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Athersys (NASDAQ:ATHX)
Q1 2019 Earnings Call
May. 08, 2019, 4:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good afternoon. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Athersys first-quarter 2019 results conference call. [Operator instructions] Thank you.

Karen Hunady, director of corporate communications and investor relations, you may begin your conference.

Karen Hunady -- Director of Corporate Communications and Investor Relations

Thank you and good afternoon, everyone. I'm Karen Hunady, director of corporate communications and investor relations 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 is available on the Athersys website at athersys.com.

B.J. Lehmann, president and chief operating officer; and Laura Campbell, senior vice president of finance, will host today's call. The call is expected to last approximately 30 minutes and may also be accessed from athersys.com. 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 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 May 8, 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'd like to turn the call over to Laura Campbell. Laura?

Laura Campbell -- Senior Vice President of Finance

Thank you, Karen. Good afternoon and welcome, everyone. I'm Laura Campbell, senior vice president of finance at Athersys. I'll briefly review our first-quarter 2019 financial results and then turn the call over to B.J.

for a corporate update followed by a question-and-answer period. During the first quarter of 2019, revenues increased to $1.4 million compared to $1.1 million during the the first quarter of 2018. Our revenues are generally derived from license fees, manufacturing-related activities for Healios, royalty and other contract revenue from collaborators and grant revenue. Revenues from our collaboration with Healios increased quarter-over-quarter due to the manufacturing services that we provide and invoiced to Healios.

Royalty revenues from RTI Surgical have now concluded with its discontinued distribution of the licensed product. Research and development expenses increased to $11.4 million for the first quarter of 2019 from $8.9 million for the comparable period in 2018. The $2.5 million increase is primarily associated with increased clinical trial and manufacturing process development costs, increased personnel costs and increased stock compensation costs. Included in our clinical expenses are costs associated with the manufacturing services we provide to Healios, which are invoiced to Healios in accordance with our collaboration agreement.

General and administrative expenses increased to $3.1 million for the three months ended March 31, 2019, compared to $2.7 million for the same period in 2018. The $400,000 increase was due primarily to increased legal and professional fees, consulting services and stock compensation costs compared to the same period last year. We incurred a net loss for the three months ended March 31, 2019, of $13 million compared to a net loss of $10.2 million for the same period of 2018. The difference of $2.8 million reflects the above variances that we've described earlier as well as a decrease of $200,000 in other income-related items.

During the three months ended March 31, 2019, we used $5.5 million of cash in operating activities compared to $5.7 million in the first quarter of 2018. As of March 31, 2019, we had $51 million in cash and cash equivalents compared to $51.1 million at December 31, 2018. With that, I'd like to turn the call over to B.J. for a corporate update.


BJ Lehmann -- President, Chief Operating Officer, and Secretary

Thank you, Laura, and thanks to everyone for joining the call today. I'd like to begin with some recent clinical program highlights. First, I'd like to discuss our momentum in ARDS. ARDS, or acute respiratory distress syndrome, is a serious inflammatory condition in the critical care area.

It can be caused by severe pneumonia, major trauma, aspiration and other serious conditions. It's characterized by materially impaired lung function. It has high mortality and high-treatment intensity associated with ICU time and high cost. During the first quarter, we released the top line data from our exploratory MUST-ARDS study.

This was a small, double-blind, placebo-controlled study evaluating the administration of MultiStem treatment shortly after a subject's ARDS diagnosis. Each subject had impaired pulmonary function and was on a ventilator. In total, there were 30 subjects in the Phase II cohort. During the primary evaluation window, the first 28 days following the treatment, MultiStem patients compared to placebo had lower mortality, 25% for MultiStem compared to 45% for placebo; higher ventilator-free days with an average of 12.9 days for MultiStem subjects compared to 9.2 days for placebo subjects and a median of 18.5 days for MultiStem compared to 6.5 days for placebo; and higher ICU-free days with an average of 10.3 days compared to 8.1 days for placebo and a median of 12.5 days compared to 4.5 days for placebo.

The differences were even more pronounced in MultiStem's favor among more severe patients. The data is promising, for sure. But ultimately, it must be confirmed in a larger clinical program. Additionally, in preliminary analysis of acute inflammatory biomarkers, the MultiStem patient group appeared to have lower relative levels of key inflammatory cytokines compared to the placebo group.

