Athersys (ATHX) Q1 2021 Earnings Call Transcript

Athersys (ATHX 4.44%)
Q1 2021 Earnings Call
May 06, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Athersys first-quarter 2021 results conference call. [Operator instructions] Please be advised, today's conference is being recorded. [Operator instructions] I would now hand the conference over to Ms.

Karen Hunady. Thank you. Please go ahead.

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.

I'm here with B.J. Lehmann, our president, chief operating officer, and interim CEO; John Harrington, executive vice president and our chief scientific officer; and Ivor Macleod, our chief financial officer. A webcast of the audio will be available starting tomorrow Friday, May 7 at 12:00 p.m. Eastern Time 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 Form 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 6, 2021. 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 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, COO, and interim CEO of Athersys. It's been just six weeks since we had our 2020 year-end earnings call.

We remain on track with our priorities and look forward to important progress during the remaining course of the year. In our call today, I will provide a short update on our business operations. I will then hand it off to John Harrington, our Chief Scientific Officer, who will share some highlights of our activities associated with developing and preparing for commercial-scale manufacturing. And finally, Ivor Macleod, our chief financial officer, will share information about the company's financial position.

This will be followed by a brief question-and-answer period. To get started, I would like to provide a short reminder of our priorities this year. First, we are focused on advancing our clinical programs with particular attention to our MASTERS-2 study, and in supporting Healios, our partner in Japan, as it prepares for applications to the PMDA for potential approval of MultiStem therapy for ARDS and stroke, assuming successful trial readouts. Second, we are preparing for commercial product manufacturing by further developing our bioreactor-based process for commercial-scale production, planning for manufacturing capacity for this purpose, and taking the first steps on the path to put this capacity in place.

Third, we have under way important activities intended to prepare us for commercialization, assuming successful trial results, and marketing approval applications. In a prudent and staged way, we will continue to develop and invest in commercialization-enabling capabilities. As for important 2021 milestones of particular notes, we expect to see top-line results from our Japanese partners ischemic stroke study TREASURE, providing us our first look at late-stage clinical trial data for the treatment of stroke with MultiStem cell therapy or invimestrocel. We are also working to refine our large-scale manufacturing process, establishing technology transfer readiness to enable us to transfer efficiently the process into the GMP Manufacturing environment.

In Japan, Healios recently announced the completion of enrollment of its ONE-BRIDGE clinical trial, which is evaluating MultiStem treatment of pneumonia induced and COVID induced acute respiratory distress syndrome or ARDS. This study, including 35 subjects was designed as an open-label study. Though the size and design of the study may affect the weight of the findings, we hope to see results that are in line with our previous MUST-ARDS study and that could provide the foundation for conditional or full approval for this orphan indication in Japan. Overall, in the short period from our last call, we are operating on plan and in line with expectations shared on that call.

We look forward to updating you on progress in subsequent calls over the course of the year. Another note, I would like to remind you that our annual meeting of stockholders is approaching. You should be receiving our annual report and proxy statement by regular mail or via email very soon. We encourage you to vote on the proposals included in the proxy statement and our board of directors recommends unanimously that you vote in the favor of the four proposals.

I would like to bring to your attention one of the proposals, in particular. The proposal to increase the number of shares of authorized common stock which requires the approval of at least 50% of the total outstanding shares and makes your voting participation, especially important. With respect to the path of our development into a commercial-stage biopharmaceutical company, 2021 is an important transition year as we await completion and results of our own pivotal studies, such as MASTERS-2, favorable results from the Japanese clinical trials and successful establishment of a large-scale manufacturing process would be expected to provide the foundation for putting in place over the next several years, the capabilities and assets to enable long-term success, including commercial operations, commercial manufacturing capacity, and distribution, among other things. Ultimately, we may put these capabilities in place through partnerships, hiring, or investment.

By approving the proposal, increasing the authorized number of common shares, you would be providing the company with the ability and flexibility to consider business or financial transactions involving stock, which are intended to support when needed, the development of these important capabilities and assets essential to commercial success. It is important to keep in mind that for the company to issue shares in the context of a business or financial transaction, the approval of our board of directors is required. This authorization would enable the board to make financing decisions in the best interest of the company and our shareholders. Without approval of this proposal by our stockholders, the company may be hamstrung in its ability to invest in commercial preparations in conjunction with favorable results, potentially delaying our impact with patients and adversely affecting our commercial opportunities.

We ask you to vote and vote in favor of the four proposals recommended by the board of directors. I would now like to turn it over to John Harrington to highlight our recent process development in large-scale manufacturing preparations activities and accomplishments. John?

John Harrington -- Executive Vice President and our Chief Scientific Officer

Thanks, B.J. Good afternoon. I am John Harrington, chief scientific officer here at Athersys. As we near the key principal readouts, first in Japan with our partner, Healios, and then subsequently in the United States and Europe, we have begun building our commercial capabilities including manufacturing.

