Athersys (ATHX) Q4 2020 Earnings Call Transcript

Athersys (ATHX -2.13%)
Q4 2020 Earnings Call
Mar 25, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Athersys fourth-quarter and full-year 2020 results conference call. [Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ms. Karen Hunady, director of corporate communications and investor relations.

Thank you. Please go ahead.

Karen Hunady -- Director of Corporate Communications and Investor Relations

Thank you, Rob, and good afternoon, everyone. As Rob 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.

B.J. Lehmann, our president, chief operating officer, and interim CEO, is here to provide us with a corporate update; and Ivor Macleod, chief financial officer, will be providing our financial update. A webcast of the audio will be available three hours after the call's conclusion on our website under the Events section. The access information for the replay is also 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 March 25, 2021. Since then, we may have made announcements related to the topics discussed, so please reference our most recent press releases and SEC filings. Now, with that, I'd like to turn the call over to B.J. Lehmann.

B.J.?

B.J. Lehmann -- President, Chief Operating Officer, and Interim Chief Executive Officer

Thanks, Karen. I am B.J. Lehmann, president and chief operating officer of Athersys, and I'm serving as interim CEO of the company. In addition to Ivor and Karen, I am joined today by John Harrington, our chief scientific officer.

In a departure from our past practice, I will start with an update of the business and operations of the company. Ivor will then share information about the company's finances, and this will be followed by a brief question-and-answer period. Our intention today will be to focus less on a description of the opportunities ahead of us and more on the key aspects of our business and operations. 2020 and early 2021 have brought opportunities and challenges.

For example, in 2020, we seized an opening provided by the COVID pandemic to accelerate the development of our MultiStem treatment for acute respiratory distress syndrome. But the COVID pandemic also created challenges, such as maintaining continuity in our R&D efforts, enrolling patients in some of our clinical trials in the face of clinical site shutdowns and slowdowns, and, like other companies, navigating through potential material and product supply disruptions. As most of you know, we also resolved favorably recent legal matters. And with the establishment of a cooperation agreement, this has set the stage for constructive progress together with our partner, Healios, in the advancement of the MultiStem therapy in Japan.

And recently, we have continued to pursue our mission and successfully maintain focus on our critical objectives as we have gone through a leadership change at the company. The balance of 2021 will be an important period for the company. We expect to see top-line results from the Japan TREASURE study, giving us our first look at late-stage clinical trial data for the MultiStem treatment of ischemic stroke. We also expect to achieve proof of principle with respect to our large-scale manufacturing processes to enable us to effectively serve large markets, such as ischemic stroke and other critical care areas, with our cell therapy product candidate.

Favorable clinical trial results and viable large-scale manufacturing processes would be expected to provide the foundation for us to put in place as we look ahead, the enablers of successful commercialization, such as commercial operations, commercial manufacturing capacity, and distribution, among other things, as we await results from our own pivotal trial activity. Some of these things we will do ourselves through hiring and investment and other things we will establish through smart partnerships. Now, turning to our priorities. Our scientific objective and company vision remain constant.

Scientifically, our objective is to develop innovative cell therapies, that provides substantial benefits to patients who face severe debilitation and loss of function, material erosion to quality of life, and risk to survival as a result of a serious condition or trauma. As for our company vision, we intend to build a global leader in regenerative medicine and cell therapy with the ability to innovate and develop cell therapies, manufacture the product to serve our targeted markets, and distribute and commercialize the products in markets internationally. Clearly, the key to our success will be the further demonstration in pivotal studies of substantial therapeutic impact from our therapies. We've developed what we believe is an exciting portfolio of therapeutic programs.

The ischemic stroke program as our lead program has particular importance given the nature of the therapeutic opportunity and potential for clinical results in the near term. We look forward later this year to the results from Healios's TREASURE study. We believe these results will provide important insights about what to expect from our larger and better power pivotal MASTERS-2 study. And positive results could set the stage for Healios's application to the Japanese authorities for registration.

Our priorities this year are focused on several key areas having substantial expected impact on sustained value creation for the company. First, we will remain focused on advancing our clinical programs particularly in continuing to progress enrollment of our MASTERS-2 study. In addition, we intend to work closely with our partner, Healios, to prepare for applications to the PMDA for potential approval of MultiStem therapy for ARDS and stroke, assuming successful trial readouts and then to help prepare for commercialization. Second, we will concentrate on preparing for commercial product manufacturing by further developing and refining our bioreactor-based processes for commercial-scale manufacturing, planning to build out an establishment of third-party and internal manufacturing capacity for this purpose, and taking the first step of the stage process to put this capacity in place.

