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Athersys (NASDAQ:ATHX)
Q2 2019 Earnings Call
Aug 07, 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 second-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, Julianne. Good afternoon, everyone. As Julianne mentioned, 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. BJ 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 at 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 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 August 7, 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 second-quarter 2019 financial results and then turn the call over to BJ for a corporate update, followed by a question-and-answer period.

During the second quarter of 2019, revenues were $4.3 million compared to $19.4 million in the second quarter of 2018 with the majority of our revenues derived from our collaboration with Healios in Japan. Our Healios collaboration revenues were 4.2 million in the second quarter of 2019 and were $18.8 million for the same period last year. Included in last year's amount was the expansion of the collaboration that included additional license indication among other things. Generally, our revenues are derived from license fees and other contract revenue, manufacturing-related services and grant revenue.

Research and development expenses increased to $11.1 million for the second quarter of 2019 from $10.1 million for the comparable period in 2018. The $1 million increase is primarily associated with increased clinical expenses and manufacturing process development costs, personnel costs and research supplies, which was partially offset by a decrease in license fee expense. Included in our clinical expenses are costs associated with manufacturing services that we provide to Healios, which are invoiced to Healios in accordance with our contractual arrangement. General and administrative expenses increased to $2.9 million for the three months ended June 30, 2019, compared to $2.4 million for the same period in 2018.

The $500,000 increase was due primarily to increased personnel costs, legal and professional fees and travel costs. We incurred a net loss for the three months ended June 30, 2019, of $9.7 million compared to a net income of $6.9 million for the same period of 2018, with the expansion of the Healios collaboration in June 2018 being the primary reasons for the variance. Our net loss per share was $0.06 per share for the quarter ended June 30, 2019. During the three months ended June 30, 2019, we used $11.4 million of cash in operating activities compared to net cash provided of $4.4 million in the second quarter of 2018.

As of June 30, 2019, we had 44.2 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 BJ for a corporate update. BJ?

BJ Lehmann -- President and Chief Operating Officer

Thank you, Laura, and thanks to everyone for joining the call today. Also, I'd like to thank the investors who had submitted questions before the call. These questions help guide our comments that I'm going to go through today. I'll start with an update on our clinical development activities.

Our Masters 2 pivotal ischemic stroke study continues to progress. During the quarter, we added clinical sites and continued enrollment into the study. As we have mentioned on our prior earnings call, we completed production for Healios' Treasure study earlier in the year and ramped up production for the Masters 2 study at that point. Our intention is to have most of the planned U.S.

sites initiated and enrolling by the end of the year, and we will begin to bring on sites in Europe and other areas once we have the core U.S. sites on board. Based on our favorable early enrollment data, we believe we can achieve strong enrollment numbers once all of our core sites are fully activated. Once the study is fully initiated, we plan to have sites in North America, Europe and other international locations.

Our stated goal has been to complete enrollment of the study before the end of 2020. However, once we have the core sites fully activated and enrolling, we will be in a better position to estimate our time lines for completing enrollment and the study. Turning to Japan. Healios has advanced its Treasure ischemic stroke study over the quarter.

Healios announced in the second quarter that it completed initiation of all clinical trial sites in Japan, numbering more than 40 sites in total. Healios' enrollment progress has been a bit slower than they had hoped for, in part due to investigational product constraints earlier in the study. However, the Healios team intends to pursue measures to enable it to complete the clinical trials as soon as possible. Healios has projected in its public disclosures that enrollment is expected to be complete at some time in mid-2020.

Also as a reminder, Healios has Sakigake designation for their ischemic stroke program, meaning that the program qualifies for an expedited review and approval process under the progressive Japanese regulatory framework for regenerative medicines. In January, we released promising preliminary summary results from our exploratory clinical study of multi-stem therapy for ARDS patients. Study is called the MUST-ARDS study. During the second quarter, we received fast-track designation from the FDA for the ARDS program.

Following the release of the MUST-ARDS data, Healios initiated a clinical trial in Japan for patients with pneumonia-induced ARDS, that study referred to as the One Bridge study, and enrolled its first patient in April. Data from our MUST-ARDS study for subjects with pneumonia-induced ARDS suggests the potential for substantial clinical benefit from multi-stem treatment for these patients. The One Bridge study is designed to be eligible for contingent approval under the progressive regenerative regulatory framework in Japan and will evaluate 30 subjects with pneumonia-induced ARDS. Healios is adding clinical sites and enrolling patients in this ongoing study.