In particular, over the past several years, we have invested significantly in our process development and manufacturing of invimestrocel with the objectives of increasing annual production capacity and reducing cost of goods. Historically, we've utilized a two-dimensional manufacturing process in cell factories, which has allowed us to move efficiently into clinical development to establish proof of concept. It has also facilitated discussions with key regulatory agencies, including FDA, EMA, and PMDA. With this as a foundation, we have focused on developing a commercial-scale bioreactor process capable of fully supplying invimestrocel product to meet the commercial needs of Athersys and our partners.

To this end, we've carried out thousands of small-scale experiments and scaled-down bioreactor models to optimize media formulation, product yield, operating parameters, and of course, product quality. This work has led to the development of an intermediate scale bioreactor process that is now been transferred to our manufacturing partner, Lonza. And GMP production using this process is currently under way to support ongoing clinical study. At the same time, we have continued our process development work in progressively larger and larger bioreactors.

We've now achieved proof-of-concept at the 500-liter bioreactor scale. While I'm not going to discuss the specifics on our final manufacturing process due to the proprietary nature of this work, we've now developed bioreactor-based manufacturing processes that significantly increased that size and reduced cost of goods. These processes when fully scaled out will allow us to produce hundreds of thousands of doses or more of invimestrocel per year. In the coming months and quarters, we plan to continue our discussions with regulatory agencies about the implementation of these newly developed manufacturing processes and to complete the work necessary to enable us to transfer and implement these processes in a GMP manufacturing facility.

For more information on our process development and manufacturing activities, I'd like to refer you to a recently uploaded video and other material on our company website, www.athersys.com. And with that, I'd like to turn it over to Ivor for a discussion of the company's financial results for the quarter. Ivor?

Ivor Macleod -- Chief Financial Officer

Thank you, John. Good afternoon, everybody, and thank you once again for joining today's call. I'm Ivor Macleod, chief financial officer of Athersys, and it is my pleasure to give you an overview of the financial results for the first quarter of 2021. There were no revenues for the three months ended March 31, 2021, and March 31, 2020, respectively.

Our collaboration revenues currently fluctuate from period to period based on the delivery of goods and services under our arrangement with Healios, our Japanese partner. Research and development expenses increased to $17.5 million for the three months ended March 31, 2021, from $12.1 million from the comparable period in 2020. The $5.4 million increase is primarily associated with increases in clinical trial and manufacturing process development costs of $4.3 million. Personnel costs of $700,000 and stock compensation costs of $400,000.

Our clinical development, clinical manufacturing, and manufacturing processes development expenses vary over time based on the timing and stage of clinical trials under way, manufacturing campaigns to clinical trials, and manufacturing process development projects. General and administrative expenses increased to $8.8 million for the three months ended March 31, 2021, compared to $3.5 million in the comparable period in 2020. The $5.3 million increase was primarily due to one-time charges related to the settled litigation between the company and Dr. Kagimoto, CEO of Healios and a Director of the company; and also the resignation of our CEO, Dr.

Gil Van Bokkelen, including $2.3 million in accelerated stock compensation costs. Our net loss for the first quarter of 2021 was $26.5 million compared to a net loss of $15.6 million in the first quarter of 2020. The difference primarily results from the previously mentioned variances. During the three months ended March 31, 2021, net cash used in operating activities was $17.1 million compared to $12.1 million in the three months ended March 31, 2020.

At March 31, 2021, we had $64.2 million in cash and cash equivalents compared to $51.5 million at December 31, 2020. 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 it from here?

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

Sure. First, thank you to all of you who have submitted questions. I'm going to address a few of these here. The first question is about the timing of data from the Japanese studies, in particular, the ONE-BRIDGE study for ARDS and the TREASURE study for ischemic stroke.

As I noted before, Healios has announced the completion of enrollment into ONE-BRIDGE study. With respect to the top-line results, Healios controls the timing and nature of any public disclosure, which will depend on the completion of the analysis of the study data. Typically, in such ARDS studies, the first 60 days falling treatment represent a core window for patient data collection. So with this in mind, we hope that we'll see the top-line results available relatively soon.

At this point, it's difficult to be very precise about the timing of top-line data from the TREASURE study. Based on the disclosed study status and trial design, we hope to see that top-line data later in the year, though, like the ARDS study, Healios controls the timing and the nature of the data availability and the public disclosures. A second question was about the status of the search for a new CEO. We thought we'd address that one here as well.

First, the Board has already launched a comprehensive process to identify and attract a leader who can guide the company effectively into commercialization. As we stated in the past, our objective overall is to have the best leadership and talent available to lead us forward toward the commercial stage. At this point, we cannot provide any guidance about the timing of the process. We will provide further updates on the search when there's something to report.