The pace of our build-out and investment will depend on the nature and timing of our clinical trial results and our interactions with the regulators about the transition to large-scale bioreactor-based manufacturing. And third, we will continue our planning and preparations for commercialization, assuming successful trial results and applications for marketing approval. For example, we will continue to work with outside experts to evaluate the market access and reimbursement dynamics that will be important to our product, its uptake, and our commercial success. Of note, we recently received World Health Organization approval of our nonproprietary product name, invimestrocel.

Invimestrocel reflects the international nonproprietary name convention and includes as the prefix invi, which represents innovation, which we believe is a core characteristic of our MultiStem cell product. We have also made progress with our proprietary product name, which ultimately will be subject to regulatory approval. Over the course of the year, we intend to continue to build in a staged manner, our commercialization-enabling capabilities, including adding experienced commercial leadership to the Athersys team. Our plan in subsequent calls over the course of the year would be to dive in a little deeper and update you on progress in these key 2021 priority areas.

Turning to clinical development. As you are aware, we have three of our own clinical studies under way: the MASTERS-2 study, evaluating MultiStem for moderate-to-moderate severe ischemic stroke; MACOVIA, initially designed for MultiStem treatment of COVID-induced ARDS patients; and MATRICS, focused on the treatment of trauma patients with MultiStem therapy. As our lead program, the MASTERS-2 study is a priority for us. 2020 was a challenging year for the study, COVID affected many of our sites, causing some existing sites to shut down for periods and others to reduce their operational intensity.

To some extent, it further constrained our ability to open new sites. These factors contributed together with some delays in product release, the disappointing enrollment through the year, and help break the strong enrollment momentum we had at the beginning of 2020. Thankfully, it appears that the COVID impact on trial operations may be abating in the first half of this year and will allow us to rebuild momentum and expand our site network. As we look forward, risk to progress include lingering COVID impact and possible product supply constraints should current clinical manufacturing be affected by any raw material supply or performance-related issues.

Taking this into account, we are not expecting to complete enrollment until 2022. As we noted, we expect that Healios will disclose the 90-day results from its TREASURE study later this year. The TREASURE study, though with less power than the MASTERS-2 trial and with the different primary endpoint is similar to the MASTERS-2 study. As a result, we believe the TREASURE results will provide important insights about expectations for our MASTERS-2 study, including our primary endpoint, the mRS shift analysis at day-90 post-stroke, which is a secondary endpoint in the TREASURE study.

As for our COVID study, we continue to make steady progress as we prepare by design for bioreactor-based product to be integrated into the study. However, several factors are causing us to reconsider our strategy in the ARDS area. First, the arrival of vaccines and the development of other therapies in the developed countries raises questions about the sustainability of a business and therapeutic product opportunity focused solely on COVID-induced ARDS. Second, the COVID focus has limited us from concentrating on the more general arts population, for which we have promising clinical data.

Third, changes in the standard of care for COVID-induced ARDS patients have changed treatment practices and shifted the patient population in the study to greater severity than when we started. As a result, we have taken steps to expand the target population in our study to include any pathogen-induced ARDS subjects. We will carefully monitor progress in this study and may consider further adjustments to the study design as we deem necessary. We remain bullish on the potential of MultiStem cell therapy to benefit ARDS patients and look forward to continuing development based on available information with a more measured pace and posture.

Based on the rapidly developing COVID environment and a potential for further modifications to the trial, we currently would not expect this study to complete enrollment until after the MASTERS-2 study. Briefly, with respect to our MATRICS trauma clinical study, our first patient was enrolled into the study last December. We continue to work with our partners, the University of Texas Health Science Center and the Memorial Hermann-Texas Medical Center to advance enrollment in the study. In terms of business development, we are active.

We have had and continue to have discussions and negotiations about the licensing of the MultiStem product in various indications and geographies. A particular focus, as we have noted previously, has been Europe, but our discussions have not been limited to just Europe. We are focused on establishing a partnership with a company that offers the right combination, a value-creating commercialization capabilities, and fit and deal structure in terms, including overall value. It is clear from our discussions that the more our lead program is derisked, the greater the pool of attractive partners and the better the deal structure and deal terms would be.

