Lisata Therapeutics, Inc. (LSTA) Q1 2017 Earnings Report, Transcript and Summary

Welcome to the Caladrius Biosciences 2017 First Quarter Corporate Results Conference Call. At this time, all participants are in a listen-only mode. Following managements prepared remarks we will hold a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded today May 18, 2017. I would now like to turn the conference over to Anne Marie Fields. Please go ahead ma’am.

Thank you, operator. Good afternoon. This is Anne Marie Fields with LHA, Investor Relations firm for Caladrius. Thank you all for participating in today’s call. Joining me from Caladrius Biosciences are Dr. David Mazzo, President and Chief Executive Officer and Joseph Talamo, Chief Financial Officer. Earlier this week, Caladrius filed its first quarter Form 10-Q and issued news release, announcing the Company’s unaudited 2017 first quarter financial results. And after the close of the U.S. financial market this afternoon, the Company issued a news release announcing the closing of the acquisition of the Company’s remaining interest in its PCT subsidiary by Hitachi Chemical. If you have not received these news release or if would like to be added to the Company’s e-mail distribution list, please call LHA in New York at 212-838-3777 and speak with Carolyn Currin or e-mail 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 uncertainties 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 Forms 10-K, 10-Q and 8-K which identified specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Furthermore, the content on this conference call contains time sensitive information that is accurate only as of the day of live broadcast May 18, 2017. Caladrius Biosciences undertakes no obligation for revise or update any statements to reflect event or circumstances after the date of this conference call. So with that said, I’ll turn the call over to Dr. Mazzo. Dave?

Thanks, Anne Marie. Good evening, everyone and thank you all for joining us on the call this afternoon. A short while ago, we were delighted to report the closing of Hitachi Chemicals acquisition of our remaining 80.1% interest in PCT, our contract development and manufacturing subsidiary. We believe this transaction unlocks tremendous value for Caladrius and transforms us into a well-capitalized, debt-free, pure-play therapeutics development company with what we believe are compelling opportunities for near and longer-term value creation. Importantly, this transaction allows Caladrius to preserve a close working relationship with PCT now known as PCT, a Hitachi Group company as a preferred development manufacturing provider and we will receive seven years of discounted services for our T-regulatory cell programs. The closing of this transaction represents the combination of more than a year of work and execution on a refined strategic plan that incorporates feedback from the investment community, our internal and external financial advisors and our board and management team. We are excited to be initiating this new phase in our corporate development, one that is even more focused with a business plan that is more easily explained and understood and one that we believe will offer our shareholders a risk profile diversified across technology platforms and indications that should provide greater prospects for positive returns. As we go forward, our strategy will emphasis the advancement of our clinical pipeline and the diversification of our product candidate portfolio. Specifically, we continue to enroll patients in our landmark U.S. Phase II clinical trial for our lead T-regulatory cell product candidate CLBS03. We call that CLBS03 is an autologous cell therapy comprising ex-vivo expanded polyclonal T-regulatory cells. The trial, The Sanford Project T-Rex Study is evaluating CLBS03 as a treatment for recent Onset Type 1 Diabetes. We plan to initiate a Phase II trial in Japan to evaluate our CD34 cell platform based products candidate CLBS12 as a treatment for patients with no option critical limb ischemia. As we previously announced, we have negotiated a 35 patient open-label protocol with the Japanese regulatory authorities that if successful should qualify the product for early conditional commercial approval in Japan. Of note is the very reasonable overall projected cost of this study, less than $8 million over approximately 2.5 years and that our initial capital commitment is only about $2.5 million to be reviewed in real time based on the accumulated results of the first set of patients in this open-label study. Our rationale for the study is based on published work in Japan and United States that provides consistent evidence that CD34 cells provide a therapeutic effect in ischemic tissue repair including critical limb ischemia. We will judiciously and opportunistically identify additional clinical development candidates based on our T-regulatory cell and CD34 cell platforms and we will invest in other promising pipeline technologies and/or programs based on a thorough disciplined and data driven evaluation process. Our consideration of new indications in autoimmune diseases and/or select cardiovascular disease indications based on our existing technology platforms will be strongly influenced by the availability of funding grants or collaborations to support the proposed work. Before we move into a more detailed discussion of our development progress and plans, allow me to turn the call over to Joe Talamo, our CFO for additional commentary on the Hitachi transaction and a review of our 2017 first quarter financial results. Joe?

