Athersys, Inc. (ATHX) Q3 2018 Results - Earnings Call Transcript

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

Athersys, Inc. (NASDAQ:ATHX) Q3 2018 Earnings Conference Call November 6, 2018 4:30 PM ET


Laura Campbell - Senior Vice President of Finance

BJ Lehmann - President and Chief Operating Officer


Katherine Xu - William Blair

Chad Messer - Needham and Company

Jason Kolbert - H.C. Wainwright

Jason McCarthy - Maxim Group


Good afternoon. My name is Katharine and I'll be your conference operator today. At this time, I would like to welcome everyone to the Athersys' Third Quarter 2018 Earnings 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] Please note that today's conference is being recorded. Thank you. Ms. Laura Campbell with Athersys, you may begin your conference.

Laura Campbell

Thank you, and good afternoon, everyone. I'm Laura Campbell, Senior Vice President of Finance for Athersys. Thank you for joining today's call. If you do not have a copy of the press release issued at the close of market, it's available on the Athersys' website at

BJ Lehmann, President and Chief Operating Officer and I will host today's call. The call is expected to last approximately 30 minutes, and may also be accessed at A replay will be available two hours after the call's conclusion and access information for the replay is in today's press release.

Any remarks that we 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 our Forms 10-Q, 10-K and other public SEC filings.

We anticipate that subsequent events and developments may cause our outlook to change. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. For the benefit of those who may be listening to the replay, this call was held and recorded on November 6 of 2018. Since then we may have made announcements related to the topics discussed. So please reference our most recent press releases and SEC filings.

With that, I will now provide the third quarter 2018 financial results and then turn the call over to BJ for corporate update, followed by a question and answer period.

During the third quarter of 2018 revenues increased to $2.3 million from approximately $400,000 during the third quarter of 2017. The increase related to fees for manufacturing related activities that we provide to our collaborator Healios. Our other revenues remain consistent compared to the same period last year.

Research and development expenses increased to $9.5 million in the third quarter of 2018 compared to $5.4 million in the prior year a three month period. The $4.1 million increase relates primarily to an increase in clinical development costs of $3 million, increased personnel costs of $600,000, increased license fees of $200,000 and other increased research costs of $300,000. The variance in our clinical development path resulted from increased clinical manufacturing costs covered in part by Healios, technology transfer services associated with planned manufacturing for Healios in Japan, process development activities to support large scale manufacturing and costs related to our MASTERS-2 clinical trial that began enrolling patients in the third quarter of 2018.

General and administrative expenses increased to $2.6 million for the three months ended September 30th 2018 from $2.1 million in the comparable period in 2017. The increase was due primarily to an increase in professional fees, consulting services, personnel costs and other administrative costs.

Our net loss for the third quarter was $9.7 million in 2018 compared to a net loss of $7.2 million in 2017. The difference of $2.5 million reflects the above variances as well as an increase of $200,000 in other income.

Net loss per share was $0.07 in the third quarter of 2018 compared to $0.06 per share in the third quarter of 2017. In the nine months ended September 30th 2018 net cash used in operating activities was $8.8 million compared to $17.9 million in the nine months ended September 30 2017. The difference reflects in part $15 million of license fees paid so far by Healios in 2018 in connection with the collaboration expansions and an increase in clinical development activity in 2018.

Healios is required to make two more license fee payments of $2.5 million each in December 2018 and March 2019 in accordance with the collaboration expansion. At September 30th 2018, we had $48 million in cash and cash equivalents compared to $29.3 million at December 31 2017.

With that I'd like to turn the call over to BJ for a corporate update. BJ?

BJ Lehmann

Thank you, Laura. And thanks everyone for joining the call today. I will begin with some of the highlights. First, we're pleased to announce that we have completed enrollment of our study of MultiStem treatment for acute respiratory distress syndrome, otherwise known as ARDS.