As a result, the closer we get to important data readouts, such as the TREASURE study data, the more consideration we will give to the impact of the readout on our partnership strategy. Put another way, we do not feel compelled to complete a deal before we have clinical data. It is more important for us to do the right deal with the right partner. In a moment, I'll turn it over to Ivor to speak about our financial results.

But before I pass the baton, I'd like to make a few closing comments. First, we believe we have the resources to achieve the important objectives we have immediately ahead of us. Further, we have the ability to stage our investments in accordance with important milestones, such as clinical trial readouts or partnerships. Second, we believe deeply in the strength and distinctiveness of our science and technology and the potential to help millions of patients.

Finally, though we know there are risks ahead of us, and possibly unknown risk, as we saw last year with COVID, we believe we are well-positioned to advance materially the MultiStem franchise over the course of the year. Ivor?

Ivor Macleod -- Chief Financial Officer

Thank you, B.J. Good afternoon, everybody. I'm Ivor Macleod, chief financial officer of Athersys. I'd like to thank all of you for joining today's call.

First, I'll give an overview of the fourth-quarter results of 2020 and follow it with the financial results for the full year. Revenues were $1.3 million for the three months ended December 31, 2020, compared to $287,000 for the same period in 2019. The revenue is primarily related to ongoing services provided to our partner, Healios, supporting our collaboration in Japan. Research and development expenses were $18.7 million for the three months ended December 31, 2020, an increase of just over $11 million, compared to the $7.6 million in expenses for the comparable period in 2019.

The increase in expenditures was primarily related to an increase in manufacturing and process development costs of $7.4 million, as well as an increase in internal research supplies of $1.6 million, preclinical and clinical costs of $850,000, and personnel and associated costs of $880,000, including stock-based compensation costs. General and administrative expenses increased to $4.3 million for the three months ended December 31, 2020, from $2.4 million in the comparable period in 2019. The increase in the fourth quarter of 2020 was due primarily to higher professional service fees of $1.1 million and increased personnel and associated costs of approximately $440,000, including stock-based compensation costs. The net loss for the fourth quarter was $22.2 million in 2020, compared to a net loss of $9.9 million in the fourth quarter of 2019.

The difference of $12.3 million was primarily reflected of the previously described variances. Turning now to the results for the full year. Revenues were $1.4 million in 2020, compared to $5.6 million in 2019 as contract revenues from our collaboration with Healios decreased $4.1 million year over year. In 2020, we experienced the reduction in Healios-funded services as certain projects were concluded.

We expect our collaboration revenues to continue to vary over time as we contract with Healios to perform future manufacturing and other services, as well as to reflect the impact of potential new collaborations. Research and development expenses were $63 million in 2020, compared to $39 million in 2019. The increase in expenditures is primarily related to an increase in manufacturing and process development costs of $13.2 million, as well as an increase in internal research supplies of $4.2 million, preclinical and clinical costs of $1.8 million, personnel and associated costs of $3 million, including stock-based compensation and other costs of $1.8 million. Our R&D expenses will continue to vary over time based on the clinical trials that we have under way, the number of manufacturing campaigns we run, and our continued process development activities, as well as other initiatives.

General and administrative expenses were $15.9 million in 2020, compared to $11.4 million in 2019. The $4.5 million variance is primarily related to increased legal and professional services of $1.2 million. Personnel and associated costs of $2.5 million, which includes stock-based compensation and outside services costs of approximately $460,000. Our net loss was $78.8 million in 2020, compared to a net loss of $44.6 million in 2019.

The $34.2 million difference reflects the aforementioned variances. In the 12 months ended December 31, 2020, net cash used in operating activities was $61.8 million, compared to $35.3 million in the 12 months ended December 31, 2019. At December 31, 2020, we had $51.5 million in cash and cash equivalents, compared to $35 million at December 31, 2019. At March 19, 2021, our cash balance was $61.5 million, $10 million higher than at the year-end 2020.

This cash balance, reflecting our raising of $26.6 million of proceeds through our equity line. Before we open this up for some questions from those who called in, we would like to address some written questions that have been submitted. B.J., would you like to take the lead?

B.J. Lehmann -- President, Chief Operating Officer, and Interim Chief Executive Officer

Sure. First, let me thank all of you who have submitted questions to us recently. We have tried to address most of the topics in our prepared remarks. However, there are a few late-breaking and other questions or topics that we thought we would address here.

First, there were questions around BARDA and our government funding for our COVID ARDS work. Currently, we are not engaged in any discussions with BARDA. It's hard for us to say what the impact of the new administration will be at this point. Clearly, there is an intense focus on vaccine production and distribution.

