Senior Executive Officers on the Conference Call:
- Ted Myles - Interim President, CFO and COO
- Eddy Anglade - Executive VP of Clinical Development
- Matt Vincent - Director of Business Development
Operator: (instructions)… It is now my pleasure to turn the webcast over to Ted Myles. Ted, the floor is you.
Ted Myles: Thank you and welcome to Advanced Cell Technology's corporate update call. My name is Ted Myles and I am Advanced Cell's Interim President, Chief Financial Officer and Chief Operating Officer. I am joined today by two of my colleagues: Dr. Eddy Anglade, EVP of Clinical Development, and Matt Vincent, Director of Business Development.
Before we get started, I just want to remind you that we will be making forward looking statements as defined in the Securities Laws. Actual results could vary materially. Factors that could cause actual results to vary materially are described in our recent filings with the Securities and Exchange Commission, most recently our Annual Report on Form 10Q, excuse me, Quarterly Report on Form 10Q as filed on May 8th, 2014, and our Form 10K as filed on April 1st, 2014, and as updated on our Form 10KA as filed on April 30th, 2014. You should pay particular attention to the risk factors contained in those documents we file from time to time with the Securities and Exchange Commission. The risk identified therein, and as well others not identified by the company, could cause the company's actual results to differ materially from those expressed in any forward looking statements.
Today we are going to give you an update on how we are performing against our previously stated corporate objectives. It's been a little over two months since our last update call and we look forward to discussing our progress with you. We think of our corporate objectives in two categories: business and scientific advancements, and corporate development which includes resolution of legacy issues.
At the end of the call, we'll take questions, but I do want to reiterate that consistent with our previously announced policy of saying less and doing more, there may be questions for which I will not be able to offer precise dates or predictions on specific objectives. Often the steps required to build sustainable long-term shareholder value take longer than expected, so it can be challenging to predict exactly when something is going to happen.
We have a terrific set of assets at ACT and there is a very smart, dedicated and talented team of employees, managers, directors, partners and trial investigators who are tasked with creating shareholder value by advancing those assets.
Our incentives are aligned with yours and we are working hard to build ACT into a world-class biotech company. Now let's begin.
Business and scientific items:
Substantial progress has been made shifting our company so that we can continue to advance our stem cell technology while also advancing lead products through clinical development. To this end, we have established a clinical capability within the company under Dr. Eddy Anglade's leadership. In a few minutes I'll ask Eddy to provide an update on clinical development and regulatory matters.
We position the company to become the leading regenerative ophthalmology company. We see important synergies across many aspects of clinical development and regulatory affairs by focusing our efforts in the ocular space. We already have a significant leadership position in this area with more than 30 patients treated in our AMD and SMD trials. We also have many of the leading US and UK eye hospitals participating in our current trials and many more top surgeons interested in participating in our phase II programs. The opportunity is there for us to leverage this expertise with our clinical stage therapies and to move aggressively and thoughtfully to helping to meet patients' needs.
In further support of our regenerative ophthalmology strategy and based on our continued excitement about the results in our RPE program, I am very pleased to announce that we have initiated our myopic macular degeneration, or MMD, trial at Jules Stein Eye Institute at UCLA. The early results we have observed in our AMD and SMD trials gives us the confidence to invest further into our RPE franchise. Taken together, we will have the opportunity to be the only company with promising therapy for three major degenerative macular conditions, AMD, MMD, and a leading position in an important orphan indication, SMD.
Our RPE cell therapy platform program along with our preclinical neural cell programs, which include a potential photoreceptor replacement therapy, position us to become the leading regenerative ophthalmology company. Now, I'll ask Dr. Eddy Anglade, our Executive Vice President of Clinical Development, to describe the MMD trial and to provide an update on our AMD and SMD trials. Eddy?
Eddy Anglade (4:23 min): Thanks Ted. The MMD trial is a single site open-label study that follows the design of the company's ongoing US and United Kingdom studies for dry AMD and Stargardt's macular degeneration, or SMD. The MMD trial will enroll 12 patients with cohorts of 3 patients each in an ascending dosage format , that is - an increasing number of RPE cells being transplanted.