As we described in the last call, this study is a small exploratory trial to evaluate the safety and feasibility of MultiStem treatment to patients who are affected by ARDS. Studies intended to provide information about the patient population and the cell therapy that can help in planning or subsequent clinical development including about which of the patients are most likely to benefit from treatment and about the nature of MultiStem administration.

We are also collecting some data intended to help us understand the potential for biological and clinical effect. But as we have said previously, with just 36 subjects the study is neither designed nor powered to demonstrate efficacy meaning that we are looking only for information or signals that would be relevant to future development.

We expect to have the results available from this study in a couple of months after we assemble and analyze the data. So during the first quarter of 2019. After we have shared results publicly, we will begin to disclose our plans for the program moving forward.

We believe that there is a big opportunity to help patients suffering from ARDS around the world and we believe ARDS represents a substantial market opportunity for a successful therapy which we hope MultiStem treatment will be. ARDS is a serious inflammatory condition that severely affects lung function, it may result from a number of underlying causes including severe pneumonia, major trauma, aspiration or near-drowning and sepsis among other things. ARDS can vary in intensity among patients and can result in lasting damage to the lungs. And for more severe cases or among older patients, there is typically a high mortality rate.

ARDS patients generally are critically ill and may spent weeks or months on a ventilator and in the ICU. From a healthcare policy perspective, these are high intensity, high cost patients who face substantial side effects, loss of function, additional post discharge healthcare cost and decline and quality of life to the extent that they recover.

We believe that successful therapy as a potential substantially reduce intensive care hospital time improve long term outcomes providing a strong core foundation for favorable reimbursement.

Furthermore on development front, Healios licensed from us several months ago, the rights to treat ARDS with MultiStem in Japan and given us work with MultiStem and stroke in Japan, Healios could be in a position soon to move forward with its own ARDS study in Japan.

Under the progressive regulatory framework in Japan supporting regenerative medicine there may be an opportunity depending on the resolve for contingent or accelerated approval for this treatment. We look forward to continuing to support Healios efforts to developed MultiStem product to address this area of significant clinical need in Japan.

Second, during the third quarter, we initiated the MASTERS-2 study or registration study of MultiStem therapy for the treatment of ischemic stroke. We have had good enrolment so far following the initial limited launch as we described in the last call, we are ramping up the study in phases initiating with a small number of sites in the U.S., adding a larger number of U.S. sites starting early next year, followed by a European sites after that.

This approach reflects a number of factors including our ongoing support of Healios's treasure study, management of the operational requirements associated with initiating a large number of sites and regulatory considerations in Europe.

Overall as we have summarized previously this study will include 300 subjects and will be conducted approximately 50 clinical sites in North America and Europe. Our target is to complete enrollment sometime in 2020, though it is difficult at this early stage to project firm study timelines.

With respect to the TREASURE study, Healios has continued to enroll subjects and sites in a study of MultiStem treatment of ischemic stroke. We cannot comment more on Healios' enrollment or its timelines and further updates will come as Healios comments publicly about the study in their scheduled earnings calls and other events.

Third, we announced in September the extension of the option and negotiation period for further expansion of our collaboration with Healios. As we have disclosed previously these discussions include an exclusive option to a license for rights to develop and commercialize MultiStem therapy for certain indications in China and other potential indications in Japan. The negotiation period was extended to early December and we continue to engage in constructive discussion with Healios about how we might proceed together.

We believe that there is a substantial opportunity for generative medicine and advanced therapies in China which will come into clearer view as our development advances and the regional landscape matures. We see the scope of the current expansion negotiations as a good business opportunity for both Athersys and Healios and we continue to explore with them as we think about potential ways to extend the partnership and create additional value together.

