Athersys, Inc. (NASDAQ:ATHX) Q4 2018 Results Earnings Conference Call March 14, 2019 4:30 PM ET
Laura Campbell - Senior Vice President, Finance
Gil Van Bokkelen - Chairman and Chief Executive Officer
BJ Lehmann - President and Chief Operating Officer
Conference Call Participants
Katherine Xu - William Blair
Chad Messer - Needham and Company
Good afternoon. My name is Kelly and I'll be your conference operator today. At this time, I would like to welcome everyone to the Athersys' Year End 2018 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question-and-answer session. [Operator Instructions]
I would now like to turn the call over to Laura Campbell, Senior Vice President of Finance. Please go ahead.
Thank you, and good afternoon, everyone. I'm Laura Campbell, Senior Vice President of Finance for Athersys. Thank you for joining today's call. Unfortunately GlobeNewswire is experiencing technical difficulties today and we’ll distribute our press release as soon as possible. Our press release is however available now on our website at athersys.com.
Dr. Gil Van Bokkelen, Chairman and Chief Executive Officer, BJ Lehmann, President and Chief Operating Officer and I will host today's call. The call is expected to last approximately thirty to forty five minutes and may also be accessed at athersys.com. A webcast will be available two hours after the calls conclusion and may be accessed on our website.
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 March 14 of 2019. 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 2018 financial results and then turn the call over to Gil for a corporate update, followed by a question and answer period.
For the fourth quarter of 2018 our revenues were $1.5 million compared to $1.2 million for the same period of 2017. Contract revenues from our collaboration with Healios K.K in Japan represented $1.3 million and $700,000 in the fourth quarter of 2018 and 2017 respectively.
The remaining revenues consisted of grant funding and royalty revenue. Absent any new collaborations, we expect our future contract revenues to be comprised primarily of revenues associated with our collaboration with Healios.
Research and development expenses decreased to $10.2 million in the fourth quarter of 2018, compared to $12.1 million in the fourth quarter of 2017. In 2017, approximately $4.7 million of license fees were expensed, of which $3.2 million was non-cash related to a settlement and license agreement.
After factoring in this one-time charge, the $2.8 million increase is primarily associated with increased clinical development costs, personnel costs and internal research supplies.
General and administrative expenses increased to $2.8 million for the quarter ended December 31, 2018 from $2.1 million in the comparable period in 2017. The $700,000 increase was due primarily to increases in personnel costs, professional fees, stock compensation expense and other administrative costs compared to the same period last year.
Net loss for the fourth quarter was $11.3 million in 2018 compared to a net loss of $13.1 million in the 2017 fourth quarter. The difference of $1.8 million reflects variances previously mentioned, as well as an increase of $300,000 in other income.
Turning to the results for the full year. Our contract revenues from Healios were $22.3 million in 2018 and $900,000 in 2017. This variance relates primarily to the expansion of our collaboration with Healios in June 2018 to include several addition - additional licensed indications, among other things.
Royalty and other contract revenues were $1.5 million and $1.9 million in 2018 and 2017, respectively. Grant revenues were $600,000 and $900,000 in 2018 and 2017, respectively.
Research and development expenses increased to $38.7 million for the year ended December 31, 2018 from $27.8 million for the year ended December 31, 2017. The increase in research and development expenses year-over-year of $10.9 million related primarily to increased clinical trial cost, including manufacturing of the investigational product, increased process development costs and increased personnel and internal supply costs.
These increases were partially offset by a decrease in license fees related to the settlement and license agreement in 2017. It's important to note that certain of the manufacturing related expenses are related to the Japan development activity and covered by Healios.
General and administrative expenses increased to $10.4 million in 2018 from $8.5 million in 2017. The $1.9 million increase was due primarily to increased personnel costs, legal and professional services and stock compensation expense.
Net loss was $24.3 million in 2018, compared to $32.2 million in 2017. The difference of $7.9 million reflects the variances already mentioned, as well as a decrease of $100,000 million in other net expenses.
Cash used in operating activities was $13.4 million in 2018 and $24 million in 2017. The difference represents the impact of the license fee payments made by Healios in connection with the collaboration expansion and increased expenses associated with clinical trials, manufacturing and process development activities and research, among other things.
As of December 31, 2018, we had $51.1 million in cash and cash equivalents, compared to $29.3 million at December 31, 2017. At the end of February 2019, we had $51.5 million in cash and cash equivalents.
With that, I'd like to turn the call over to Gil for corporate update. Gil?
Gil Van Bokkelen
Thanks, Laura. Good afternoon, everyone, and thanks for joining the call today. As BJ and Laura and I have described in prior earnings calls, the team here at Athersys and our Belgian subsidiary with Genesis are focused on developing and ultimately delivering innovative medicines that have the potential to meaningfully advance medical care in areas of unmet medical need and improve outcomes for patients that in many instances desperately need help.
