Lisata Therapeutics, Inc. (LSTA) Q1 2016 Earnings Report, Transcript and Summary

Welcome to the Caladrius Biosciences 2016 First Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. Following managements prepared remarks, we will held a Q&A session [Operator Instructions] As a reminder, this conference is being recorded today May 5, 2016. I would now like to turn the call over to Ms. Anne Marie Fields. Please go ahead Ma’am.

Thank you. Good afternoon, this is Anne Marie Fields with LHA the Investor Relations firm for Caladrius. Thank you all for participating in today’s call. Joining me from Caladrius Biosciences are Dr. David Mazzo, Chief Executive Officer and Joseph Talamo, Chief Financial Officer. Today following the close of the stock market, Caladrius issued a news release, announcing the company’s 2016 first quarter financial result. If you have not received this news release or if would like to be added to the Company’s distribution list, please call LHA in New York at 212-838-3777 and speak with Carolyn Currin or email update@caladrius.com. Before we begin, I would like to remind you that comments made by management during this conference call will contain forward looking statements that involve risks and uncertainty regarding the operation and future results of Caladrius. I encourage you to review the Company’s filings with the Securities and Exchange Commission including without limitation the Company’s form 10-K, 10-Q and 8-K, which identify specific factors that may cause actual results or events to differ-materially from those described in the forward-looking statement. Furthermore the contain on this conference call, continue time sensitive information that is accurate only as of the date of the live broadcast May 5, 2016. Caladrius Biosciences undertakes no obligations to revise or update any statements to reflect events or circumstances, after the date of this conference call. So with that said, I would not like to turn the call over to Dr. Mazzo. Dave?

Thanks Anne Marie and thank you all for joining us on today call. Our first quarter of 2016, was transformational for Caladrius in a number of important ways. First, we started the year announcing a business strategy for more tightly focused on our core competency in cell therapy development and manufacturing with our subsidiaries PCT. This is an area with significant near and long-term growth opportunities with an increasing number of products entering the clinic, moving to late stage clinical testing’s and approaching commercialization. Second, during the first quarter we entered into what we see as a game changing collaboration with the Hitachi Chemical that validates PCTs expertise and positioning, while also providing $25 million in non-dilutive capital. We are incredibly excited by the opportunities this collaboration offers the Caladrious and I will speak more of this later in the call. Also during the quarter, we were very pleased to begin enrolling patients in the Phase II to Sanford Project: T-Rex clinical trial studying CLBS03 as treatment for recent onset Type 1 diabetes. In previous calls, we've set forth our strategy for 2016 and laid out some very specific goals. These goals remain to grow and expand the PCT business on all fronts, to advance the proof-of-concept in MAN the Phase II T-Rex clinical trial of our two regulatory technology for the treatment of recent onset Type 1 diabetes, to continue monetizing non-core assets and to maintain financial discipline and further reduce expenses. We made significant progress on each of these directives during the first quarter and we will continue to execute this strategy throughout the balance of it. Before I go into detail on our progress and plans for PCT and T-Rex study, allow me to turn the call over to Joe Talamo our CFO for our financial review. Joe.