I would now like the update on other areas and then address the recent shareholder questions. As we described in our last call, we are working with the University of Texas at Houston Memorial Hermann Texas Medical Center one of the busiest Level one trauma centers in the United States and our preparations to conduct a study evaluating MultiStem treatment for trauma. The study is intended to evaluate safety and efficacy of the cell therapy treatment with the objective of reducing the severe inflammatory complications of trauma that increase patient susceptibilities to severe adverse events that impede recovery including acute kidney injury, ARDS, vascular compromise and multiple organ failure among other things.

We and our partners are currently refining study design details preparing the regulatory package and working through the site operational aspects with the objective of starting the study in 2019. We plan to provide further information as our ongoing preparations advance.

Without a doubt the advancement and efficient completion of our clinical programs in particular the Healios TREASURE study and our MASTERS-2 study are critical to our near-term mission. Additionally preparing for the potential approval commercial launch in MultiStem cell therapy is very important to our success.

As we discussed in our last call over the next 18 to 24 months we will be focused on building the capabilities and laying the groundwork to enable us to apply for gain approval for and successfully launch MultiStem therapy for stroke and potentially other treatments. In addition to favorable clinical results success will require productive and efficient regulatory effort favorable positioning of the therapy and its value proposition with reimbursement agencies and payers sufficient manufacturing capacity and product quality and ultimately a strong commercial outreach and management. We are already engaged in most of these areas and are focused on achieving success in each of them.

Today I would like to take a little time to focus some comments on manufacturing. As we've discussed in the past, we have established production of several contract manufacturers or CMOs, with facilities represented in the U.S., Europe and Asia to build some redundancy into our manufacturing network.

Additionally, we have continued to develop and refine methods for manufacturing the MultiStem product, with the objective of putting in place manufacturing approaches that are suited for larger scale commercial manufacturing.

Our cells biology and robustness have enabled us to manufacture products across different expansion platforms. Our current product manufacturing is limited in scale and suited to meeting the requirements for our clinical trials without requiring the larger investments required for commercial scale production. Each manufacturing batch takes a little over a week to complete and the testing and QC QA process can take 10 weeks or more.

We've used this straightforward clinical scale approach for many years and we have had dedicated capacity at our CMOs to meet our needs.

However, this capacity can be limited by production suite availability, operators and support personnel. As a result, in any given time, we have limits to the production that can be done, meaning that we have to conduct a series of smaller runs over time to complete a production campaign.

It also means that typically we are still manufacturing product for a study even after that study has been initiated. From time to time this exposes to some risk of supply disruption due to operational issues or materials supply constraints among other things. We work to address these risks through coordinated production planning with our CMOs, integrated clinical development planning, the establishment of some manufacturing redundancies such as our relationships with multiple organizations including Lanza, Nikon Cell innovation and other groups.

Our priority now working with our CMO partners is to complete production release and supply for the treasure and MASTERS-2 studies as well as other activities such as our plan TRAUMA trial.

Naturally we are taking a different approach for commercial manufacturing to serve larger markets such as ischemic stroke. We are focused on bioreactor manufacturing, which is much more scalable and efficient than our current clinical scale approach.

Our clinical scale approach relies on cell factories, two dimensional area driven production approach. Our commercial scale approach uses a three dimensional volume driven approach.

The bioreactor approach allows us to achieve much, much higher yields and equivalent production space with significantly less labor and better manufacturing controls. The result is favorable scalability, better quality control and much lower cost of goods and a distinctive platform that will be a source of sustainable competitive advantage.

With our deep knowledge of our cells biology and critical manufacturing parameters, we have developed internally the core aspects of our bioreactor manufacturing approach to ensure controls important intellectual property.

Eventually our commercial manufacturing capacity can consist of a combination of third-party CMO and internal production with a specific configurations and timelines to be determined. Considerations will include available capacity, investment requirements for our CMO partner for us, overall product demand expectations, operating performance and financial parameters among other things.