But in the meantime, we do have in place an experienced committed executive and leadership team with the support of the board, to continue to drive our operations forward over the course of the year and achieve our priority initiatives. So with that, we'd be happy to take a few additional questions from today's participants.

Questions & Answers:

Operator

[Operator instructions] The first question comes from the line of Greg Harrison with Bank of America.

Olivia Brayer -- Bank of America Merrill Lynch -- Analyst

Hey, guys. It is Olivia Brayer on for Greg. Thanks for the question. My first one is on the MASTERS-2 trial design.

Can you just talk about some of the similarities between your trial and Healios TREASURE trial data that could be a positive indicator of success for your study down the road? And then also, you know, whether there was any level of patient enrichment beyond what was done in the Japanese study? And then I have one follow-up afterwards.

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

Sure. Let me talk about the design similarities. I think that will give you a pretty good idea. First off, with respect to the patients that are coming into the study, the patients are essentially very similar.

These are patients that have moderate to modest severe strokes as measured by NIHSS which is one of the standard scales for evaluating neurological function following an event like a stroke, and that is between eight and 20 on that scale at the time of entry into the study. It's got to be a durable stroke. So we evaluate these patients for some period of time to make sure it's not a transient stroke event. That's important for ultimately the data set and the robustness of the data set.

These are also patients who are being treated within 18 to 36 hours in both cases. And they also have available to them, you know, or to the doctors who are treating them other device and PPA technology that could help with reperfusion. So in all cases, we are including patients that could have had reperfusion therapy. So long as that reperfusion therapy doesn't fully address the stroke and they remain within the targeted patient criteria that is mentioned.

So those are the similarities with respect to the patient population. Obviously, the Japanese population there. I think with respect to the endpoints, again very similar. We are looking at a set of primary and secondary endpoints that are also covered off in the TREASURE study.

The primary endpoint for us is something called the mRS shift analysis, which is essentially an analysis of the distribution of mRS scale scores in the population comparing placebo to treatment. We have as key secondary endpoints, things like excellent outcome evaluating a patient. And essentially, you know, the recovery to normal state and we have as well evaluations at day 90 and day 365 and a series of other secondary endpoints that are similar between the studies. The TREASURE study has the same endpoints.

However, their primary is the excellent outcome measure and a key secondary for them is the mRS shift analysis. It's a smaller study, about 220 patients. We do believe it will be somewhat predictive of our outcome, but it's a different patient population. And while there is a good degree of similarity and standard of care there.

There are some differences such as a lower rate of the reperfusion therapies and the like. So we do think it's going to be very informative with respect to how we view the potential for MASTERS-2.

Olivia Brayer -- Bank of America Merrill Lynch -- Analyst

OK. Great. That's helpful. And then in terms of EU partnering strategy, can you just give us some update where now -- now that we're getting a little closer to the Japan data for both programs.

And, you know, whether that's still a latency approach or whether there is more of a near-term prioritization there?

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

We continue to have discussions with potential partners with respect to rights in Europe and outside of Europe. And, you know, it's possible that we could do something before data or after data. At the end of the day, we want to find the right partner who brings the right capabilities to the table to help us be successful in commercialization. And I think the expectation in Europe is to find a potential partner with deep commercialization experience and capabilities preferably in the indications -- the indications we're working, so the critical care indications and who's got a demonstrated commitment to the space of cell therapy or gene therapy space.

So that's what we're looking for. And the timing is really going to be driven around finding that right deal. We are approaching the data now, certainly, that could have some impact on the nature the nature of the deal. So that will be taken into consideration as well continue to have our discussions going forward.

Olivia Brayer -- Bank of America Merrill Lynch -- Analyst

Great. Thanks so much, guys.

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

Thank you.

Operator

Your next question comes from the line of Jason Kolbert with Dawson James.

Jason Kolbert -- Dawson James -- Analyst

Hi, guys. Good to hear you voice. John, I understood a little bit about what you were talking about, not at first, but when I started to connect it to the numbers to what Ivor was talking about in terms of the R&D expense. So my question for you is on an ongoing basis, how should we be thinking about cost of goods.

Obviously right now it's very high because it's in a clinical trial period, but it sounds like you're making a lot of progress toward driving that process to be more efficient, i.e., lower COGS. So can you help put your comments and perspective in terms of the cost that's showing up now versus what the cost might be under commercialization?

John Harrington -- Executive Vice President and our Chief Scientific Officer

Very good. Hi, Jason, good to hear from you. Yeah. So as, you know, as I mentioned in my comment, the initial, you know, first-generation manufacturing process was a two-dimensional cell factory-based process.