Thank you Dave and good afternoon everyone. We’re pleased to be reporting a solid first quarter, significant revenue growth over last year’s first quarter as to our confidence, in meeting our 2016 financial projections and further validate our strategy to focus on opportunities for PCT. We’ve also made great strides reducing expenses with further reductions to come throughout 2016. Now looking at our first quarter financial results, PCT continues to demonstrate significant and impressive revenue growth with first quarter revenues of $7.5 million up 136% compared with the first quarter of last year. This growth is due to higher clinical service revenues, which was $5.3 million in the first quarter, up from $1.5 million a year ago. Gross margin also improved nicely to 17% in the first quarter of 2016 compared with a negative 6% gross margin in the prior year period. It’s noteworthy that we have now achieved gross margins in the high teens for three consecutive quarters. We expect the positive cash flow generated from these gross margins, will continue to contribute to operational improvements. These margins will also continue to absorb investments in our quality enhancement initiatives as we ready ourselves to support commercial manufacturing contracts. Therefore, our reported margins may experience some quarterly fluctuations as a result of the timing of these initiatives. Turning to our operating expenses, we continue to exercise provident expense management. In the first quarter, R&D expenses decreased 14% to $5.9 million from $6.8 million in the prior year's first quarter. The decline was primarily related to lower costs subsequent to the discontinuation of our Intus Phase III trial as well as decreased costs associated with our ischemic repair platform. This was partially offset by an increase in expenses related to the initiation of the CLBSO3 Phase II study as well as one-time restructuring costs for severance and asset impairments. SG&A expenses for the quarter decreased 42% to $6.5 million from the $11.1 million in the first quarter of 2015. The prior year included expenses associate with executive management changes including one-time new hire compensation related costs as well as separation related costs. Equity-based compensation expenses were also significantly lower in the first quarter of 2016 compared with prior year. Operating loss for the first quarter of 2016 narrowed to $11.1 million compared with $18.1 million for the first quarter of 2015, reflecting a positive gross margin on sales and lower R&D and SG&A expenses. Overall, net loss for the first quarter of 2016 was $12.0 million or $0.21 per share compared with a net loss for the first quarter of 2015 of $19.2 million and $0.51 per share. Moving now to our balance sheet and cash flow, we ended the first quarter with cash and cash equivalents of $25.4 million, which included the receipt of $22.5 million from the Hitachi transaction and a payment of $7.0 million to Oxford Finance for repayment of long-term debt, interest and fees. In return to making this payment to Oxford, we received and extension of our loans interest-only period from April 2016 to January 2017. It should be noted that the overall repayment period of the loan remains unchanged with total repayment to be completed in September 2018. We used $8 million in cash to fund the operating activities in the first quarter of 2016 compared with $14.2 million in the first quarter of 2015. Note that cash use in the first quarter of 2016 included severance related payments of approximately $700,000 in connection with employee terminations as well as an additional $1 million in capital improvements related to previously announced plans to expand clean room capacity at PCT’s manufacturing facility in Allendale, New Jersey. Turning now to our financial guidance, we reaffirmed our previous guidance for total revenues in 2016 to exceed $30 million, which would represent growth of more than 30% over 2015. We continue to expect to spend approximately $6 million on capital improvements to increase PCT’s Allendale clean room capacity by 60% and expect to complete the build out in 2016. Some of the proceeds from the Hitachi transactions were earmarked specifically to fund these capital improvements. We also reaffirm guidance regarding our Phase II T-Rex study cost and expect to spend between $6 million and $7 million on the study in 2016, primarily representing the cost of CLBS03 clinical supplies and the cost of clinical manufacturing at PCT. This guidance does not include expenses that are being covered by Sanford Research, including the site and investigator expenses for their two open sites, which are expected to enroll many it's not all of the first cohort of 18 patients. Overall, we expect lower SG&A and R&D expenses in 2016 compared with 2015, with R&D expenses continuing to decline as the close out activities associated with the clinical trials for CLBS20 and CLBS10 are completed over the course of 2016. Finally, we expect consolidated operating cash burn for 2016 to be between $25 million and $28 million or between $17 million and $20 million over the last nine-months of 2016. With quarterly operating cash burn declining over the course of 2016, mostly due to the completion of certain one-time charges related to our restructuring. We are very pleased with our progress in the first quarter both in our ability to drive revenue growth of PCT and with the financial discipline that is enabling us to reduce cost. Importantly, the non-dilutive funding we received through the Hitachi collaboration allowed us to reduce our debt and gives us greater flexibility to invest in the growing PCT business and in our Phase II clinical development program throughout the balance of the 2016. With that financial overview, let me turn the call back to Dave.