This is consistent with results we have seen in other acute care settings, such as ischemic stroke, and suggests a common mechanism important in multiple critical care indications. Briefly, following certain traumatic life events such as ischemias or blunt force traumas or serious infection, the body may mount an intense, systemic inflammatory response in reaction to the event, which, in turn, can lead to serious complications and impede the recovery. The inflammatory responses shared common characteristics across these acute indications. The time course and intensity of the inflammatory response is indicated by changes in inflammatory cytokines.

As we have seen in the ARDS and ischemic stroke clinical studies and in our preclinical work, early intervention with MultiStem administration following such events modulates the body's inflammatory overreaction with benefits for recovery. We can observe this modulating effect through evaluation of the biomarkers. We would expect to see the same mechanisms at work in other critical care areas such as trauma, hemorrhagic stroke, ischemia-based injuries, among others, with potential for enhanced recovery as apparent in ARDS and ischemic stroke. Our Japanese partner, Healios, recently initiated its ONE-BRIDGE ARDS study in Japan, announcing the enrollment of the first subject into the study.

The study is intended to investigate the efficacy and safety of MultiStem therapy for patients with pneumonia-induced ARDS, and its primary endpoint will be the number of ventilator-free days in the first 28 days following treatment. The ONE-BRIDGE is a small study with just 30 subjects. With favorable results, the therapy could be eligible for contingent approval under the progressive regenerative medicine laws in Japan. As Healios' licensor, we would clearly benefit from Healios' development and regulatory success in this area.

Importantly, we will pursue regulatory designations that may enable us to accelerate our own ARDS program and expedite the development path. As we further evaluate the data from the MUST-ARDS study, gain clarity on the regulatory pathway and take into account Healios' progress in the ONE-BRIDGE study, we will further develop and finalize our plans to move our program through development to approval in this area. We believe MultiStem treatment has the potential to have great impact on the treatment of ARDS patients as well as patients in other critical care situations. In a couple of weeks, Dr.

Geoff Bellingan, a primary investigator in our MUST-ARDS study and a leader in intensive care medicine practicing at the University College London Hospitals, will present the results from our study at the American Thoracic Society International Conference in a late-breaking clinical trial section. This ATS meeting is the largest and longest-running conference for pulmonary and critical care professionals in the world, and we are happy that this important trial was selected for presentation. Our stroke program remains our key area of focus. It is our most developed program.

There is substantial unmet need in stroke treatment, and there's potential to have a substantial impact on stroke victims' recovery and quality of life and on the requirements for and cost of caring for stroke survivors. Our MASTERS-2 study is proceeding with the planned ramp-up of site activity. Through the course of the year, we will be focused on bringing on as many targeted sites as possible and driving enrollment at the open sites. Based on our experience so far, we are optimistic about potential enrollment rates though it is too early to make any conclusions or projections.

In parallel, we will continue to undertake other commercialization-enabling activities such as product reimbursement planning, commercial manufacturing preparations and so forth. And as we have discussed before, we will continue to evaluate business partnerships to commercialize MultiStem treatment. That said, due to the structure of the stroke treatment care in the United States with a focus on driving treatment through comprehensive stroke centers, we believe that we could commercialize MultiStem treatment for stroke in North America. And we are undertaking preparations for this while we continue to evaluate potential partnering opportunities with commercial pharmaceutical or biotechnology companies.

In Japan, Healios continues to make progress with its TREASURE study. At this point, it has established a critical mass of clinical sites and is fully engaged in driving enrollment at these sites. In addition, we are making preparations for commercial production to support potential product demand in Japan and in other markets. We're also in the process of developing our reimbursement payer strategy, and we continue to engage with regulators to support and smooth the ongoing development and potential approval of this therapy following favorable clinical results.

As we have noted, we are planning to work with investigators at UT Houston and Memorial Hermann-Texas Medical Center to evaluate the MultiStem treatment shortly following trauma with the objective of reducing the severe inflammatory complications of trauma, which increase patient's susceptibility to organ dysfunction and other severe adverse events. We are in the process of regulatory engagement and operational preparations, and we intend to initiate the study later this year subject to FDA authorization posttrial and successful completion of other preparations. I would like to provide an update on another topic we have not covered of late, and that is the development of our intellectual property portfolio. We continue to build out and strengthen our intellectual property portfolio.