Thanks Dave, and good evening, everyone. With the closing of the Hitachi transaction today, we have now emerged with a significantly strengthened balance sheet and have established a strong financial base to execute on our initiatives. Earlier today, we received $65 million in cash from Hitachi, of which $5 million was used to immediately eliminate our remaining long-term debt with Oxford Finance. Hitachi also deposited an additional $5 million in cash into a Caladrius escrow account, which will be maintained as restricted cash and released to us in 12 months subject to any customary closing adjustments that may arise. We are now well-positioned to fund our Phase II T-Rex clinical development program through completion to selectively invest in our other pipeline programs and as Dave just mentioned to opportunistically invest in other promising initiatives that we may identify. Before discussing our first quarter results, please note that our PCT operations beginning with our second quarter 10-Q filing will be reported in discontinued operations through the May 18, 2017 transaction date and all prior periods will also be recast as discontinued operations as well. In addition, we will not be providing any further financial guidance for PCT nor will we be addressing any strategic issues associated with the CDMO business other than what we've disclosed in our SEC filings. Now turning to our first quarter 2017 financial results, noting that these figures are unaudited. Our revenues for the first quarter of 2017 were $7.9 million, a 6% increase from $7.5 million of revenues recorded in the prior year first quarter. Gross margin for the first quarter of 2017 was negative 2%, this compares to gross margin of $1.3 million or 17% for the first quarter of 2016. As just mentioned, the PCT revenues and cost of revenues will be included in discontinued operations beginning with our second quarter 10-Q filing. Looking now at our operating expenses, we continue to demonstrate prudent expense management. In the first quarter of 2017, R&D expenses decreased 41% to $3.5 million from the previous year. The current year R&D expenses are almost entirely associated with our immune modulation platform and specifically expenses associated with our Phase II T-Rex Study. The higher prior year expenses were primarily due to costs associated with the discontinuation of non-core R&D programs announced at the beginning of 2016 and the related reductions in R&D staffing and departmental costs, which were partially offset by expenses in our Phase II T-Rex Study. First quarter 2017 SG&A expenses decreased 8% to $5.9 million compared with $6.5 million for the prior year period, primarily due to lower operational and compensation related costs during the 2017 first quarter. The current quarter SG&A expenses, however, would have been even lower except for the $1.3 million in Hitachi transaction related expenses. The net loss for 2017 first quarter was $9.4 million or $1.12 per share compared with a net loss of $12 million or $2.09 per share for the same period in 2016. Moving on to our balance sheet and cash flow, as of March 31, 2017 Caladrius had cash and cash equivalents of $12 million compared with $14.7 million as of December 31, 2016. The March 31, 2017 cash balance includes $5 million in advanced payments from Hitachi in connection with the transaction and $2 million from Sanford Research, representing an early payment of a second investment tranche pursuant to its equity investment commitment to Caladrius in September, 2016. During this year's first quarter we used $10.1 million in cash in operating activities, which was unusually high and primarily driven by the negative gross margin in the PCT business as well as the Hitachi transaction related expenses. Following the close of the first quarter, we also received $5.7 million from the California Institute for Regenerative Medicine as the initial installment of funding to support for our Phase II T-Rex Study. As we previously announced this CIRM grant has an aggregate award amount up to $12.2 million, stable installments based on the achievement of certain milestones. Lastly, we expect to reach the 70 patients enrolled in our Phase II T-Rex Study in the coming months, which will trigger the final $2.4 million payments from our September 2016 private placement. As Caladrius now moves forward as a pure-play cell therapy developing company, we will support a pipeline focused on immune modulation and select cardiovascular conditions. Based on our current programs and assumptions, we are confident that our current cash balances and additional grant funding along with continued disciplined expense management will allow us to fund our current business plan with runway well beyond 2018. With that, let me turn the call back to Dave.