Thanks, Joe. As we announced at the start of the year, PCT is the nucleus of our business model and we believe this respected cell in cell based gene therapy development and manufacturing subsidiary represents a compelling opportunity for value creation. PCT provides premium customer service and a broad spectrum of expert capabilities that include product and process development, GMP manufacturing, process engineering optimization and automation, cell and tissue processing, logistics, storage and distribution, expert consulting and regulatory support. Over the past few years, we have witnessed the surge in a number of companies in their cell and gene therapy sector, which has formed an increasing number of development program. According to the alliance for regenerative medicine, at the end of 2015, there were 632 regenerative medicine clinical trials underway with 63 Phase III trials and 376 Phase II trials. 62% and 83% increases over 2014 respectively. As studies near BLA submissions with commercialization on the horizon, some of our current clients are likely to be among the first of products approved. Having manufactured product for their advanced Phase II and Phase III studies, PCT will be included in those clients’ BLAs and we are working diligently to become a source for commercial manufacturing. We are confident we can leverage this rapidly growing market to facilitate continued strong revenue growth at PCT. To meet this anticipated demand, we are continually exploring opportunities to expand in the U.S. and internationally. Our collaboration with Hitachi Chemical is one such opportunity. This is a very important collaboration for Caladrius. So allow me to again summarize the details. Hitachi purchased a 19.9% equity interest in PCT for $19.4 million. In addition, PCT licensed its cell therapy technology and knowhow to Hitachi for cell therapy manufacturing in certain agent territories including Japan. In return for which we received a license fee of $5.6 million and Hitachi’s obligation to pay service fees and royalties on contract revenue from the assigned territories. Under this arrangement, Hitachi will be responsible for all capital and operational expenses associated with the establishment and operation of the agent business. We also intend to pursue with Hitachi the establishment of a joint venture in Europe and we will report more on this JV as it unfolds. The collaboration will also expand our global manufacturing footprint and provide for a sharing of technology and expertise between the companies. Through this collaboration, PCT gains access to the thousands of top engineers at Hitachi and we expect to collaborate with them on the optimization and automation of manufacturing processes as we reduce to reality the dream of the cell therapy factory of the future. Furthermore, through its sister companies, Hitachi brings expertise and information technology, electronics, material sciences, logistics, construction and a range of other capabilities. As a result of demand, we are expanding capacity in our facility in Allendale, New Jersey to support both new programs and to scale up for potential commercial demand for clients like Kite Pharma as they near completion of their registration clinical trial. We are qualifying more clean rooms in that facility to EU standards to be able to support these and other clients. We are experiencing ever increasing request for capacity and we’ll continue to add it judiciously going forward. We expect to have the capability to launch commercial products from our Allendale facility once our commercial quality systems are enabled. Our goal is to be ready to ship commercial products in mid-2017 in order to be in a position to support those of our clients that expect approvals as early as then projected based on ongoing pivotal Phase II or Phase III studies. Looking now to our clinical program, recall that our therapeutic development strategy is to identify select highly promising assets and to advance them to the next significant development milestone most often the proof-of-concept in MAN and the fiscally disciplined model. Our long-term goal would be to partner these assets for further clinical developments and ultimately commercial sale. We believe this strategy will create value for our shareholders not only by simply advancing the chosen assets to their next development milestones and then through the economics associated with partnering them, but also by securing PCT as the preferred GMP manufacturing partner for later stage clinical studies and commercial products. We have identified our immune modulation program based on key regulatory cell technologies as one with significant competitive potential across multiple indications and we have made CLBS03 a potential new treatment for patients with recent onset Type 1 diabetes our current clinical focus. We are excited to have begun treating patients in the Phase III proof-of-concept Stanford project T-Rex clinical trial of CLBS03. The T-Rex study is a landmark study in the evaluation of key regulatory cells as a treatment of autoimmune disease. It is a double blind randomized placebo controlled study implying standard accepted regulatory and medical endpoints, statistically powered and executed in the target population of patients and being performed at reputable investigational site with respected clinicians. The promise of CLBS03 has been recently recognized by the European Medicine Agency as they awarded Advanced Therapeutic Medicinal Product classification to the product. Early indications show enthusiasm for participation in the trial at the first clinical sites opened those of our research partner Stanford Research. At prevailing enrollment rates, Stanford may have rolled and treat many if not all of the patients in the first 18 patient cohort of the study. We expect to have safety and immunologic biomarker data from this cohort in late 2016 or early 2017 with reporting on the data shortly thereafter. Furthermore, we will report interim efficacy data on the six month follow-up of these patients once 50% of those patients have reached that point. What makes the design of the study, so important to Caladrius is that it could provide early indications of possible treatment effects, giving us important go, no-go indication and providing us with clinical information to report. In addition, we expect to study will provide supportive evidence of the potential of our T-Rex technology in other autoimmune diseases. On another front, during the first quarter we made good progress divesting non-core assets and preparing others for international partnering opportunities. For example, we completed the out licensing of our esthetic dermatology technology to AiVita Biomedical and expect to receive royalties on sales of a product that they will produce and distribute through the ALPHAEON network of dermatologist. Regarding CLBS03, we believe that the Advanced Therapeutic Medicinal Product classification from the EMA will facilitate secured European if not global partnering partner. This classification is note worthy because it provides access to relevant services and incentives offered by the EMA. For our CD34 program we reached an agreement with Japanese regulators on a development plan to evaluate this technology as a treatment for critical limb ischemia or CLI. The agreed upon trials with 35 patients Phase II perspective randomized controlled multicenter study in patients with no option CLI to be conducted in Japan. Based on the new Regenerative Medicine Law passed in Japan in November 2014, Japanese regulators have indicated that the study if successful would be sufficient to be considered for conditional approval of CLBS12 in Japan for the treatment of CLI. Success for this trial has defined by the regulators as a demonstration of adequate safety and an indication of treatment effect as the study is not believed to the powered to demonstrate statistically significant efficacy. The purpose of the new Japanese law is to expedite the development and to accelerate acceptability of regenerative medicine therapies to physicians and patients in that area. We believe the agreement on the design of this trial together with supportive clinical data from four previously reported trials in CLI and clarification offer a compelling partnership opportunity. Also, CLI is just an entering point to explore the broader applicability of the CD34 platform technology which could potentially be effective in the treatment of chronic heart failure or dilated cardiomyopathy. We continue to dialogue with potential partners for this indication and we'll keep you updated on our progress. In closing this has been a very exciting time for Caladrius as the foundation and leadership position we have built with PCT over the years is converging with an industry that is expanding and advancing toward commercialization. We are confident in PCT's ability to drive our revenue growth in both the near-term and long-term and ultimately to provide attractive profitability. Coupled with the progress we have made moving CLBS03 into the clinic, our team is invigorated and motivated to build on this momentum and we look forward to achieving a number of additional milestones throughout 2016, always with the goal of creating value to our shareholders. And now operator, we are ready to take questions.