Over the past year, during the fourth quarter and more recently in the early part of 2019, we have made some substantial progress toward the achievement of some key goals.
As we've conveyed previously, our recent major priorities have included supporting the advancement of the TREASURE trial being conducted by our partner Healios that is evaluating the administration of MultiStem to patients in Japan that have suffered a debilitating ischemic stroke.
Advancing the MASTERS-2 clinical trial, our Phase 3 study that is evaluating the administration of MultiStem cell therapy to ischemic stroke patients in North America, Europe and certain other international sites.
Progressing our other key programs, including our other ongoing and planned clinical trials, as most recently exemplified by the promising results from our clinical study evaluating administration of MultiStem to patients suffering from acute respiratory distress syndrome or ARPS.
Establishing new partnerships and/or expanding existing alliances in a manner that helps us expand our reach and capabilities and that adds substantial capital and enhance our ability to create value for our shareholders.
Maintaining a solid balance sheet and stable financial position, building awareness through our media relations, corporate communications and investor relations activities and strengthening and expanding our key capabilities, such as in manufacturing and other key areas.
Each of these objectives is critical to helping us achieve our fundamental goal of establishing Athersys as a leading biopharma company by successfully developing innovative therapies that have the potential to effectively address substantial areas of unmet medical need.
With regards to the first of these goals, supporting the TREASURE trial being conducted by Healios, we are pleased to report that the study has made good progress in the past few months, as recently reported by Healios.
Our manufacturing efforts, particularly in the second half of 2018 have enabled Healios to substantially expand its clinical activities. Our manufacturing responsibilities for TREASURE are now nearly complete. And accordingly, our manufacturing capacity and priorities have increasingly shifted toward supporting MASTERS-2 and other clinical and development priorities, including process development and scale up efforts to support eventual commercial activity.
On a related topic, we continue to make good headway on our MASTERS-2 clinical trial. Our enrollment rates at the first of the clinical sites has been strong and exceeded our expectations and we are busy qualifying, training and adding additional clinical sites.
The strong interest we've received from leading stroke investigators and centers around the world has been truly gratifying and exciting. And we believe this represents an important indication of recognition in the clinical community about how transformational this therapy might be for stroke patients and their families.
As stated previously, we are committed to having more than 50 major stroke centers in the US, the United Kingdom, Europe, Australia and certain other international locations participating in the trial, with many more that have expressed a desire to participate. We believe this strong interest level puts us in a position to achieve our goal of completing enrollment of the trial sometime next year.
With regards to advancing our other key programs, we and our clinical collaborators in the pulmonary critical care area were very excited about the recent results from our ARDS exploratory clinical trial.
We are also excited to share the news that we've been invited to present the trial results at an upcoming major medical conference, The American Thoracic Society International Conference in May.
This event represents the premier medical conference for the field of pulmonary critical care, and we are honored by the invitation to have the clinical principal investigator for the study, Dr. Jeff Bellion, present the results. We believe this invitation reflects the appropriate recognition and the excitement regarding the promising results from our trial and we will provide more detailed information about that event soon.
As we have described previously, this double blind, randomized, placebo controlled trial was focused on the intravenous administration of MultiStem to patients that have been diagnosed with ARDS and that were experiencing significantly compromised pulmonary functions.
In simpler terms, the lungs of these patients have become highly inflamed and filled with fluid and are no longer capable of absorbing enough oxygen to keep the body functioning properly.
ARDS patients are at a high risk of numerous complications due to the lack of proper oxygenation, including organ failure, multiple organ failure, necrosis in the extremities and in many cases require subsequent amputation and a high rate of mortality.
As a result of the pulmonary inflammation and the resultant lack of oxygenation capacity, these patients must be placed on a ventilator and be care for in the intensive care unit or ICU.
A critical period for these patients is the first few days and weeks after they’ve been diagnosed with ARDS and placed on a ventilator. The patient show signs of recovery and improvement of lung function and oxygenation capacity. They may be taken off the ventilator, which is an important step toward recovery.
During the 28 day assessment period, after being diagnosed with ARDS and being placed on a ventilator, the major clinical indicators for patients include improvement in pulmonary function that allows the patient to be taken off the ventilator safely, measured in ventilator free days, overall improvement that enables the patients to be transition out of the ICU, measured in ICU free days and mortality.
As we announced just recently, the results of the study showed that among all subjects in the trial we saw meaningful differences and improvement in each of these parameters that received treatment with MultiStem relative to the patients who received placebo in current standard of care.
As we've recently announced and as will be described in greater detail in ATS, among all subjects in the trial, clinical investigators observed that among the group of patients who received MultiStem, there was improvement in pulmonary function and other parameters, resulting in greater ventilator free days, ICU free days and lower mortality compared to placebo subjects.