The primary focus of the open label study will be to evaluate the safety and tolerability of transplanted RPE cells in patients who have progressed to fairly severe forms of myopia, the type which results in damage to the native RPE. Myopia is the most common cause of refractive error and its prevalence is increasing. Myopic macular degeneration, an extreme form of the condition, occurs in a subset of these patients and can occur as early as the second decade of life. So the potential impact on patients' life may be profound. We anticipate an initial read of safety and tolerability in this important patient population during the first half of 2015.
With respect to our AMD and SMD trials, the US trials are poised to start enrollment of the highest dosage cohort of 200,000 cells in these initial trials of safety and tolerability of human embryonic stem cell derived retinal pigment epithelial cells.
The UK SMD trial, the safety review of the data from the first subjects already treated with 200,000 cells will soon take place by the independent data safety and monitoring board. Upon their comprehensive review of the data to date, a recommendation will be made regarding the enrollment of the remainder of the cohort. The DSMB process has been designed with an abundance of caution - in mind given the "first in human" nature of these studies. In phase II safety will continue to be at the forefront of the goals for the program; however, given our current understanding of safety it is likely that the process will be more efficient then it has been in Phase I and we expect to increase our rate of enrollment in Phase II.
With regard to our Phase II development planning, our discussions with the MHRA in the UK provided us with excellent feedback that was generally supportive of the proposed development strategy and gives us confidence as we are poised to have interactions with the FDA shortly. In anticipation of an informative and productive discussion, it is further anticipated that we will announce our Phase II development plan thereafter and maintain the previously stated corporate objective of moving into Phase II, i.e., starting enrollment, in Q4 of this year.
Importantly, in the lead up to the scheduled regulatory meetings we have also received enthusiastic feedback from our current investigators as well as potential new investigators about the promise and potential of the program. Back to you, Ted.
Ted Myles (7:33 min): Thanks Eddy. In addition to the great progress on the clinical programs, there are also positive developments in our pre-clinical programs. On Thursday, June 5th, Stem Cell Reports, the official and peer-reviewed Journal of the International Society for Stem Cell Research published a study that we completed with our collaborators at the University of Connecticut. We are proud of this work and we believe that it further validates our hypothesis that ACT's human embryonic derived MSCs may be superior to MSCs made from cord blood or adult sources, such as marrow or adipose tissue. Our previously stated strategy is to advance our MSC program through proof-of-concept and to demonstrate our cells advantages so that we can partner the program with a company, or companies, that have expertise in clinical development in areas outside of ophthalmology.
We have a small but very talented team of scientists driving our MSC program forward and as they continue to generate excitement and credibility in the scientific community, it is my hope that we will be successful in attracting the non-dilutive funding that will be necessary to bring those programs into the clinic.
Everything that we discussed so far during this call has been about advancing the fundamental elements required to build a successful biotech company. Unfortunately for many years, ACT has been hindered by serious legacy issues. The legacies of previous management teams have included SEC investigations, civil actions, litigation and harmful financial instruments. Until these matters were closed, the fundamental progress of ACT simply wouldn't be properly recognized in the financial markets. Open litigation from transactions that occurred several years ago is too challenging for an institutional investor to understand, and there have been too many risks - not related to the science - for institutional investors to become engaged in a meaningful way. Our goal is for ACT to strengthen its balance sheet, up list to a national exchange, and to advance, in fact, accelerate our clinical and pre-clinical development efforts.
With this in mind, on June 4th 2014, we settled the litigation with Aronson and Gorton. Pursuant to the terms of the settlement agreement, ACT has issued to Aronson and Gorton and their designees a total of 384 million shares of common stock. Additionally, as we announced last month, we settled the debenture with Camofi, thus removing an unfavorable financial instrument from our balance sheet. With these items behind us, we believe we are poised to pursue our plan as described. Make no mistake about it, resolving these issues of the past has been unpleasant and expensive. However, the alternative was to continue to incur significant legal fees and continue to be hamstrung in our business building efforts while litigating a matter which we had substantial risk of losing.
We remain committed to executing our reverse split, reapplying for listing on a national exchange in the near term. These steps will enable us to credibly pursue fundamental based, institutional biotech investors who could help augment the tremendous support that our many retail investors have provided for so many years.
In addition to these financial objectives, we remain committed to our previously stated corporate goals of advancing our AMD and SMD programs into Phase II, publishing the Phase I interim data in a peer-reviewed journal and partnering our non-core assets.
Now I would like to open the call for questions.