Given ARDS' considerable impact on the health and well-being of patients and the significant cost of caring for patients on a ventilator in the intensive care unit, we believe a favorable reimbursement amount could be justified for multi-stem treatment that meaningfully reduces mortality, increases ventilator-free days and ICU-free days for patients, in line with what we observed in our MUST-ARDS study. It is possible given the smaller size of the study that results from the One Bridge study could be available before data from Treasure study, and therefore, this indication may be taken through the Japanese review and approval process first. In any event, we would benefit from Healios' development regulatory success in this area given our license arrangement with Healios and our interest in ARDS development in other geographies. As we have mentioned previously, we have had substantial challenges in enrolling our Phase 2 AMI study.

As a refresher, the study was designed to treat subjects shortly following certain types of heart attacks with a catheter-based administration multi-stem cells around the affected heart area. The foundation for the study was our promising Phase 1 study results, as well as our extensive nonclinical data demonstrating the potential for the cell therapy for infarct-related conditions in cardiovascular disease. The enrollment challenges have been in large part due to changes in treatment practices for the targeted patients, which are NSTEMI patients with severe loss of function and perfusion deficits. For example, more aggressive treatment of NSTEMI patients, meaning higher intervention rates and accelerated time to the cath lab, has reduced the time available during the treatment window to identify and enroll subjects.

Additionally, our intervention approach has been based on femoral access and the trend to radial catheterization access has had an impact at some clinical sites. Further, improved standard of care resulted in lower-than-expected severity in the patients coming through our clinical sites. We've undertaken a variety of measures intended to address the issues and improve enrollment while maintaining the integrity the study design. Unfortunately, these steps have not had the impact that we had hoped for, leaving us with low enrollment and a long time line unless we fundamentally change the study design.

As a result, we have elected to undertake an evaluation of the available data from the enrolled subjects to help us determine the best way forward. We will provide further information about our strategy in this area once we've evaluated the data and considered its implications. Finally, with respect to trauma, we have advanced our regulatory and operational preparations toward initiation of the planned clinical study, which is designed to evaluate multi-stem treatment shortly following trauma with the objective of reducing the severe inflammatory complications and the related organ dysfunction and adverse events. We're now finalizing for submission, the IND for the trial and are planning for the start of this study around the end of the year.

We will provide further updates as we make additional progress on the regulatory front and other relevant areas. Turning to the business development front. We are engaged in evaluating potential partnering opportunities, particularly involving our critical care programs like stroke, ARDS and others. For example, the recent MUST-ARDS study data has generated additional interest from leading global and regional companies.

We will continue to evaluate these partnering opportunities with the focus on finding the right partner and the appropriate deal structure for the indications and geographies that are focused. We believe that business partners may be important to ultimate commercial success in certain geographies and areas, but we also intend to get appropriate value for our stakeholders for any licenses and business arrangements, even if this means we must wait. Not every opportunity may be worth pursuing, however. In June, we disclosed the expiration of Healios' right of first negotiation with respect to an option for potential rights to develop and commercialize multi-stem cell therapy in China for certain indications.

In the end, we could not agree on the key terms for the China expansion. Uncertainty in China due to the escalating trade dispute may have had some impact during the negotiations. As a result, Healios no longer has exclusive negotiation rights with respect to China, and its warrant to purchase Athersys' stock is now limited to 4 million shares as a result, priced at the greater of $1.76 per share where the market price with a defined premium and expiring in September 2020. Given the size of the potential opportunity in China, we are not willing to out-license China commercial rights unless the business opportunity is sufficiently attractive to our company.

That said, we already have under way partnering discussions with other companies about rights to develop and commercialize our cell therapy in China, which we will continue to develop and evaluate as the trade dispute plays itself out. Recently, we have received a request to provide an update on our research and development in the animal health area. We have made progress in this area and remain positive about the opportunities in animal health, particularly in the companion animal space. Under an arrangement with a leading animal health company, we recently completed proof of principle studies to evaluate our cell therapy technology in an important companion animal indication.

The results demonstrate the potential for our technology to treat animals, and initial evaluations suggest a significant market opportunity. Additionally, we continue to make progress in other research areas and in developing the animal health product platforms with a focus on dogs, cats and horses. We are in discussions with our initial research collaborator and other companies about development and commercialization rights in the animal health area. Given our focus on our leading human health programs, though, we will continue to evaluate opportunities and proceed prudently in the animal health space as circumstances warrant.

As we have conveyed before, we are in the midst of a number of process development and manufacturing initiatives intended to increase manufacturing scale, reduce production cost and enhance process controls and product quality, among other things. We continue to make progress and expect that preparing for a commercialization will require increasing effort and investment over the next several years. We expect these capabilities, when they're developed, to be a source of sustained competitive advantage for the company. We're also working with outside experts to develop proprietary solutions to the unique requirements related to the cell therapy supply chain and clinical site logistics.