We will likely launch commercial production with a third-party CMO that can meet our initial volume and geographic needs, assuming no major changes to our current development plans. We would then plan to integrate in our own internal production which would give us better control over production. Our intention working with our partners CMOs is to put in place in a stepwise and capital efficient manner, the commercial manufacturing capacity to support a product platform with the potential eventually to treat millions of patients across the globe. We are actively planning and preparing for potential approaches commercial manufacturing and will provide further information on that as our planning and efforts progress.

As we've done recently before we take questions from today's participants we'd like to address a couple of questions that have been submitted to us from shareholders and others with interest in our technology. Question one was submitted by Bill.

Athersys is on record as seeing it can produce hundreds of thousands to millions of doses from a single donor and that it can store its products for years. Can you comment and please clarify?

With respect to the first part of the question. A Master Cell Bank created from a single healthy consenting donor has the potential to yield a large number of doses as a result the robust growth properties of these cells that comprise MultiStem and the use of work and the working cell bank and production methods we have described previously.

In short, the cells can be expanded dozens of generations in culture and maintain their potency biologic fidelity, safety profile and other fundamental characteristics. As we have shown in prior published work and presentations.

From a mathematical perspective, if we assume 40 population doubling in the manufacturing process this translates into an increase of 2 to 40 times or more than a trillion times the original cell population which is isolated from a single donor. Assuming a dose of approximately 1 billion cells for example. This provides more than a million doses with the starting cell population from the donor.

Additionally we have demonstrated comparability of product from Master Cell banks created from multiple donors providing us with the ability to generate a very large supply of doses to meet the demands that we anticipate.

With respect to the second part of the question as we have presented previously the product can be cryo preserved and stored for years and maintain potency upon thaw. This feature will give us flexibility in managing commercial manufacturing in the product supply chain. Once we are approved for commercialization.

Question two comes from Brent. Can we get some clarity on your stroke strategy versus planning on partnering for the trial for distribution or not at all.

Healios is developing the MultiStem products for stroke in Japan with its TREASURE study and we are developing the products for stroke in North America and Europe with our MASTERS-2 study. As I noted earlier our plan with MASTERS-2 is to initiate in the United States and ramp up and then bring European sites on after that. The results generated by MASTERS-2 as well as results from the TREASURE study will be used to support applications for registration in the United States and Europe.

From a commercialization perspective we have not yet finalized our strategy for Europe. However with multiple countries with varied utilization and reimbursement approaches it could be beneficial for us to partner with a European company for commercialization and or distribution to achieve optimal reimbursement and penetration and maximize the value creation in Europe.

We will continue to evaluate and explore partnering options as our efforts advance in this and other areas and update our strategy as their clinical development progresses.

Now, we'd be open to answering a few more questions from the participants today.

Question-and-Answer Session


[Operator Instructions] Your first question comes from the line of Katherine Xu with William Blair.

Katherine Xu

Good evening. So, maybe I just wondering in terms of the European partnership. I understand it could be the commercial but doesn't make sense to establish one before data or you think it's more after data and then basically form a true commercialization partnership? And then the other question is on clinical execution. So Athersys is conducting the MASTERS-2 study all by itself, can you just comment on how big your clinical team is, are you expanding or you already have sufficient resources to push this study to completion? Thank you.

BJ Lehman

Thanks, Katherine. I'll respond to your questions in turn. So with respect to European partnership, first, I would say that we are in discussions with partners at any given time and we consider the opportunities they present themselves. And it's possible we would consider partnership in Europe before we have data from the MASTERS-2 study.

I'll remind everybody, it's quite likely we're going to have data from Japan before we have the data from the MASTERS-2 study. And that may in fact be an opportune time to consider European partnership because we will have essentially a dataset that would be expected to be representative of what we see with MASTERS-2.

So it may make sense to do that before we have that data set, it would certainly allow for planning and with the Japan data in hand we may be able to realize the kind of value that we think is deserved for this particular opportunity. So in short, we'll continue to consider the opportunities for partnership in Europe and will consider those even before we have the MASTERS-2 data but it really depends on the situation, at the time. And if it does make sense to do a partnership before we have that data from MASTERS-2 which certainly going to consider it.