And it is possible that new leadership may refine the U.S. government's approach. Our plan is to keep a close eye on this to evaluate whether there may be opportunities that make sense for the company. The more important point is that we remain positive about the potential for MultiStem treatment of ARDS patients more generally beyond just COVID and intend to continue development in the area.

Potential opportunities to engage with the U.S. government emerge, we should be in a good position to pursue them. Second, there was a specific question about MASTERS-2 in Europe. We hoped to launch European sites by the end of 2020, and this did not happen.

A major contributor was the COVID to death pandemic, many of our targeted sites have shifted their resources to dealing with the pandemic. In addition, we generally have conducted our site initiations in person which with the current continued travel restrictions has made initiation difficult to do in Europe. Additionally, it's taken us a little more time than expected to finalize regulatory authorizations to proceed in targeted countries. Going forward, the initiation of MASTERS-2 clinical trial activity outside of the U.S.

will be a priority for us, in particular, over the next several quarters. And third, there were some questions about the facility in Stow. We have entered into a lease of a building in Stow, just a short drive from our corporate headquarters, in which we could build lab and manufacturing capacity. It's too early today to describe our specific plans and timing related to Stow and our overall commercial manufacturing strategy, but we look forward to sharing more details over the course of the year.

So with that, we'd be happy to take a few questions from today's participants.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Greg Harrison from Bank of America. Your line is open.

Greg Harrison -- Bank of America Merrill Lynch -- Analyst

Hey, guys, thanks for taking the question. Just wondering what your expectations are for the TREASURE and ONE-BRIDGE trials in terms of timing and also as well as the data? Is there kind of a hurdle rate or some level of efficacy that you think would be necessary to provide a strong positive read-through to the MASTERS-2 and MACOVIA trials?

B.J. Lehmann -- President, Chief Operating Officer, and Interim Chief Executive Officer

Thanks, Greg, for the question. So just to repeat, the expectations for timing for the ONE-BRIDGE study in Japan and the TREASURE study in Japan and then the read-through from the TREASURE study to our MASTERS-2 study. With respect to the timing, at the end of the day, that's going to be driven by enrollment completion and some of the analytical and related work associated with getting to the data that will be driven by Healios. So I think our expectations are that we will see top-line data in the next couple of quarters.

But at the end of the day, we'll have to look to Healios to provide further information publicly about the timing. The question you asked about the read-through from the TREASURE data to the MASTERS-2 data is important. I think over the next couple of months, next interactions we have with you we will probably spend a bit more time setting expectations about how we think about interpreting the results from TREASURE. As I said in the prepared remarks, we do believe the information and data generated in TREASURE will be important to helping us understand expectations about our MASTERS-2 study.

In particular, we'll look at some of the key endpoints. The 90-day mRS shift analysis is going to be one of the key things. Obviously, it's our primary endpoint. The TREASURE study has got substantial power with 220 patients.

There are a couple of other endpoints we'll be looking at very closely as well. And we have done some analysis, but we'll begin to talk a little bit more about that when we have more clarity with respect to the timing and availability of data.

Greg Harrison -- Bank of America Merrill Lynch -- Analyst

Great. Thanks a lot.

B.J. Lehmann -- President, Chief Operating Officer, and Interim Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of David Hoang from SMBC Nikko Securities. Your line is open.

David Hoang -- SMBC Nikko Securities -- Analyst

Hi, everyone. Thanks for taking the questions. So I had some around the MACOVIA trial. I was just wondering if you had actually started enrolling non-COVID ARDS patients into that study? And then do you have any expectations around the breakdown of COVID versus non-COVID patients? And is there still an interim analysis planned with potential for resizing the study? I know that was part of the original study design.

B.J. Lehmann -- President, Chief Operating Officer, and Interim Chief Executive Officer

Right, right. So kind of three parts to the question. Have we run through the amendments to include other patients, our expectations about breakdown between the subpopulation, so to speak, COVID, non-COVID, new starts, and then interim analysis? So I will take each in turn. We have amended the protocol, and that's operationalized at sites.

I don't have a particular kind of perspective on the types of patients we've enrolled at this point in time, breakdown in the cohorts in which we're operating right now. But we are actively seeking patients now that are non-COVID-induced ARDS patients. With respect to the breakdown over time, we have kind of multiple cohorts in the study design. The cohort we're in right now will reflect a fairly heavy COVID-based population we expect, we do expect a mix of non-COVID patients as well.