For instance, in the critical care space, cell therapy product needs to be available on a moments' notice and ready to use when needed by the clinician who is treating stroke, ARDS and trauma, among others, in an acute setting. In the past, we developed a ready-to-use, off-the-shelf product format that is being used in our current clinical studies. Recently, we unveiled a proprietary prototype for a cryogenic system designed to securely store and dispense our product in hospital pharmacies to enable rapid treatment by clinicians and product controlled by us. Our intention is to be prepared to enable effective commercial supply of our cell therapy product following successful completion of pivotal studies, application and approval by regulators.

A theme that comes up frequently in questions from our shareholders is our approach to capital management. We addressed this in our last call, but given its importance, it is worth revisiting today. Our overall objective is to maintain a healthy balance sheet and have access to capital as we advance our lead programs to development and prepare for possible approval and commercialization. We expect our operational investment to increase as we move through this period.

As we have done in the past, we may fund our activities in a variety of ways, including through business collaborations, grants and equity sales, as necessary. At any given time, we typically have multiple business development discussions intended to create opportunities for us to fund important initiatives, realize value from our technology platform and add important capabilities to develop a commercialization effort, as appropriate. We will continue to pursue opportunities to share the development activities and cost with business partners while maintaining core elements for value -- future value creation. On the equity front, our strategy is to have in place tools to allow us to have efficient access to the equity capital markets, as necessary.

For instance, we routinely have in place an S-3 registration statement to enable us to move efficiently to undertake follow-on activity, if this makes sense. Additionally, we recently put in place an ATM, or at-the-market equity, program to provide direct access to the market. Though, we have not used the ATM at this point, the program makes it easier and less expensive for us to reach potential equity investors. We also have an equity facility whereby a long-standing investor has agreed to make purchases of our stock at our request under certain conditions.

This facility gives us a degree of certainty if we want or need to add capital to the balance sheet, and it is important to note that it is with an investor which has maintained a meaningful position in stock over time. Over the past couple of years, we have used the equity facility from time to time to support important operational initiatives, as disclosed in our SEC filings. However, we remain mindful of the potential dilutive impact associated with any equity-related activity taking into consideration the stock price level and important milestones in front of us. Some of our investors have asked about stock price fluctuations, and I would like to briefly address these here.

There are a number of factors that might affect our stock price at any given time, including company announcements and milestones, macroeconomic influences, industry conditions, changes in regulatory policies, investor activity and company fundraising activities, among many others. A number of these factors are beyond the company's control. For example, we cannot control economic and regulatory externalities. Further, though, we can communicate the company's value proposition to investors, we cannot control an investor's buying and selling decisions or an investor's activity in the market.

Sometimes there may be significant selling pressure for reasons that may not be explained easily by company news or other directly relevant information. This may reflect the impact of the externalities, such as a major equity market move. It can also represent hedge fund or other investor taking actions and generating rumors to support a short position in the stock, or it might be simply a fund-making portfolio adjustments or reallocations independent of any new company information. It's hard to really know, but our experience suggests that these can be important drivers of selling pressure and are -- and often are short term in nature.

While these stock price fluctuations are frustrating for us and our investors, we remain focused on operational execution and achievement of substantial long-term value creation for our shareholders associated with the opportunities ahead of us. We continue to take efforts to increase exposure to the company, our programs and the investment opportunity, or in other words to communicate the company's value proposition. We conduct regular outreach efforts focused on both institutional and retail investors, we present regularly at financial and scientific conferences, we publish our research findings in reputable scientific and clinical journals and we work to educate the public through the business and scientific press. Recently, for example, there were podcasts and articles covering the company and its programs in Forbes and Fortune.

All of these news stories can be accessed on our company's website under News & Media and by following Athersys on social media. Again, we'd like to thank our investors for submitting questions ahead of the earnings call update. Hopefully, we've addressed most, if not all, the questions that have been submitted in one way or another. We'd now be happy to take some additional questions.

Questions & Answers:


Your first question comes from Jason K from Dawson James. Your line is open.

Jason K -- Dawson James -- Analyst

Jason K talking to BJ. I'd like to focus a little bit on ARDS, on the ARDS trial, and I'd like to understand the importance and the significance of the results. So just to kind of review and set the framework for my question, my understanding is 20 patients in the MultiStem group, 10 patients in the control group, and at day 28, the mortality numbers were 40% in control versus 25% in multi-stem. How significant are those differences? What is the feedback you're getting from KOLs? And you mentioned that BD has picked up.