Secondly, with respect to clinical execution, I'll make a couple comments there. First off, that we do have an experienced clinical team here at Athersys we've been doing clinical development with MultiStem. For some time, importantly the people that we have managing this for us our experience in late stage clinical development from kind of past pharmaceutical experience. So we have a good core here to kind of manage the activities. Number two, we do use outside CROs to help drive the activity. And they provide a lot of boots, a lot of boots on the ground to kind of drive clinical activity. We have a strong support team here that kind of manages the important kind of clinical relationships but we do that hand in hand with the outside CRO support that we have. We have worked with the organization that is supporting our stroke study before we've had good success with them. They have worked well with the team. I do feel like we have in place the capabilities drive the study efficiently and effectively. That said over time we may have some additional capability to support the effort. I think we're in a good position right now.


Your next question comes from the line of Chad Messer with Needham and Company.

Q – Chad Messer

Great. Good evening. Thanks for taking my question and thanks for the update. I was just wondering if there is anything to report or an AMI, I know you guys are having some enrollment issues with that in the past. Just wondering if there's anything new to say.

BJ Lehmann

Chad, thanks for the question. There's not a lot me to say there. We continue to have challenges in enrollment, we continue to enroll patients, but it's been a slow slog. We've looked at a variety of different approaches to help us increase enrollment. We're fighting against some changes in practice with respect to treating that targeted patient population. We're looking at and we're continuing to consider different options with respect to pushing that study forward.

So there's nothing new to report at this point in time other than to say that we're continuing to look at the different options that could help us get to a point that's a success for us with respect to that study.

Q – Chad Messer

Thank you.


Your next question comes from the line of Jason Kolbert with H.C. Wainwright.

Jason Kolbert

Hi, BJ. Just want to come back to some of the manufacturing issues. If you make changes in the process and you go to a 3D bioreactor, do you have to do any transfer or equivalency studies to make sure that the clinical trial product you're using matches the manufacturing changes for commercial supply. Thanks.

BJ Lehmann

Thanks Jason. You know first off, I don't really talk about manufacturing issues necessarily, I just laid out our manufacturing strategy and approach. But with respect to your specific question, equivalency or comparability, yes you have to show that the product is comparable. You know what that entails specifically you know ultimately we'll be discussing with the regulators. At this point we've developed a substantial amount of information about products made on any of the manufacturing platforms we've developed which include obviously the current approach but also bioreactor. And we have a couple of other approaches as well that we've developed and we've demonstrated strong comparability with respect to the key characteristics of the products and has used it a variety of different studies and so forth.

Ultimately what discussion with regulators with respect to the comparability requirements what might be required from a clinical perspective. And we have a couple of strategies already that we're executing against that would provide us with clinical data from products manufacturers with the bio reactor should we need it to support what we ultimately do on the stroke side.

Jason Kolbert

And BJ, help me understand, how involved is Healios in this process as it looks like they'll be in a position to commercialize first. So will you -- is the intention that Athersys will supply commercial scale product to Healios or that Athersys will work with Healios to kind of build a local manufacturing operation in Japan?

BJ Lehmann

Well the answer is a little bit of both. I mean I think that with the current arrangement, we are essentially set up to supply them products for any additional clinical work and commercialization.

However, we would also consider exploring with them local manufacturing in Japan and in fact we have set up as we've disclosed publicly relationship with Nikon Cell Innovation with the specific intent to provide or supply product that's manufactured in Japan and supply to Japan market. So they are involved in the manufacturing process, planning, strategy and have fairly significant role right now with respect to manufacturing as it relates to their license, their license indications and in particular Japan. So we anticipate, we'll continue to have that close integrated collaborative relationship with respect to manufacturing product to their indications. And over time that might turn into a more direct role for them and management manufacturing in Japan. But we'll see and will update that occurs over time.