As we look forward to the broader efficacy part of the study or an efficacy study more generally, we would expect the COVID-induced ARDS population to be a much smaller component as we expect COVID to abate pretty substantially as we progress forward. It's hard for us to predict right now kind of what the proportions would be. Again, we may have some more perspective on that as COVID progresses and it hopefully is reduced and as our trial progresses. With respect to interim analysis, I think we've disclosed before, we do have interim analysis built into the study.

We have an analysis focused on feasibility. That's going to give us a good opportunity to look at the kind of the results, if you will, or the patient population more generally, with respect to who's been in changes in standard of care, things of that nature. It will help us think through how we move the study going forward. At this point, that is meant to be a blinded analysis.

So it's really going to help guide how we move forward more than anything else. We have built in, in the efficacy part of the study an analysis really focused on sample size adjustment. We're way ahead of both of those right now. So there's not really anything to report on, but those still do exist in the design of the study currently.

David Hoang -- SMBC Nikko Securities -- Analyst

Got it. Thanks. That's really helpful. And then just one on manufacturing.

I know that's going to be a priority in upcoming quarters. So I'm just wondering how you're thinking about the overall capacity in terms of things you would do in-house versus where you would leverage the external contract manufacturers.

B.J. Lehmann -- President, Chief Operating Officer, and Interim Chief Executive Officer

Yeah. I mean, that's a strategic question. It's one we're thinking through right now, and we'll certainly have a better perspective and deeper perspective over the course of the year. But I think, generally speaking, our perspective is, over time, we're going to have both internal production capacity and external CMO production capacity.

We believe that having that redundancy is going to be critical. It will also help us serve multiple geographies. So that's the basic overall strategy with respect to the sequencing and timing of the capacity and when it comes on, we are working through that right now. The good news is we've made really good progress on the process development side.

We feel very confident at this point that we have a platform that would enable us to serve large markets. As I noted in our prepared remarks, one of our key priorities is essentially achieving proof of principle around this. We've already made great strides. I expect we'll share some additional information with you all about that in the next couple of quarters.

But I would ask for your patience as we finalize our strategy with respect to commercial manufacturing capacity, and we share more of that information over time with you all.

David Hoang -- SMBC Nikko Securities -- Analyst

Great. Thanks for the color there. And then maybe just one more if I may. Just on --

B.J. Lehmann -- President, Chief Operating Officer, and Interim Chief Executive Officer

Sure.

David Hoang -- SMBC Nikko Securities -- Analyst

Yes. Just on cadence of operating expenses for the year. Can you give any color there? And then how well positioned are you with your current cash runway?

B.J. Lehmann -- President, Chief Operating Officer, and Interim Chief Executive Officer

I'll take maybe a first cut at this, Ivor. We feel like we have adequate resources to pursue what we need to pursue in the medium term. I mean, we're really focused on the key priorities this year, which relates to advancing our clinical development activities. Achieving proof of principles and planning for commercial manufacturing.

And then starting to lay the groundwork for broader commercial capabilities in the company. So we feel like we're well-positioned to do that. We have ahead of us potential milestones that also could play into how we invest going forward. Obviously, the data readouts are going to be one of those, potential business partnership is another one.

So those should factor in as well to how we think about investment going forward. Ivor, do you have anything else to add?

Ivor Macleod -- Chief Financial Officer

Yes. Just to add, and thanks for the question, David, I mean, our burn rate in the fourth quarter was actually slightly lower than our burn rate in the third quarter. And as you know, we work very carefully to control our burn rate, and we do have control over that allocating toward the priorities as capital availability will allow. And as B.J.

says, there are potential opportunities in the near future to raise additional capital, and we were successful raising a fair amount of capital in the first quarter. So nothing else to add.

Operator

That is all the time we have for today. I will now turn the call back over to B.J. for closing remarks.

B.J. Lehmann -- President, Chief Operating Officer, and Interim Chief Executive Officer

Thanks. Thank you all for participating in our conference call today. We look forward to a productive 2021 and updating you on our progress over the course of the year. Have a good night.

Thank you.

Operator

[Operator signoff]

Duration: 34 minutes

Call participants:

Karen Hunady -- Director of Corporate Communications and Investor Relations

B.J. Lehmann -- President, Chief Operating Officer, and Interim Chief Executive Officer

Ivor Macleod -- Chief Financial Officer

Greg Harrison -- Bank of America Merrill Lynch -- Analyst

David Hoang -- SMBC Nikko Securities -- Analyst

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