[Operator Instructions] And your first question comes from the line of Ram Selvaraju from Rodman and Renshaw.

Hi thanks very much for taking my question. Can you hear me?

Yes, Ram. Good afternoon. How are you?

Fine, thank you. So I just wanted to ask a [clarificatory] (Ph) point regarding PCT platform applicability to the manufacturing of CAR-T and CAR-T related cell based immunotherapy solutions. Could you give us a sense of whether or not PCT potentially position itself as a manufacturing partner of choice for companies developing both autologous and allogenic CAR-T and whether the commitment to use PCT would extend to not just through the clinical development stage, but also to commercial scale manufacturing.

Thanks for that question, Ram. Actually we're fortunate today that Bob Preti the President of PCT is also available and I'm going to turn the bulk of the response over to Bob. But I just will start by saying that presently PCT supports a number of clients working in the CAR-T area and therefore we're already providing clinical support services in that technology and the idea of expanding that and ultimately providing commercial product support extent through CAR-T to all of our current client product. So Bob maybe you can provide a little bit more color.

Yes, thank you Dave and thanks for the question Ram. We've had for some time the vision within the company that there are a number of stages that need to be addressed. And a number of issues in order for companies to be successful in the commercial market and without a doubt of the allogenic and the autologous products as we will often refer to them as the off-the-shelf product versus the patient specific cell therapies have a solution that can be provided to make them commercially viable. One of those solutions is absolutely to work with a contract manufacturer such as ourselves in developing the relationships now in the clinical phase and bringing clients up to the point where they can apply for BLAs and be successful through preapproval inspections of the work that we’ve done. And we fully plan to participate with them as a blend with their own manufacturing capacity or alone in certain cases if that’s the best business model through which the launch of the product. Beyond that business model, which looks at the current manufacturing paradigms which are predominantly manually based. With our sense of the innovation and engineering are performing work around automation and other ways to make products optimally producible, so that they can be produced robustly with high quality at a reasonable cost of goods and scalable and sustainable throughout the commercial life of the product. So that work we believe will result in a longer term business model that not only positions us to be in the position where we’re working with the clients as long as they have manual processes, but when the processes evolve to more scalable processes will be part of that stream through the work of the devices that we developed.

Thank you. Very helpful.

And Your next question comes from the line of Jason Kolbert from Maxim Group.

It's Jason McCarthy for Jason Kolbert. I have a manufacturing question. For the diabetes study, is the clinical manufacturing the $6 million to $7 million, is that hitting the revenue line for PCT?

Hey Jason, thanks very much for the question. I’m going to give the response over to Joe in a second, but I just want to offer one bit of clarification here. The $6 million to $7 million that we’ll spend on that program today is not all for manufacturing of clinical supplies. Approximately half may be a little bit more than half is actually allocated to PCT support of the program. The rest of allocated to provide for the clinical portion of the trial, staff in-house as well as clinical grants et cetera but with that clarification Joe can you answer your question.

Sure Jason. And yes the $6 million to $7 million that cost and the work of PCT is not reflected in revenues, the revenue that we report are purely third-party external revenues and any of the work the PCT business is doing for the CLBS03 study is shown and the cost of that is shown in our R&D line item.

And just a short one if I could, I know wanted just one, but in the Japan study for CLI, I know you’re not powered to statistical significance just given the size of the study. Would you use adjudicated amputation in your placebo group to help you see a difference in the two arms of the study?

Well, actually adjudicated amputation is actually not one of the endpoint, the primary endpoint for the study is continue with CLI-free status and it's based on essentially a patient being determined to be CLI free for two consecutive follow-up visits, the follow-up visits are monthly. So the design and the agreement that has been reached with the Japanese regulatory agency is based upon that particular endpoint, which admittedly is a lower bar.