Jason Kolbert

Thank you. I understand.

BJ Lehmann

I'm impressed


And your last question comes from the line of Jason McCarthy with Maxim Group.

Jason McCarthy

Hey guys, thanks for taking the question. Can you talk a little bit about the TRAUMA program as where with stroke the two Phase 3 is on track and kind of 2019, 2020 event and we look to the next set of catalyst for Athersys. The TRAUMA program is particularly intriguing because it's really on the same critical care access as stroke just another version? And we look at that facility with about 150 patients that was previously stated at a center in Texas. Can you walk us through what endpoints in a study like TRAUMA would entail? And given that, it is critical care, stroke is critical care. Would you look to expand that study to other centers that are involved in your stroke trials now?

BJ Lehmann

Yes, several questions here. So let me try to take them one at a time. So, with respected critical care, and kind of the portfolio of opportunities we have around critical care. Yes, you're right. I mean, this is a very robust set of opportunities for the company. Obviously stroke is kind of lead program but TRAUMA is part of that. ARDS is also part of that most acute care situation, high intensity, ICU treatment, et cetera. And we have actually some other things in the portfolio that we haven't spent a much time talking about publicly that we slipped within this kind of portfolio as well. So we're very excited. I mean, at the things underlying the opportunity are very similar across these indications. And it has to do with managing the immune system response to the events or the condition. And we've seen a lot of transferability across these indications with respect to what the cells do.

So that's pretty exciting. When you think about it in terms of kind of the timeline, obviously the events around stroke, the TREASURE study results, the MASTERS-2 results, those, the timeline you talk about is just kind of what was targeted. ARDS, it's interesting, I think there might be some opportunity for development in Japan that could be accelerated just given the favorable regular you know there was the medicine regulation they have there. We will see but I think that would be something that has the potential for accelerated development Trauma as well could be developed relatively quickly. We believe the study that we're planning to run right now with Texas institution in single center. But I think it's important to note that this is essentially one of the busiest trauma centers in the United States. They've had experience in running you know kind of larger trauma studies before they can do it very efficiently. That's our expectation with respect to this particular study.

With respect to the types of endpoints you're looking at and so forth, I'm not going to go into detail now. I think we will lay out the specifics of design and so forth over time and I don't want to get ahead of ourselves in particular before we finalize discussions with the FDA. But you can imagine we're going to be looking at things like organ function which is affected pretty substantially any this kind of trauma cases is one of the key evaluative measures. We're certainly going to work as well at some of the other things that tie back to the biological mechanism, so some of the inflammatory markers and so forth. We will provide a lot more clarity on that, once we get to a final and know kind of blessed protocol and trial design from the FDA and we're working on that right now. But, those are the sort of things we look at.

With respect to sites and so forth, the current plan is not to expand trauma in this study to other sites. I mean I suppose we could look that over time. I think we're very confident that our partner in Texas can get this thing done relatively quickly. I think the real planning would take place as that study evolves and we develop a perspective on how the cells can work in that setting. We will have a network of sites focused on various aspects of trauma. It could be neurological injury, it could be general trauma sites et cetera. And you know we certainly would want to leverage those relationships and that experience as we develop kind of the next wave of opportunities in this broader acute care portfolio. So it's something we're thinking about for sure. You know you mentioned that and we think it'll be leverage as we move things forward. To be honest this next of this trauma study that we have planned.

Jason McCarthy

Thank you for taking the question.

BJ Lehmann

Thank you.


Ladies and gentlemen I thank you. That is all the time we have allotted for questions today. I'd like to turn the call back over to the BJ Lehmann for any closing remarks.

BJ Lehmann

So I just want to thank everyone for participating today. We look forward to continuing to update you on our progress. And finally I just to want to say that everybody have a good night. Thanks.


Thank you ladies and gentlemen. This does conclude today's conference call. You may now disconnect.