It's relatively manual. Relatively small batch sizes. It allowed us to move quickly into clinical development and allowed us to work with regulatory agencies to define the key parameters around ultimately the commercial process that we utilize. Ultimately, cost of goods is driven by a number of inputs, raw materials is the big one, labor is one, facility, etc.

And as you increase that, size through, for example, a bioreactor process, raw materials become a larger component of cost of goods we optimize the cost of those raw materials through optimization processing -- processes, etc. And we dramatically reduced labor, we've dramatically reduced facility costs. We've dramatically reduced facilities cost. We dramatically increased batch size which had associated with it some economies of scale that we can capture as we scale out that bioreactor process.

So overall moving to a bioreactor process has a substantial impact of cost of the goods, namely, it will reduce cost of goods significantly and has already. I mentioned that we have an intermediate scale bioreactor process. We're producing GMP product with Lonza and we plan to use that material in clinical trial. And that has already had a meaningful reduction in the cost of good.

But the more significant reduction in cost of goods comes from the final large-scale bioreactor process that we've now developed. And we've initiated the process of transferring that final commercial-scale bioreactor process to a CMO, and we're exploring the possibility of bringing that in-house as well. And the timing of that investment will be likely around the key clinical data readouts, etc. But overall, you know, there will be a substantial reduction in cost of goods.

Cost of goods will be, we expect competitive in the biologics space. These are complex products, the living drug. There are a lot of challenges in producing at large scale a living drug. You've got very short pull times.

You've got very processing times, etc. And as you increase that size, you have more and more material that needs to be processed in a very finite period of time. This isn't like an antibody or a recombinant protein that can be produced upstream and then processed over day to week. We have hours to process the material, purify it, concentrate it, formulate it, and vial it.

And then ultimately, as you know, the product is cryopreserved. So we have a short window to do that and that creates challenges. I think we've largely overcome the major challenges, and we've developed a process that is at least in the process -- in the hands of our process development group, quite robust. And so we expect to move that forward into commercial scale production in the coming years.

With potentially material available and a shorter time frame than that. But ultimately, you know, it's been a major focus of the company. We've made a major investment in terms of people and processes, and we're quite happy with where we are in that process. Does that [Inaudible]?

Jason Kolbert -- Dawson James -- Analyst

Perfect. Yes. Yeah. I understand, how much is actually in there, and it'll take some time to unpack that.

But what I hear you saying is on good clinical data, the justification to put money in the ground and potentially bring manufacturing even in-house to realize, you know, the economies of scale is a possibility?

John Harrington -- Executive Vice President and our Chief Scientific Officer

Sure, yes. Yeah. We're going to look at that. That's going to be one of the, you know, the options that we have going forward, yes.

Jason Kolbert -- Dawson James -- Analyst

And B.J. -- thank you, John. One of the transitions that I get asked a lot about is, you know, Gil's departure, and you talked about commercialization and bringing in a CEO of commercial experience. I remember when Josh Boger, the founder of Vertex stepped down, everybody was shocked, but it made a lot of sense because they brought somebody in who had commercial experience.

So what are the -- you know, what does the resume have to look like for the person you're bringing in? Is it somebody with, you know, big pharma and potentially stroke, you know, experience to launch this product?

John Harrington -- Executive Vice President and our Chief Scientific Officer

You know, I don't want to comment too much on this. I think we have a strong process in place being led by the Board. But suffice it to say, we're going to cast the net broadly because we want to look at a variety of different capabilities that can help us in the commercial stage. And that could be large pharma, it could be smaller biotech.

It could be experience in biologics. It might not be. So we want to bring the right set of capabilities into the company. Something that complements the team here, a person who's got, you know, a set of capabilities beyond just commercialization as well because that's going to be important too over the next couple of years.

But other than that, I would leave it to our search team, at the Board level to drive it forward. I've seen the process outlined and we participated. I think it's a robust process. I think we're going to find some very strong candidates who can really bring value to the company.

So let's let that develop, and we'll report back.

Jason Kolbert -- Dawson James -- Analyst

OK. Thanks for the update, guys.

Operator

I'll now turn it back over to B.J. Lehmann for closing remarks.

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

Thank you. In closing, I'd like to thank you all for participating today. I'd also like to thank our shareholders, especially our long-term shareholders for your continued investment and interest in Athersys. That's very important to us.

We probably don't say thank you enough. But thank you. Everyone, have a good night. Bye.

Operator

[Operator signoff]

Duration: 31 minutes

Call participants:

Karen Hunady -- Director of Corporate Communications and Investor Relations

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

John Harrington -- Executive Vice President and our Chief Scientific Officer

Ivor Macleod -- Chief Financial Officer

Olivia Brayer -- Bank of America Merrill Lynch -- Analyst

Jason Kolbert -- Dawson James -- Analyst

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