Thanks, Joe. Allow me to begin with an update on our landmark U.S. Phase II study of CLBS03 as a treatment for recent Onset Type 1 Diabetes. CLBS03 is a personalized autologous cell therapy consisting of each patient's own regulatory T-cells or T-Rex, which have been expanded in number and functionally enhanced by a proprietary method developed through a collaboration with Dr. Jeffrey Bluestone and renowned researchers at UCSF and for which Caladrius has the exclusive rights to an international portfolio of issued and pending patents. In March of 2016, we initiated The Sanford Project T-Rex Study, which is the first ever prospective randomized, placebo-controlled, double-blind Phase II clinical trial to evaluate the safety and efficacy of T-regulatory cell therapy as represented by CLBS03 in adolescence with recent Onset Type 1 Diabetes. This trial is being conducted in partnership with Sanford Research. Sanford Research is a non-profit research organization that is part of Sanford Health and supports an emerging translational research center focused on finding a cure for Type 1 diabetes. The study is designed to include 111 subjects treated at approximately 15 U.S. based sites. Patients are being randomized to placebo or one of two active arms receiving either 2.5 million or 20 million of their own expanded T-regulatory cells per kilogram of body weight. To address a frequently asked question, we note that the choice of these doses was influenced by the available evidence from previously reported Phase I open-label studies as well as the advice of our Scientific Advisory Board and feedback from FDA. Last fall we successfully completed the 19 patient first cohort and an interim safety review by the independents Data Safety Monitoring Board. Based on these initial observations of safety, we have lowered the age inclusion criteria from 12 years to eight years of age. Enrollment in the second cohort is ongoing and we recently announced the addition of four clinical sites bringing the total of open-sites to 12 including the Joslin Diabetes Center. The study uses standard endpoints for diabetes study including C-peptide measurement and accepted measure of the preservation of beta cell function, insulin use, severe hypoglycemic episodes, and hemoglobin A1c levels. This landmark study is novel and that it also includes extensive immune profiling of CLBS03. To that end, we were pleased that the Juvenile Diabetes Research Foundation recently granted Benaroya Research Institute at Virginia Mason in Seattle, Washington a $620,000 grant to support scientist that BRI and their investigation of the impact of CLBS03 therapy on the immune system of treated patients to better understand the therapies mechanism of action. This grant Benaroya directly offsets costs that Caladrius would have occurred as part of the T-Rex Study. The study also has a pre-specified interim analysis to evaluate early evidence of therapeutic effect. We expect to reach the corresponding enrollment milestone in the coming months with topline data from the interim analysis available on late 2017 or 2018. Data from the 12 months follow-up of all subjects are expected in late 2018 to early 2019. As Joe previously mentioned in conjunction with our private placement from September of 2016, enrollment of the 70 subject will trigger an additional infusion of capital, which is expected around mid-year. We are particularly pleased to have the T-Rex Study supported by a grant of up to $12.2 million from the California Institute for Regenerative Medicine. In addition, Sanford Research made a $5 million equity investment in Caladrius in September of 2016 based on this program and they are providing operating support for the trial at two Sanford clinical sites. As we have previously noted, CLBS03 as a treatment for Type 1 diabetes has received several important international regulatory designations including FDA orphan drug status, EU advanced therapeutic medicinal product classification and FDA fast track designation, which represents the first Type 1 diabetes program to receive this distinction. Our program is supported by published early clinical work conducted by respected leaders in the area of T-regulatory cell science that demonstrated T-regulatory cell therapy to be well tolerated, durable and preserving of beta cell function in children as published in clinical immunology. Supportive two-year follow-up data from this prior study were published in November of 2016 in the peer-reviewed journal of Translational Medicine. Data in conclusions from the latter are informative and will be carefully considered as we contemplate next steps in our development program. We continue to be excited about the potential of T-Rex as a therapeutic platform that has applicability in a number of other immune modulated diseases that represent the multi-billion dollar combined market opportunity worldwide. With the closing of the Hitachi transaction, we can now plan to advance some of the most promising of these opportunities. Among them – and among the new indications being contemplated as a target for our T-cell therapy is neuromyelitis optica or NMO, a rare disease of the central nervous system that affects the optic nerve and the spinal cord. We currently are actively pursuing external sources of funding to apply a pilot study in NMO with groups that support an innovative research to accelerate solutions for the specific or other general orphan diseases. Additionally, Professor Jeff Bluestone at UCSF, the originator of the technology behind CLBS03 in collaboration with Dr. Flavio Vincenti at UCSF is currently evaluating autologous T-Rex as a treatment for sub-clinical rejection following kidney transplant in a study sponsored by the National Institute of Allergy and Infectious Diseases, as well as a study evaluating autologous T-Rex as a treatment for dermal lupus. Caladrius hold intellectual property rights for both of these indications and we look forward to the completion and data readout from these studies as those data will inform our decision to pursue further development in these and/or related indications. Turning now to our CD34 technology. CD34 plus cells have been shown to induce the development of new blood vessels restoring tissue function and improving blood flow. CD34 cells have been investigated in clinical studies encompassing over 700 patients with over 400 receiving CD34 cell therapy exposure. As such there is a myriad of preclinical and human clinical data that supports the assumption that CD34 cell therapy could provide a beneficial therapeutic effect in many cardiovascular and peripheral arterial disease indications. As previously reported, we plan to pursue our CD34 technology as a treatment for critical limb ischemia or CLI, which is a severe obstruction of the arteries that markedly reduces blood flow to the extremities principally the feet and legs. CLI can lead to pain, skin ulcers and sores, and if not successfully addressed even amputation. Our therapy for CLI, CLBS12 is based on previous study of autologous CD34 cell therapy for no option CLI patients in both Japan and the U.S. From those previous studies, researchers found that CD34 cell injection was safe, lead to improvement in CLI free status and improved amputation free survival. We have designed a development program for CLBS12 in Japan based on that country's new regenerative medicine law. Under their newly defined process, we worked with and reached an agreement with the Japanese regulators on a Phase II clinical development plan that is successful should qualify CLBS12 for early conditional commercial approval in Japan for the treatment of CLI. The agreed trial is a 35 patients Phase II prospective, randomized, controlled open-label multicenter study in patients with no options CLI to be conducted in Japan. Those patients randomized to treatment will be dosed with autologous, CGSF mobilized peripheral blood derived CD34 plus cells through interim muscular injection in addition to standard of care. Patients randomized to the control arm will receive standard of care pharmacotherapy alone. The study is expected to cost between $7 million and $8 million over approximately three years with an initial investment of approximately $2.5 million in the first 12 months. We expect to initiate the study in late 2017 or early 2018. With favorable outcomes, we plan to license this application in Japan and continue to engage in discussions with potential partners. Based on the substantial clinical data from four prior trials in critical limb ischemia and claudication, we believe that CD34 cell therapy is not only safe, but can help improve quality of life and potentially treat patients with the serious and life-threatening condition, which we hope to demonstrate through this pivotal study. Beyond CLI, we plan to explore the broader aspects of our CD34 platform therapy, which has the potential to be effective in the treatment of other cardiovascular diseases. We have submitted a Small Business Innovative Research grant application to the NIH for our CD34 cell technology to treat coronary microvascular dysfunction, a heart disease that results in reduced blood flow to the heart muscle resulting in pain and dysfunction. We expect the decision on this funding in the coming months and with this award, our goal will be to initiate a 20 patient Phase II proof-of-concept study before the end of this calendar year. We also continue to explore other sources of collaborative support, such as partnerships or licensing to contribute to any developments at programs for our CD34 technology. In closing, we are newly focused, relatively well funded and poised for progress as a pure-play cell therapy development company with two technology platforms on which to build. We have exciting times ahead and look forward to sharing with you our achievements, which are expected to include enrolling the 70 patients in the Phase II T-Rex Study triggering a capital infusion, reporting topline data in late 2017 or early 2018 from the interim analysis of the Phase II T-Rex Study assessing the early therapeutic effect of CLBS03, initiating the 35 patient Phase II trial in Japan for CLBS12 and no option critical limb ischemia, securing additional grants for our CLBS03 and CD34 platforms and the multiple indications and securing licensing partners with CLI in Japan and for other pipeline programs globally. We are truly focused on executing our clinical program and advancing them rapidly, effectively and efficiently through to important development milestones while continuing to demonstrate a prudent use of our capital. We are confident that Caladrius is transformation to a pure development company will create both near and longer-term value for shareholders and we look forward to updating you on our progress. And now, operator, we're ready to take questions.

