Biostage Inc (OTC:BSTG) Q3 2018 Earnings Conference Call November 8, 2018 9:30 AM ET
Tom McNaughton - Chief Financial Officer
Jim McGorry - Chief Executive Officer
David Lu - Summit Investment Group
Thank you all for joining us this morning for the Biostage Third Quarter Earnings Investor Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.
At this time, I’d like to remind our listeners that remarks made during this call may state management’s intentions, hopes, beliefs, expectations, or predictions of the future. These are forward-looking statements that involve risks and uncertainties. Forward-looking statements on this call are made pursuant to the Safe Harbor provisions of the Federal Securities Laws. These forward-looking statements are based on Biostage’s current expectations and actual results could differ materially. As a result, you should not place undue reliance on any forward-looking statements.
Some of the factors that could cause actual results to differ materially from those contemplated by such forward-looking statements are disclosed in the periodic reports that Biostage files with the Securities and Exchange Commission. These documents are available in the Investors section of the company’s website and on the Securities and Exchange Commission’s website. We encourage you to review these documents carefully. Following the company’s prepared remarks, the call will be opened for a question-and-answer session.
It is now my pleasure to turn the call over to Chief Financial Officer of Biostage, Mr. Tom McNaughton. Thank you. Please go ahead, sir.
Thank you. Good morning, everyone. Thank you for joining our call. With me on the call today are Jim McGorry, our CEO. I’ll start the call with a summary of the third quarter’s financial highlights, then I’ll turn the call over to Jim, who’ll provide an operational update. Following Jim’s update, we’ll open the call to questions.
We are a more streamlined company than we were at this time last year and we continue to execute on our very focused operating plan driving toward our condition to a clinical stage company. The financial results announcement issued earlier this morning provided a number of year-over-year operating statement comparisons, which reflect the company’s new operating level. My comments here will focus more specifically on giving you an indication of our current year quarterly cash burn rates. We had a very active third quarter as we came out of the second quarter with increased staffing and a few key physicians and having begun a significant set of proof-of-concept pre-clinical studies for pediatric esophageal indications and we continue to move forward operationally. We consumed approximately $2.2 million of cash in operating activities during the third quarter. We had consumed approximately $1.2 million of cash in operating activities during the second quarter, but that has included a $500,000 benefit from working capital changes.
Backing out that second quarter working capital benefit, we consumed about $500,000 more cash in the third quarter than the second quarter. That sequential quarterly cash burn increase was due to the combination of approximately $400,000 greater R&D spending, $100,000 lower G&A spending, and a $200,000 negative swing from the timing of payments. During the second quarter, we had completed two private placements of common shares providing net cash proceeds of approximately $4.2 million. We closed non-dilutive financing in the third quarter. And at September 30, 2018, the company had cash on hand of approximately $3.5 million and no debt.
I’ll now turn the call over to Jim.
Thanks, Tom. And thank you all for joining us this morning. I’m happy to come to you with what I hope you agree is tangible progress towards our goal in filing our IND mid-year 2019 and a transition to a clinical stage company. We here at Biostage could hardly be more pleased with the headway we’ve seen in all three quarters of this fiscal year, and after a good part of a decade of research and development, we can finally see the twinkle of light at the end of the tunnel, where we bring our potential life-changing product to the clinic and then to the market.
I can of course say we’re doing well as much as I want, but I also have the actions to show you to back up the words. From both the development and scientific standpoint, Biostage has engaged with partners and experts to advance our clinical technology platform, who’re the necessary checkpoints in this process.
In this quarter we attended TEE/three esophageal and stem cell meetings around the world and engaged with thought leaders and scientists to pressure-test our technology and make sure our pre-clinical development reflects the current clinical standards of care. We signed agreements with surgeons and interventional endoscopists to help us develop our first-in-human clinical protocols and shape our interactions with the FDA.
Additionally, we followed back-up with the FDA with new and revised data with the goal of further educating the agency on our innovative and new-to-the-world combination product. We have completed three studies under required clinical conditions. Our final study for our first IND submission answering key questions on mechanical testing and histology will be completed around year-end. These are the data that will inform our filing. In all cases, our unique mechanism of action on regeneration triggering a positive host response continues to be consistent and repeatable. As such, we believe with renewed certainty that we will file our IND mid-year 2019. We also received positive attention this quarter from the National Institute of Health, which awarded Biostage a highly competitive R&D grant from their Small Business Innovation Research program. This grant is offered in two parts to small firms like Biostage that show exceptional promise.
Our first phase in May worth over $200,000 and just recently, a Phase 2 awarded for $1.1 million. This is not only a sizeable addition to our research funds, but also a tremendous scientific validation of our Cellspan implants potential. Other scientific validation this quarter comes from our new advisory relationships with top clinical experts in esophageal disease, which we have used to improve our plans for our first product submission, but it also positions us for product improvements on additional indications and next-generation improvements.
Biostage has also continued its mutually rewarding collaborations with Connecticut Children’s Medical Center and the University of Texas Medical Center in Houston. We continue to gain clinical insight and procedural refinement from our scientific advisory board, collaborators, and new clinical advisors. Through the lens of these clinicians, we’re deeply understanding the optimal endpoints and patient eligibility requirements for our technology.
We’re also pleased with our progress working with our international investors from China and their continued confidence in our company and our technology helps further encourage us to press forward. They share our vision of improving the lives of patients and especially children in the U.S., China and around the world by transforming the treatment of esophageal disease and esophageal atresia and that is our greatest motivation of all. We anticipate their support and continued support we – of all of our shareholders who stand with us as we step even closer to this goal.
Additionally, we’ve recently announced the appointment of three seasoned executives to our Board of Directors. Ms. Li’s experience and access to investments in China is already paying dividends and will be invaluable to Biostage. Matt Dallas and Jeff Young both bring over 20 years of life science experience that will help us guide our strategic decisions and support our planned uplifting to NASDAQ in 2019. These seasoned leaders evaluated our company, did their diligence, and chose to use their talents to help us get to this level – get to the – our next level. This is further validation of our company and I’m grateful to each of them.
All told, Biostage has continued to advance our timelines according to the schedule outlined earlier this year. And if all continues as planned, we’re excited to see the points with insight, where all of our parallel efforts converge.
And with that, I wish you well and thank you for your time. Operator, we’re ready to open up the line for questions.
Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question is from David Lu with Summit Investment Group. Please proceed.
Hi. Good morning. On the…
Yes, are you guys expecting a press release here and when the data will be available before the IND filing?
Yes. Thank you, David. We’re still just focusing on our daily way of advancing the IND. We’ll continue to update you and others as we go forward, but we’ll take your suggestion in mind. Thank you.
Okay. And also you expect to file the IND around mid-year 2019, right?
And when do you expect the FDA approval after filing the IND roughly?
Those are the rules by the agency. I believe that they have a specific time period of about a month to get back to us and so we’ll work within those timeframes.
Okay. And with the current cash burn rate, when do you expect you’re going to do another fund raising?
You can see the board members who we brought on. We just finished a board meeting on Tuesday this week. We understand exactly where our cash is as Tom briefed. And so, you’ll continue to hear updates from us as we look to continue to extend our financial runway.
Okay, great. Thank you very much.
Thank you, David.
[Operator Instructions] There are no more questions at this time. I would like to turn the call back over to management for closing remarks.
Yes. Thank you, operator. In closing, what can you expect from us in the near future, continued financial runway, further scientific validation and our daily execution towards our IND filing. We thank you for being on the call. Thank you very much.
Thank you. This concludes today’s conference. You may disconnect your lines at this time and thank you for your participation.