Questions and Answer Session (11:00 min)
Operator: (instructions) We will be pausing for a few moments to compile the queue roster…
Ted Myles: I think operator, while you compile calls, I'll take a couple of online questions. One question here relates to our planned up-list for the year.
As I mentioned, it is a corporate objective. The work that we have done over the last couple of months helps to clear the way for that up-listing. Of course, as I said before, there is a lot that goes into properly up-listing stock, reversing the stock, and bringing in the proper capital. And we continue to view those activities as really one set of linked objectives. So, we are committed to pursuing that by the end of the year. It is a corporate objective and we are very focused on it.
Operator: And at this time we are still pausing to queue up the Q&A roster.
Ted Myles: Another online question on how we plan to fund operations in 2014 and 2015. I think this sort of is a natural extension of the prior question. Up-listing the stock, reversing the stock, fixing the corporate structure - again we view that all as part of attracting fundamental based, long-term oriented institutional biotech investors. And that is what we are looking to do toward the end of the year, to shore up the cash balances so that we can fund the company through the next group of milestones.
And one of the other questions on the line was about milestones for the upcoming three and six months. If you think about what this company could be by the end of the year or shortly thereafter, we would hope that we have our Phase I interim data published; we 'd be well into starting our Phase II programs; we'll have good, well, some patient flow on the recently initiated MMD trial. So that would give us, hopefully by the middle of next year, a read toward how our cell therapy applies to one of the leading causes of blindness in Asia. And, of course, as we sit today, a clean corporate structure. So, we think that is a lot of value- add over the next year or so.
Operator: And your next question comes from the line of John Redaelli. Your line is open.
John Redaelli: Thank you for taking my call Ted. I have a few questions if you don't mind. Is there a connection with Pfizer, Roslin and ACTs RPE cells? Has any thought been given to a future rights offering for existing ACT shareholders? Are multiple blebs being used now or contemplated for future use during clinical trials?
Ted Myles: Ok, so…I'll answer in reverse order, the multiple blebs are not currently being used and looking to Eddy here, I don't think we plan on using them in the future.
Eddy Anglade: No, that is not the plan. And, obviously we are in the midst of working through the kind of Phase II program that we are going to be initiating this year, but a single bleb administration is what we are planning at this time.
Ted Myles: One of your other questions was about any connection between us and the Pfizer - Roslin relationship. And no, we are not involved in that relationship. And forgive me, I forgot your other question.
John Redaelli: The rights offering for ACT share holders.
Ted Myles: No. not at this time. We are evaluating a number of financing options. I am not going to rule out a rights offering but I don't want to make any firm commitment in that direction, either.
Operator: And your next question is from Ed Rimkes. Your line is open.
Ed Rimkes: Could you reassure us long-term investors that bankruptcy is not on the table? And if so, how are you going to finance Phase II?
Ted Myles: Ok, so… we believe that the steps that we just took to clean up our company profile get us further away from a bankruptcy option. I can't sit here and provide absolute assurance but it is not part of our vernacular here. What we are focused on at ACT is getting away from all the legacy issues and building a successful biotech company. We believe that the steps we have just taken make us significantly more fundable. And by more fundable, I go back to the objectives of reversing the stock, up-listing to a national exchange and attracting fundamental based, you know, long-term shareholders who are investing on the merits of our science and our clinical programs. And, if we are successful in those items, we should be very far from bankruptcy, we should be more in company building mode, which is where we are really committed to being.
Operator: And at this time we are pausing to queue the phone questions… (instructions)… And your next question comes from Jason Kolbert. Your line is open.
Jason Kolbert: Hi Ted. I have a couple of questions. Can you just walk us through the clean-up and the two transactions that you mentioned, and can you let us know what the outstanding share count is? And then clinically, can you help me understand a little bit on exactly what the sequence is of trials that you will be running and the dose cohorts because that was a little bit fast. I just want to get a better understanding on the timeline.