While we’re waiting for our first question, I’d like to mention that Caladrius will be participating in the LD Micro Invitational Conference in Los Angeles on June 5, with your presentation schedule for 8:30 AM Pacific Time or a 11:30 AM Eastern Time. A webcast of the presentation will be available on the Company’s website at www.caladrius.com. Okay, operator, we’re ready for the first question.

Your first question comes from Steve Brozak.

Yes. Hey, congratulations on this execution, obviously you said you’re going to do something and you did it. I'd like to follow-up especially on the Japanese side that now the Caladrius is a pure-play on the clinical development systems. Where do you see continuation of strength in Japan and particularly everything around potential collaboration? And I’ve got a follow-up after that please.

Hey, Steve. Thanks very much for the congratulations and then for the question. So as we go forward, it's interesting, the CLBS12 program in Japan capitalizes on two factors that are unique to that country. One, as we mentioned in the prepared script is the implementation of their new regenerative medicine laws, which are designed to accelerate the commercialization of regenerative medicine. And the other is a disproportionately large prevalence of CLI in that population. So we're taking advantage of those things to advance this program there and if it's successful that will become the precursor to expanding that program more globally. Now clearly we remain an intimate partner of PCT and of course as a result now Hitachi going forward and it’s no surprise that we'll be able – we hope to capitalize on an expanded influence and reach in Japan based upon this new and I hope we’ll be growing relationship with Hitachi going forward.

Well, actually that leads into the next question. Obviously PCT, you uniquely understood the potential for PCT and its value, for your continued operations, PCT obviously is a vendor now to the world in terms of any kind of cell business, but can you just touch back on the relationship you have and the advantages you have with PCT in terms of how you're going forward with them into the future because you're still going to be working with them and how would you characterize that?