I assume that BD is looking at the same thing I'm looking at, which is the slide that goes through kind of the differences seen between multi-stem and control. And quite honestly, I've never seen this kind of data even when I go back to like Discovery Labs and the surfactant approach for ARDS. So it looks very significant to me. How do you guys interpret it?

BJ Lehmann -- President and Chief Operating Officer

Well, thanks for the question, Jason K. Sorry, no, we're excited by the data, first off, let me say that. Secondly, I just want to add a note of caution, it is a small study. It's 30 patients of valuable data and the results are very promising, but we would characterize them as strong trends at this point.

With respect to how the KOLs view this, I think they're also very excited by what they see and the promise that this cell therapy that could bring to the space. We recently had an investor day, for instance, in May. We had an ARDS survivor speak there. We had one of the leading clinicians in the space talk as well.

And I think what was clear in their comments was the substantial unmet need in the space. The lack of effective therapies for these patients, the lack of things that can fundamentally change the direction of recovery, that was crystal clear. With respect to the results we're seeing, the same sort of kind of perspective was evident in the comments. These results, if we can replicate them in a larger pivotal study, would be substantial, significant in the clinical field.

And our view is, based on that, they would translate into a substantial kind of market opportunity. You're talking about a very, very extensive indication in terms of treatment with substantial impact on quality of life. And we think the value we could bring if we replicate the observation we had in our study would have meaningful impact on those costs and on the quality of life.

Jason K -- Dawson James -- Analyst

And BJ, can you opine a little bit on Healios' action to go ahead and initiate the One Bridge study so quickly? And then talk with me a little bit about what was involved in fast-track designation and your regulatory discussions with the FDA.

BJ Lehmann -- President and Chief Operating Officer

Yeah. No, happy to do that. Healios has had an interest in ARDS for some time. They've been aware of our preclinical data, which by itself is very exciting.

We've demonstrated physiological impact on lungs through treatment and essentially driving benefit through a substantial impact on the inflammatory activity that follows these substantial traumas to the lungs. So they have been excited about the potential for ARDS for some time. And as you may remember, in the original deal we did with them, they had an option to bring ARDS into the license. Ultimately, that was exercised last year.

So they were aware of the potential in the area. They were eagerly awaiting the data when it came out. They had done the prep work to move forward with clinical studies. But I think the thing that was most important for them, this really brought into focus the design of the study and the potential for it to go through the kind of more progressive regulatory process in Japan, take full advantage of that and really allow for a design that could lead to contingent approval.

I think they were particularly excited by the patients in the study that, well, look like the patients that they have in their study, which are pneumonia into ARDS patients. Our results there were even better than they were for the entire population. So that is kind of how their interest developed. It really catalyzed the activity when the data came out, and they were able to get the study up based on some preplanning.

But to get it up and going in the first patient and then -- in early April, and they continued to make progress on that study though the second quarter, and I'm sure they'll talk about that in their own earnings call, I think, tomorrow. So we're excited for their progress. With respect to your other question, fast-track designation, I think at the end of the day, we had to submit the evidence that we have generated about potential efficacy. The FDA is well aware of the product platform and its developing tolerability and safety profile, and our view is that there's a high degree of enthusiasm for the potential for treatment in this area.

And part of that has to do with the fact that I mentioned earlier that there are not really any good options for these types of severe patients.

Jason K -- Dawson James -- Analyst

Yeah. It certainly sounds very exciting. I could understand why BD is getting very active, which leads me to my final question for Laura. With 34.2 million in cash, and I know people are always worried about a financing.

I thought you did a great job of talking about the vehicles at your disposal, but it also sounds like there could be a lot of BD opportunities between now, and let's say, however much runway that 34 million will last. And that -- so I'm just trying to get a sense for what you're thinking in terms of the amount of runway you currently have and what role BD might play in extending that runway. Thanks.

Laura Campbell -- Senior Vice President of Finance

Actually, it's 44.2 million, so I just wanted to make that correction. And then --

BJ Lehmann -- President and Chief Operating Officer

Yeah. No, I think -- yes, it's 44 million, and I'm now going to jump in. It provides us a very good foundation for continuing to execute the strategy the way we want in the areas in which we're focused. Obviously, BD could be an important component of how things develop on going-forward basis.

I think what we've demonstrated in the past three and a half years is an example. We've been very successful working with committed partners and developing an opportunity to funds programs that align with our interest. And it serves both parties. I mean, Healios is a perfect example.

They have interest in stroke. We're working in stroke. We're regenerating data sets that will be utilized by both parties in the regulatory processes. In the ARDS, it's the same way.

