieve that safety threshold. Have the number of partners increased or at least (inaudible) improved since then?

B.J. Lehmann

The answer is yes to both of those questions. I can say generally we have initiated discussions with multiple – potentially very attractive collaboration partners. These discussions are in a very early stage. But there is a high degree of interest in this mechanism in our particular program.

Matthew Osborne – Lazard Capital Markets

Okay, great. Thank you.

Gil Van Bokkelen

Thank you.

Operator

(Operator instructions) Your next question comes from the line of Will Tanner.

William Tanner – Leerink Swann & Co.

Thanks for taking the question. Just on the 105, just in terms of the timing deal, probably, maybe second quarter next year in terms of having data, is that fair to say?

Gil Van Bokkelen

That's we're targeting. Assuming everything stays on track and – we don’t anticipate any surprises, but assuming everything stays on track and we will begin enrolment as we describe then that would put us on a path to present our top-line results some time early in the second quarter.

William Tanner – Leerink Swann & Co.

And then so would be not unreasonable to contemplate trying to get some kind of a partnership done, prior to the initiation of the Phase III program?

Gil Van Bokkelen

Yes. That would be our intention.

William Tanner – Leerink Swann & Co.

And then just on the MultiStem as it relates to the bone marrow transplantation so sounds like you will actually be able to look for engraftment perhaps I mean. I am guessing you're obviously both of these trials primarily intended just to look at safety, but some proof of efficacy or proof of concept so which we will then looking at engraftment rates and the bone marrow transplantation?

B.J. Lehmann

Let me make couple of comments. First, the study is about safety as you would expect its self-labeled safety study. We will look at some secondary end points that give us some perspectives related to engraftment, GVHD, et cetera. So we will be taking a look at these. We wouldn't expect necessarily to see anything significant given the size of the study. But we will take a look at that information.

William Tanner – Leerink Swann & Co.

And then should we assume kind of a similar thought process on the AMI obviously, once again just really want to ensure that it's safe perhaps looking for some metrics of activity?

B.J. Lehmann

Correct. Yes, we will take a look at – the safety study and we will take a look at some efficacy end points as well, but it's a smaller study, and I think it's – see them less likely we will see anything other than anecdotal evidence around efficacy. But it will help us I think in designing subsequent studies.

Gil Van Bokkelen

Just one other thing to add there. I think that the obviously these Phase I safety studies for both of these programs are important for what we could do next in each of these particular areas, but I think another thing that demonstrates are stage IV dual is an ability to move its other areas as well, leveraging the safety data that we expect to generate from both of these studies. So I think that something that Osiris has demonstrated they can do and frankly that's something that we believe we can demonstrate as well.

William Tanner – Leerink Swann & Co.

Great. Thank you.

Gil Van Bokkelen

Thank you.

Operator

(Operator instructions) Your next question is a follow-up question from Adam Cutler.

Adam Cutler – Canaccord Adams

Hi, thanks. Just wanted to follow-up if you could give us – I know you don’t give specific line item guidance, but just a little bit of color on where you expect expenses to be in the back half of the year and maybe into next year just kind of directionally?

B.J. Lehmann

Yes. Directionally, certainly, it’s going to be – we're going to have more expenses in the second half of the year, that's going to be driven predominantly from a couple of factors. One is the initiation that Phase II with ATHX-105. I think we talked about this publicly. We expect that trial to cost more than $10 million. In addition, we will be progressing both MultiStem studies and so that will add some expense. As I mentioned, in my points earlier we remain on track as it relates to our cash usage guidance that we provided last quarter, so we expect to burn roughly $25 million in cash over the course of this year.

Adam Cutler – Canaccord Adams

Okay and then for next year I mean it sounds like the 105 related expenses maybe sort of front-end loaded, is that right, and if so, kind of what does that mean for the trend of R&D expenses going into next year?

B.J. Lehmann

Yes. That's a fair point. They are front-loaded; I think the lion's share of this cost will be incurred this year. Our expectations for next year that the R&D costs would be meaningfully lower which provides us the runway into 2010 that I mentioned earlier.

Adam Cutler – Canaccord Adams

Great. Thanks a lot.

Gil Van Bokkelen

Thank you.

Operator

There are no further questions at this time. I would now like to turn the call back over to the presenters for closing remarks.

Gil Van Bokkelen

Once again, we appreciate everybody making the time to be part of the call today. We look forward to seeing hopefully all of you at our Investor Day in New York. And as I indicated earlier, we will provide some additional information about that event coming up here in the next several weeks. Thanks very much.

Operator

This concludes today's conference call. You may now disconnect.

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