In addition, as part of the trial design, we have prospectively defined an assessment of patients that had more severely compromised pulmonary function or more severe ARDS. Among these individuals, MultiStem treated subjects had meaningfully better outcomes as reflected in the differences in ventilator free days, ICU free days and substantial reduction in mortality. Importantly, initial biomarker analysis provides further evidence of improvement and additional mechanistic support for how MultiStem is working.
We see these trial results as another promising example of how MultiStem has the potential to provide a substantial benefit to critically ill patients and are excited about having the opportunity to present the more detailed results at ATS.
In the meantime, our partner Healios has already moved to capitalize on these results by initiating their ARDS clinical trial in Japan, the one bridge study. This study is being conducted under the recently implemented Regenerative Medicine Regulatory Framework in Japan, that provides an expedited path to conditional or full approval, and Healios will provide further announcements as the study progresses.
The interest level in this study has been very high, reflecting the clinician excitement around our recent results and we and Healios both look forward to the further advancement of the trial.
In the meantime, we continue to work with Healios on the further potential expansion of our alliance, discussing how we might work together in China on areas like stroke, ARDS and other indications we are both interested in, as well as exploring other areas where there is a common interest.
Importantly, the recent ARDS results and our progress in other areas have prompted interest in inquiries from other groups that also see our technologies as very promising. We will continue to evaluate these potential partnering opportunities and provide further updates as appropriate.
Regarding our financial position, as Laura just described, our balance sheet got meaningfully stronger over the past year and in the fourth quarter. We began the year with approximately $29.3 million of cash. As of December 31, 2018, we had approximately $51.1 million of cash on the balance sheet and no debt. As of February 28, we had approximately $51.5 million of cash on the balance sheet and again, no debt.
We are committed to maintaining a strong and stable financial position, as we get ever closer to successfully reaching other important milestones on both the clinical development and partnering fronts.
We also continue to engage with our shareholders, the investment community, analysts and the media. Regarding media engagement, I would refer you to the listing of recent interviews and articles about our progress that are listed and accessible on our website home page.
On the IR front, I would like to note three upcoming events. In the first week of April, we will be participating in the William Blair Late Stage Clinical Conference in New York. The following week, we will be presenting at the Annual Needham Healthcare Conference and that presentation will be webcast.
Then, in mid-May, we will be hosting an Investor Day event in New York, which will include members of our leadership team, as well as independent clinical experts involved in some of our trials and programs and patient advocacy experts that will share their experience and their excitement about our results. We will provide more information about these events in the coming days and weeks.
In summary, we continue to make steady and exciting progress on multiple fronts, as we work hard to fulfill our key objectives on behalf of our shareholders and the patients we are committed to serving.
Now, we'd like to address several of the questions that we have received recently. Several people have asked about the details of our progress on the MASTERS-2 trial, as they’ve done previously with our ARDS trial.
As a matter of policy, we do not share the specific number of patients enrolled to date or provide a live update on the Internet regarding sites that are active in the trial. While a few people love to speculate about that type of thing, our policy is the same as the vast majority of other companies in our industries. Namely, we do not provide live updates regarding those activities.
As I mentioned previously, the early enrollment activity through the first few months has exceeded some of our initial goals and we continue to make steady progress.
In other respects, we're a little behind where we hope to be. But overall, we feel we're in good position and expect to make substantial additional progress in the coming months.
Other people have provided enthusiastic and encouraging feedback about the ARDS trial results and have asked when the detailed results will be presented. I've addressed that in my earlier comments.
Some other people have asked why we didn't simply disclose more of the specific details in our press release and then present them at a conference later. The answer is that, many major medical conferences, including ATS have a strict policy of only issuing invitations to presenter's that are disclosing trial results for the first time.
In our case, we felt we had an obligation to convey the high level results to our shareholders in a prompt and timely manner, which we did. ATS subsequently conveyed the invitation to present, which we are honored by, but we had to walk a fine line between presenting a high level summary of the most important clinical results, while not presenting all of the detailed data, which would've meant losing the opportunity to present at ATS.
Finally, several people have asked why it was not on the past couple of earnings calls and what the significance of that might be. Occasionally, I or other members of the team may have conflicting responsibilities or other priorities that need to be attended to. So, my absence or the absence of another member of the team at any given point time simply reflects occasionally competing responsibilities. I have complete faith in the team's ability to handle these types of events when necessary and people shouldn't read anything more into it.
And with that, we'd like to open it up for a few questions from people calling in.
[Operator Instructions] Your first question comes from line of Katherine Xu from William Blair. Please go ahead. Your line is open.