And so, we get leverage from the investment made by our partners in these areas. I mean, in fact, our footprint, if you will, with respect to the activity we have is larger than we invest. So we are in good financial position right now. Our objective is to continue to maintain a strong financial position to allow us to do what we need to do.

We expect business development to be, as it has been over the past years, a major component of the plans on the capital management side over the next couple of years.

Jason K -- Dawson James -- Analyst

Congratulations on this great progress. Exciting times. Ignore the stock price for now. It looks to me like just a very compelling opportunity.


BJ Lehmann -- President and Chief Operating Officer

Thanks for your time, Jason.


Your next question comes from Chad M from Needham and Company. Your line is open.

Gil Blum -- Needham and Company -- Analyst

Hi, guys. This is Gil on for Chad. I have a couple of questions. So first, on the sites that are being enrolled and opened by year-end here in the U.S., how long after sites open do you expect enrollment to really ramp up? And what could be potential bottlenecks?

BJ Lehmann -- President and Chief Operating Officer

Well, obviously, when you bring sites on initially, you hope to have them in the game and enrolling very quickly. In fact, there's a high degree of enthusiasm when you open a study or initiate a site, and we'll leverage that. We've seen that in the enrollment that we've had, the foreign study we sought and the earlier stroke study and so forth. So we hope to have meaningful impact of these sites very soon after they're initiated.

The clinical teams will have this top of mind. They're going to be focused on the study. So we expect to have good impact shortly after we bring them on. As I said, we're focused on the U.S.

sites this year. The -- if you're asking a general question about things that are a risk with respect to enrollment and so forth, one of the things that's affected us so far, I think we've talked about it in the past, we had to complete product supply and production for Healios ahead of, for the most part, our Masters 2 study. That's now been completed. And we've manufactured a lot of product for the Masters 2 study but we haven't completed it yet, so that's always a potential risk.

We think it's manageable. We don't expect it to affect our plans and what I laid out today. They're based on the best information we have with respect to that and other things. But I think with respect to enrollment at the sites, we see a relatively clear path in terms of other activity in the space.

So we don't anticipate a lot of competitive clinical trial activity at this point, but that could change over the course of the study and have some impact on the enrollment at particular sites. There's a high degree of enthusiasm, so I don't see any lack of enthusiasm as being a big risk. I feel like we're well positioned to move this very quickly into sites that are on our list.

Gil Blum -- Needham and Company -- Analyst

All right. So just to clarify, so the Treasure enrollment is to complete by mid-2020? Did I get that right?

BJ Lehmann -- President and Chief Operating Officer

Yeah. That's what they have disclosed.

Gil Blum -- Needham and Company -- Analyst

All right. And last, about the trade dispute in China, how is that exactly affecting your conversations for business development? Is this mostly Chinese companies or U.S. companies wanting to operate in China, if you can provide any detail?

BJ Lehmann -- President and Chief Operating Officer

Well, I mean, we're talking to a variety of different company types. Obviously, we were talking to a Japanese company with Healios for some time about this. We are talking to global operators, and we're talking to companies in China. It's hard to know how the trade dispute should affect specifically what we're trying to do.

At one level, technology such as this should be above what would be included in the trade dispute. But the fact is there's a substantial amount of uncertainty because it does -- it's not clear what levers our administration will pull and what levers the leadership in China will address to kind of make their points and hopefully drive to a resolution of the trade dispute. So while this should be outside of what would be affected, the uncertainty that it could be brought in, in some way with respect to the way technology is handled in China, either way from U.S. or Chinese perspective, has caused a little bit of -- it has had some affect in discussions.

Gil Blum -- Needham and Company -- Analyst

Hopefully, this is not an issue for cellular therapeutics in general.

BJ Lehmann -- President and Chief Operating Officer

I hope not. And China in particular has been very aggressive with respect to pharmaceuticals and medical technologies and bringing that technology in, largely because it's got other -- another substantial kind of macroeconomic issue to deal with, and that's the kind of healthcare costs associated with its large aging population. So I mean my hope is that trumps whatever the objectives are in the trade dispute that's under way right now, but we don't really know.

Gil Blum -- Needham and Company -- Analyst

Congrats on the quarter.

BJ Lehmann -- President and Chief Operating Officer

OK. Well, thank you for participating.


[Operator signoff]

Duration: 39 minutes

Call participants:

Karen Hunady -- Director of Corporate Communications and Investor Relations

Laura Campbell -- Senior Vice President of Finance

BJ Lehmann -- President and Chief Operating Officer

Jason K -- Dawson James -- Analyst

Gil Blum -- Needham and Company -- Analyst

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