Over the past two years, we have been granted more than 80 new patents, bringing us to more than 270 issue patents, representing all major jurisdictions. In Japan, for instance, we added 11 patents over the past two years, strengthening our intellectual property position for our Japanese activities. In the U.S., we have had a number of important grants recently covering our core stem cell technology and our stroke application, in particular. We continue to develop the portfolio as our technology develops further and is applied more broadly.

Additionally, we continue to deepen our proprietary knowledge, particularly on the manufacturing front as we develop our scale-up commercial approach. We believe our proprietary manufacturing know-how, representing important trade secrets, will be a source of significant competitive advantage over the long term. Recently, we've had some questions seeking more clarity on our strategy for capital management. As we have said before, our intention is to maintain a healthy balance sheet as we stay focused on advancing our lead programs and preparing for potential approval and commercialization.

We anticipate that our MASTERS-2 study and process development and manufacturing activities may increase our burn somewhat over the course of the year. We completed the quarter with approximately $51 million in cash, which puts us in a good position. In line with what we have done in the past, we may generate additional capital through our collaborations, business development or equity sales, including through the use of our existing equity facility. During the first quarter, for example, we received approximately $5 million in license fee and service and supply related payments from our Healios collaboration.

We also generated over $5 million from utilization of our equity facility to support some important clinical and manufacturing initiatives. An important aspect of this equity facility is that our investor has maintained a significant position in the stock over a long period. Clearly, at the current stock price levels and with important milestones in sight, we are especially sensitive to the dilutive impact associated with equity-related activities. Finally, I would like to close with some administrative matters.

First, as we have announced previously, we are hosting an Investor Day event on May 14 in New York City. This event will highlight the company's capabilities, technologies, research programs, clinical trials and future plans. The meeting will include presentation -- presentations from the company's management team as well as experts in the fields of stroke and ARDS. Dr.

David Chiu from Houston Methodist Hospital will be discussing the MASTERS-2 clinical trial. Dr. Geoff Bellingan from the University College London Hospitals will be discussing the results from our ARDS clinical program. The event will also include some other special guests, including advocates in the stroke and ARDS areas, sharing stories from the patient and family perspective.

Remaining spots for the event are limited, however. So if you are interested in registering for this event, please send an email to irevent@athersys.com or visit our website for more information. Registration will close on Friday. Second, we have recently redesigned our website to create a more user-friendly interface with enhanced navigation and quick links to important information.

The redesigned home page features icons that direct to our most popular pages, including recent news, events, the clinical pipeline and our most recent corporate presentation and fact sheet. It also features a new video highlighting the company and our mission. We are committed to bringing to our stakeholders increased clarity and generating more awareness about our story, vision and programs through our communications and other activities. We encourage everyone to visit and explore the new website and be sure to sign up for email alerts at the bottom of our home page.

With that, we'd be happy to take some questions.

Questions & Answers:


Your first question comes from Gil Blum from Needham & Co.

Gil Blum -- Needham and Company -- Analyst

So first on what you mentioned about preparation for commercialization in Japan. Can you provide a little bit of color around the kind of preparations that are happening right now?

BJ Lehmann -- President, Chief Operating Officer, and Secretary

Yes. I think the key things we're focused on are a little bit longer lead time items. There's a big regulatory aspect to the preparations. So we are planning and preparing for eventual application for approval even before we have the trial results, and that includes putting together the various regulatory modules that are required for that particular application.

So that's a pretty major effort. We are supporting that and playing a major role with Healios to get prepared there. Manufacturing is another kind of major effort area. Ultimately, we have to support the launch of the product, and we have to have in place a commercial manufacturing capacity and capability to support that.

As we have noted in the past, we are working with the Japanese manufacturer, Nikon, to be a part of this activity with Healios. We also have some other activities to support commercialization in Japan that we haven't announced publicly yet, but suffice it to say that we have a variety of other initiatives in the background that more oriented in supporting the manufacturing effort. Healios is taking the lead on the commercial side evaluating ultimately the go-to-market strategy, working through kind of positioning and strategy with respect to reimbursement, etc., which is a little bit more defined in Japan than it is, say, in the United States and so forth. But those are the major activities that are going on in terms of supporting Japan and eventual commercialization there with successful study results.

Gil Blum -- Needham and Company -- Analyst

Another question is about the ARDS development in the U.S. Will this depend on some of the Japanese data that -- in the study that is currently enrolling in Japan?