Hi. Good afternoon. So I'm just wondering, Gil when you said MASTERS-2 enrollment is exceeding expectations. Can you provide some more granularity on that? And does that impact the guidance or the data release? And also, are you going to make the June deadline for the Healios turn option negotiation? Thank you.
Gil Van Bokkelen
So regarding the first question, no, it doesn't change our guidance. Again, I think we've made really good progress and we're ahead of the game in some respects, with respect to the robust early enrollment that we've seen. But we're a little behind on getting some of the other sites up and running. But frankly, I'm not worried about that.
One of the things that I think is been very encouraged is that - very encouraging is that, the - I think we've successfully addressed and I think this is illustrated in the robust early enrollment data. Some of the challenges that we had in the last study, where we were hampered by the logistical restrictions and the hours of operation and where the product was stored in the hospital or the access by the personnel to get access to it.
So we made, I would say reasonable, but somewhat conservative assumptions about how much better the enrollment might be this time around, and we meaningfully exceeded that.
But, again, we still have a lot of work to do. So we're not changing our guidance on when we think that we're actually going to complete the study or complete enrollment of the study. Our target is to do it in the second half of next year and that hasn't changed.
With regards to Helios, I think we're very much on track. I was actually just in Japan a few days ago and we had some very constructive discussions about some of the outstanding issues and some of the ongoing preparatory work and analysis that's being done. I don't really have anything further to report at this point, other than to say that, I think we're on a reasonable track and I think that - I think that Healios feel the same way.
Your next question comes from the line of Chad Messer from Needham and Company. Please go ahead. Your line is open.
Great. Thanks for taking my questions. I just wanted to check in on the Healios side. I believe they said they're targeting the end of - that would be this year, 2019. For whom it is - has any of the changed?
Gil Van Bokkelen
No, they're still - that's still their goal is to actually complete enrollment around the end of the year.
All right. Okay. Well, fantastic. Glad to hear - glad to hear its doing well with both of you guys. On ARDS, you indicated some interest in the program, which is pretty easy to believe. Just wondering, if it's also possible that you guys would want to run your own study and how you think about kind of balancing the pros and cons there?
Gil Van Bokkelen
Yeah. It's a great question. I mean, there's a lot of excitement right now among the clinicians that participated in the lab study, and we're actively thinking about ways that we can proceed from here. We don't have a defined perspective on that yet, kind of our immediate term priority in ARDS is to support Healios in the conduct of their study.
I think if you just take a step back and think about it, Healios could have waited, right? They could've waited until we have the data before, going through the regulatory process or doing some of the other things that they elected to do proactively ahead of time, because they were actually optimistic about what the results were going to reveal.
We were optimistic too, but we were cautious in our statements because we know that ARDS is a very complicated area and these patients are really, really sick. But both we and the team at Healios, in fact, their entire organization and our entire organization, along with the clinicians that they've been interacting with and the ones that we've been interacting with, we're thrilled with the result and what it has shown us.
And I think it makes them look really smart and it's because they are really smart. They proactively started working last fall and we were actively engaged with them and preparing a meeting with the PMDA and discussing what a trial design might look like and then ultimately submitting an application, so that they could initiate that trial.
And, of course, once we got the results and announced them, they were in a position to move forward very quickly after that and they have. I think they feel good about that. We certainly feel like it was a smart move on their part. Otherwise, if they had simply waited, it could have cost them many, many months basically before they were in a position to move forward.
We are also thinking about what we do next and we're having active conversations with clinicians, our panel of KOLs and other folks that are involved in that to think about what the next phase might be. And ultimately, once we've kind of refined our thinking around that, we'll have a conversation with the FDA, as we always do, to get their perspective and their input. And then we'll let people know kind of where that shakes out.
But we're very encouraged by the results, in some ways that came out even meaningfully better than what we thought it might come out and I think a lot of people are excited by that.
And mechanistically, as I've mentioned in my comments, the fact that the biomarker data corroborates the central hypothesis, that's really important, because you've got the strong clinical perspective and you've got the corroborating biomarker data, I think everybody feels even more confident that we're really having a kind of a effect that we wanted to have in these types of really sick patients.
All right. Great. Well, looking forward to that data at ATS, as well as your Investor Day in May. Thanks.
Gil Van Bokkelen
Yeah. Thanks, Chad.
Thank you. I will now turn the call back over to Gil Van Bokkelen for closing remarks.
Gil Van Bokkelen
Okay. Well, I'd like to thank everybody for joining in today. Again, our apologies about the fact that GlobeNewswire had this still somewhat unexplained technical glitch that prevented us from sending that information out, the way that we normally do. But just in closing on behalf of the entire company, we really appreciate your continued support. We hope that you recognize our commitment to working hard on behalf of the patients that we're committed to helping and to all of our shareholders. And we look forward to providing another update soon.
This concludes today's conference call. You may now disconnect.