Ted Myles: Ok, Thanks Jason. I'll go first and then pass it to Eddy for the second question. So, the two big issues that we resolved last week and last month, let me go with Camofi first. As everybody knows we had these convertible debentures outstanding for quite a while and they had the right to convert. They issued us a conversion notice back in early March. It happened to be in a period where we were looking at -- we were approaching a decision to potentially restate our financial statements. We couldn't, being on the right side of the Securities Laws, we could not issue them stock at that time. We had pretty unfavorable agreements with them and they wanted their stock immediately. We got into a discussion, we tried to resolve things amicably, and they ultimately called the note, so we paid them back. We look at that as, while it was not comfortably parting with so much cash, it was a little over a million five, it did remove the instrument from our balance sheet. So, it took a significant step toward cleaning our balance sheet. So, we feel good about that.
In terms of the Aronson Gorton matter, again these are transactions that were entered into many, many years ago. It was a very unusual warrant arrangement. And we looked at another year of litigation with significant risk. It could have gone much worse. In the meantime our business plan would have been largely on hold versus settling and putting this behind us. And we believe that that was the best decision for the company and for all of its stakeholders.
So, I now pass to Eddy to discuss the clinical portion.
Eddy Anglade: Thanks Ted. So, thanks very much for your question. Sorry to go quickly. So, in terms of sequencing at least at it relates to what I just talked about for the trial that was just initiated, myopic macular degeneration that is targeting a large and increasing problem. That is going to be a single center trial based at the Jules Stein Eye Institute. It's a dose ascending three patient cohort, three patients per cohort that is, and the target enrollment in that trial is 12 patients. So, I am anticipating that we will have an early read of safety and tolerability during the first half of 2015. So, that is a newly initiated initiative by the company based on the faith that we have in the technology.
So, were Phase I is concerned, you know of course that we have two indications that we are pursuing: Age related macular degeneration and Stargardt's macular degeneration. For the US, the current enrollment is halted at the "150,000" patients, the safety data is being reviewed by the Data Safety Monitoring Board and we anticipate that they will render their decision about proceeding to the next and highest dose cohort of "200,000" patients shortly.
We have also, as you know, a Stargardt's Macular Degeneration trial ongoing in the United Kingdom. The first patient at the highest dose cohort of "200,000" patients has been treated and the review by the Data Safety Monitoring Board is imminent. So, the two, actually, approvals by the DSMBs are being anticipated shortly. They are either in the midst of the review or we'll be receiving the information where the UK is concerned, for example, very shortly to render their decision about proceeding. Does that answer your question?
Operator: And the next question is from Jim Kuhn. Your line is open.
Jim Kuhn: Thank you. Appreciate you holding this call Ted, and appreciate that you taking my questions. I have three of them for you, if you don't mind. The first one is, at the end of 2013 you spoke about strategy of doing this kind of two-step funding process, where the first step would be about raising some funds post SEC settlement and pre NASDAQ up-listing. And then the second step would be, I think, a larger raise in conjunction with the reverse split and up-listing itself. Can you tell us if that two-step process is still the thinking?
Ted Myles: You want to go through your other questions and then we, I, can answer all three?
Jim Kuhn: Ok, that's the first one. The second is a real quick one. You mentioned here on this call that the reverse up-list target would be the end of this year. I just want to see if you could reconcile that with the proxy authorization to reverse up-list by 9/30/2014, so I just wanted to see if you anticipating needing to extend that 90 days? And then the third question has to do with the authorized share limit. You know, with the 384 million going to Aronson/Gorton, and then with the pending shares going to raise the capital that you spoke of prior, it seems apparent that you are going to raise the authorized shares fairly soon. My question is, is the thinking to increase the authorized [shares] before the reverse split, or perhaps in conjunction with the reverse split, so that the company has headroom, once up-listed on a national exchange?
Ted Myles: OK, good questions. So let me go through in order. We had been, back at the end of 2013, we had been thinking about a two-step process. You know, the legacy issues that we were wrestling with, you know frankly, they took longer, and they consumed more bandwidth and more effort, and were more of a burden than we had thought. Fortunately, they are all behind us now. So now we are looking at, the number one objective is, how we best capitalize the company. So, whether it's a two-step program or a one-step program, we are working with our Board, we are working with financial advisors, to think about these things and position the company for the best possible outcome. So, I don't want to confirm that we are absolutely committed to a two-step process or necessarily a one-step, we really need to, sort of as we have just done, kind of clean things up. We want to get the Phase I interim data out there as soon as we are successful in landing a publication and getting it out in the public domain, and use these assets to fuel a good financing and with a good outcome for investors and the company.