BJ Lehmann -- President, Chief Operating Officer, and Secretary

It's a good question. We haven't determined exactly what the timing and exact nature of the strategy is going to be moving forward in terms of development. I think there are couple of important factors we have to keep in mind. We're continuing to evaluate the data from the current study.

For instance, we will be getting data from later time points that I think will be useful in understanding the potential impact and how we want to move things forward in terms of additional development. We are, as I said, pursuing some regulatory paths that could help accelerate the process. I think we need to have additional clarity on those paths before we make any decisions. And then, of course, we're going to be doing some design work.

Our understanding from Healios is that they want to move the study aggressively through enrollment. It is possible there could be data around the time that we would want to move forward. So we'll have to see how that study progresses when data would be available. And we'll have to make a decision about it if it's worthwhile waiting or not depending on what we know at the time.


Your next question comes from David Tod from Newbridge Security.

David Tod -- Newbridge Security -- Analyst

B.J., I was just curious as to the current size of the tPA market and approximately how many patients per year are treated with tPA in the U.S.

BJ Lehmann -- President, Chief Operating Officer, and Secretary

tPA? Yes. Thanks, David. The tPA market, I'll talk about in terms of the treatment kind of percentages with respect to the stroke population. So roughly, depending on the analysis that you look at, maybe 3% to 8% depending on the sites would be treated with tPA, and that's largely driven, as we talked about in the past and as you know, by the requirements for tPA, which is it has to be within a certain number of hours from the stroke, inside 2.5 hours typically.

And that has to do with the fact that after that point in time, there's a risk of additional hemorrhage as a result of the tPA treatment. So as a result, just a small percentage gets treated. If you think about the size of the market, it's a meaningful market in terms of patients treated even with 5% to 10% being treated, and there are about 800,000 ischemic strokes per year. Those are all eligible.

If you have 5% to 10% of those, you're talking about 50,000, 60,000, 70,000 patients potentially being treated. There's a decent market. There's different perspectives on the pricing and so forth with tPA, but it is a significant kind of revenue-size market even with the relatively low utilization in the space because of the limitations on when they have to be treated.

David Tod -- Newbridge Security -- Analyst

Yes. How does that translate into dollars just approximately?

BJ Lehmann -- President, Chief Operating Officer, and Secretary

It's in the hundreds of millions of dollars.

David Tod -- Newbridge Security -- Analyst

Oh, OK.

BJ Lehmann -- President, Chief Operating Officer, and Secretary

But I think it's important to know just as a follow-up to that, we see the stroke market as a very large market opportunity. And it has to do with a couple of different perspectives that relate back to tPA. First off, tPA is only hitting a very small part of the market and because of limitations. We're going to be able to address a substantially larger proportion of the market.

Our view is that the pricing is going to be substantially different for our product as well based on the kind of clinical results we hope to be able to deliver based on the MASTERS-1 study. And in the case of tPA, it might be in the range of $5,000 per treatment. It could be more, it could be a little bit less depending on where you are. We're expecting something -- multiples of that based on the analysis that we have had done with respect to reimbursement and the value that we are creating in terms of cost savings and improvements in the quality of life for these patients.

So from our point of view, the markets are, in the United States alone, multibillion-dollar market-size potential for our targeted moderate to moderate severe stroke patient population. We will talk more about that over time as we get closer to kind of commercialization time really to provide a little bit better sense to our investors and stakeholders about what we see as the opportunity.


I will now turn the call back over to BJ for closing remarks.

BJ Lehmann -- President, Chief Operating Officer, and Secretary

Well, thanks, everybody, for participating. We look forward to speaking with everyone again, I think, in August for the Q2 reporting. We hope to see many of you at our Investor Day in a couple of -- actually, next week. We're excited about that.

We have some very interesting substance and other things we want to share with folks. So hopefully, we'll see you all there. Otherwise, have a good afternoon. Thank you.


[Operator signoff]

Duration: 29 minutes

Call participants:

Karen Hunady -- Director of Corporate Communications and Investor Relations

Laura Campbell -- Senior Vice President of Finance

BJ Lehmann -- President, Chief Operating Officer, and Secretary

Gil Blum -- Needham and Company -- Analyst

David Tod -- Newbridge Security -- Analyst

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