And your next question comes from the line of Steve Brozak from WBB Security.

This is Ahmad Samad for Steve Brozak. Hi guys how are you all doing?

Hey Ahmad, how are you? Thanks for calling in.

Good, thank you. Lots of information to go over here, but I’ve got a couple of questions, first on the T-Rex trial. Is this an adaptive trial because I see you guys have two dose levels and then in term efficacy. Could you just go in and describe a little bit about how the trial is proceeding, what the design structure is? And the second question is that I have is related to the CLI study. A lot of people because of everything that’s happened in Japan with the new laws think it might be a little bit easier to get things approved there. But now that you guys have worked with the regulatory authority there a bit, could you talk about what it's going to take clearly this trial has been given to you as a regulatory pathway. But now that you have it, the question is in terms of looking for a partner, because you guys have said that you would seek to find a partner now that you know the regulatory pathway, you know what the authorities would want to see from you and the cost. How does that change any discussion that you might be having with potential partners? And those are the two questions.

Okay thanks Ahmad. I’ll go ahead and try to answer both of those. So the first one as it relates to the T-Rex study. First this is not an adaptive trial design in the traditional sense of the definition. This is a design that is more keen to a Phase IIa/IIb trial and that incorporates element of proof-of-concept, the treatment effect with dose response. So we do have two doses being study in the trials along with placebo that the randomization is 1-2-1-2-1 across all the patients. There are 111 patients that will be enrolled in the study in totality and the trial is divided into two cohorts. Initial cohort of eighteen patients and then a final cohort of 93 patients, of both of cohorts will be evenly divided among the three treatment groups. The initial cohort is really essentially the equivalent of a phase Ib trials in that, it will be a safety check and that’s why there is a moratorium on enrolment after the eighteenth patient is enrolled. While that patients and other eighteen go through their three-months follow-up visit there will be an independent [DXMB] (Ph) assessment and presumably based on all indications from the past where there have been no, intolerance or safety issue, he wound then get the green light to resume enrollment. Enrollment would then reinitiate, the remain 93 patients would be enrolled and when we hit the sixth-month follow-up 50% of the total number of patients there will be interim analysis of efficacy that will be done. Again based up the Phase I that’s been reported, we fully expect that a statistical separation is possible to be shown at that point in time. That would give us very early indication of positive result for the trial. The trial has a one-year follow-up, which is the final point on the study and total trials expected to rollout over the course of the next year to eighteen-months. Does that answer basically what you were asking for T-Rex study design?

Absolutely yes. That’s exactly what I was looking for.

In terms of the CLI situation and we feel really fortunate. The study design, the 35 patient trial that we described, which include this very I would say reasonable endpoint of CLI-free. Time to continue with CLI-free status is a real indication to us anyway that the Japanese regulatory authorities are really trying to make good on their strategy of making these regenerative medicine therapies more easily available to the general population. And so we expect, not that we have a clear pathway here essentially the equivalent of an open IND in Japan with the clinical as well as CMC quality pathway to our registration and with a positive result as previously defined in my prepared remark. With the possibility here of conditional approval. We think that will increase the probability of finding a partner and I think, we can already point to the fact that this new status has brought a few people. More seriously back to the table, who had been waiting to see how these discussions unfolded and those who have been actively engaged are more active in there dialogs than ever. So we think that the clear path always makes it simpler for people to access the investment quality of a program and this one now has a clear path to potential conditional approval in Japan.

Excellent. Thank you for taking the questions.

Thank you. if I may, I will point out one of the point on other points in that regards too. In the [ensuring] (Ph) period, while we've been going through our negotiations with the JPMDA, there have been a number of other companies, a few who have actually received approval and the reimbursement rates that they are getting on their products of quite attractive. And so I think that’s making it also more attractive to potential partners to look seriously at our program since there was some uncertainty on how the reimbursements would be placed once the products we receive the conditional approval.

Thank you for the additional information, that’s all ways an interesting prospective, because you and those peers of yours that are sort of navigating these channels are the pioneers that are trying to pitch forward this new path way. so I'm always curious and interested to hear what your thoughts are and how its effecting strategy and execution. But thank you very much.

Okay. Thanks Ahmad.

This concludes the question and answer portion of the presentation. I now would like to turn the call back to Dr. Mazzo for closing remarks.

Again thank you all for participating in today’s call. We appreciate your continued interest in and support of Caladrius Biosciences and we look forward to continued progress and to providing you with timely reports on our achievements. Have a good evening everyone and good-bye.

This thus concludes today’s conference call. You may now disconnect.