In terms of reconciling the timing, thank you for bringing that up. We look at the 2014, the 2014 corporate objectives are at the end of the year we hope to be a NASDAQ listed company with a lot of cash in the company's coffers that can fuel, fund the company through the next group of milestones. We are abundantly aware of the September 30th deadline for the reverse split and we are working with our advisors and our lawyers to figure out the best approach to effectuate the split and line up a financing. I talk about the reverse split, the application to NASDAQ and the pursuit of institutional financing as kind of a singular event. It does not mean that they are all happening at exactly the same time but they need to be all considered together and mapped out in a plan. And the backdrop of that plan should be continued fundamental business progress like the publication of the Phase I data and initiation of Phase II, etc. So again, it's hard to pinpoint the exact timing for all these things but these are all the pieces that we are considering in maximizing the opportunity here. Along those lines goes authorized share count and we are looking at that as well. So, I continue to update everybody as we define these plans. Thanks for your question.
Operator: Your next question is from Michael Brombacher. Your line is open.
Michael Brombacher: Hi there, we haven't heard an update really on the INADs on the [ph] MSCs and I was wondering if you could tell us a little bit more about that.
Ted Myles: You know, it's preclinical stuff, and so we don't typically comment on the results of pre-clinical programs until they are published. A good example of that is last week's publication. There is a lot of work that happens below the surface before a publication like that pops. Commenting on preclinical stuff feels a little bit premature. You know we continue to be encouraged by the MSC program and the excitement generated around that. So, more to follow as circumstances dictate.
Operator: And your last question on the phone is from Louis Small. Your line is open.
Ted Myles: Hi Louis.
Louis Small: One of the questions was affected by a statement earlier, I think by you Ted, you talked about going it alone for the MMD technology. That is question number one. Question number two had to do with the balance sheet. You have a reserve that was set up for the settlement with the Aronson suit. Not sure of the amount, whether it was $13 million or not, but for the purpose of this question, let's assume it is. How does that affect the cash balance of the company? Does that put that cash back in play for the organization to use? And the third question is how much additional cash and additional availability on Lincoln do you have?
Ted Myles: Ok, so… The accounting treatment of the Aronson Gorton reserve, or the Aronson Gorton accrual, was about 13 million dollars. That was our estimated exposure, and of course, the high end of that estimation was much higher than that as we disclosed in the financials. That is a noncash accounting entry. So, now as we close Q2, we will value the ultimate settlement and take a charge for the delta, I think it is somewhere a little bit north of that- it's probably around 20 million dollars. And we'll flush the accounting through and it will be removed from the balance sheet. So, it does not free up any cash. What it does, it removes a major hurdle to fund raising and attracting additional cash down the road.
In terms of Lincoln Park, you know we are running towards the end of it. We've got some runway left and we are evaluating options. Again, the removal of the Camofi note and the Aronson Gorton overhang really clears the deck for future financing. So, we'll update everybody as those plans come together.
Operator: That was our last question on the phone at this time.
Ted Myles: Ok, So I'll just wrap up with a few final comments that, hopefully, capture other questions that we did not get to. You know, when I think about the condition of the company a year ago, or even more so, two or three years ago, I am really impressed by the perseverance of our many loyal shareholders. There have been a lot of decisions made by prior management teams that had a long tail, cast cloud over the company for a long time.
Now, you really look at the corporate profile and boil it down to the basics - the basic fundamentals-what do we have? We have a leadership position in stem cell technologies that is protected by a very broad and strong intellectual property estate. We have encouraging results from more than 30 patients treated in AMD and SMD trials - AMD being one of the largest unmet medical needs of our time. We got the support and broad partnership of top eye surgeons in the US and the UK to help us drive into Phase II and expand the trials into MMD, another large unmet medical need. We have a clean balance sheet, free of legacy issues and, with putting together this plan we can turn this into a very strong balance sheet with the proper financing. We got brilliant employees who are dedicated to making this company a success and a world-class Board of Directors who provide the necessary guidance to management. We have a loyal base of shareholders who persevered together to get us to where we are today. So, we all think that these are the ingredients required to create a long-term sustainable shareholder value. We thank you for your support as we continue to develop game changing cell therapies for patients in need. So, thank you very much and have a good evening.
Operator: Thanks to our presenters and thanks to all our participants. We hope you found this webcast presentation informative. This concludes our webcast. You may now disconnect. Have a good day.