In many ways this transaction is turned out to be a match made in heaven. When we first brought Hitachi in as a minority shareholder, we did so with the strategy that they would provide expanded engineering expertise, expanded international reach and of course access to capital. As time has gone on as we've discussed in the past, the CDMO business in cell therapy has become more challenging and it certainly was evident that PCT was going to need much more capital to fully realize their potential and we are able to provide. So by allowing Hitachi essentially to become the sole owner of that, we've given PCT and that business access to all of the things that they will need to actually grow and be successful and that success will translate directly to benefit to us because a) we don't have to pay or find the capital to pay for their continued growth and technical enlargement. They will be able to accommodate all of our needs I think in a much easier fashion as they increase capacity and have a global reach. And like other clients of PCT who ultimately plan to need commercial manufacturing, the association with Hitachi should allow that to occur and solve another problem for us in the long-term. So really it couldn't be a better relationship. We maintain the close intimate development partnership with PCT. They remain our supplier and as we've noted it's somewhat ironic that post transaction, the cost for our T-regulatory cell program at PCT will actually be less than they were when we were a majority owner. So I mean we couldn't be more pleased.

Look, again congratulations on actually doing what you said you're going to do and looking forward to all your milestones in 2017. Thank you. I’ll hop back in the queue.

Your next question comes from the line of Yi Chen.

Hi. Thank you for taking my question. My first question is when do you expect to receive the rest of $6.5 million for the California Institute for Regenerative Medicine?

Hi, Yi. This is Joe. So the milestones are triggered based on an enrollment of the program and specifically to the extent we can enroll patients in California. So we believe there is a high degree that we'll be able to achieve much of that $12.2 million. As we’ve already mentioned the upfront payment of $5.7 million has already been received. It's going to be based on how many patients are enrolled in California. We should have a good understanding of that as we progress through the rest of the year and complete enrollment and see in fact where those patients are coming from California.

Okay. Got it. Thanks. And could you also update us was the most current cash position including the cash received for Hitachi, the cash from CIRM and also the cash from Juvenile Diabetes Research Foundation?

So what we received today – earlier today was $65 million from Hitachi and what we did is we immediately paid down our remaining obligation with Oxford which was approximately $5 million. Hitachi also deposited $5 million into an escrow account, which is our cash, but it will be held for 12 months and at that point that will be released subject to whatever closing adjustments that arise over the next 12 months. As I mentioned from the CIRM standpoint, we have received $5.7 million. We do expect to receive additional milestones over the course of the year, but we will provide a little more clarity as we progress as I just mentioned with the enrollment. And the other noteworthy point was Sanford did make their $2 million payment earlier than the 70 patient where they were obligated to make that payment and that was received in the first quarter.

So the $5.7 million...

Sorry, let me just add one point to the – the JDRF is actually – the money from JDRF didn't come to us, it went to Benaroya Research.

Yes.

To [indiscernible] cost to us, so it's not really cash in our balance sheet, but it's a reduction in the cost of the T-Rex trial.

Thank you. And the $5.7 million for CIRM has already been included in the end of March cash position, is that correct?

That is not correct. That came in after – that came in, in the second quarter.

Okay. That’s addition. Okay, got it. Thank you. And final question is with the eight additional clinical sites for the T-Rex Study, is there any – is it any possibility that the enrollments can potentially be speed up?

Well, the enrollment is actually running according to our original plan, which is somewhat remarkable in my experience and typically the clinical enrollment always lags what your plans are. But we're running very close to plan here and our plan was always to bring sites on in a faced fashion, so we're on schedule with doing that. So unless there is a big change in terms of either interest in the study or actually – let me back up, it's not enrollment, that’s the rate limiting step in the study. It’s our capacity of manufacturing at the moment and the scale that we are able to go at where the PCT has provided. So we can maximally produce upwards of eight to 12 treatments a month based upon the current capacity that would be expanded over time. But that combined with the enrollment at the sites and the fact that we have a pretty strict enrollment criteria of patients having to be diagnosed within 90 days of first treatment. We’ll probably keep the enrollment according to what we have originally announced and I think we projected that we would complete enrollment in this calendar year.

Got it. Thanks. Sorry final question, so when you said you expect your current cash position to provide well beyond 2018, is it correct to understand that you expect the quarterly cash burn to be roughly on a similar level as the first quarter level?

So the first quarter operating cash burn of $10 million as I mentioned is unusually high and that also continues to include PCT. When we report our second quarter financials, all of that – the operating cash burn associated with the PCT business is going to be isolated. So we'll have a better – we’ll have a better basis to measure what the Caladrius only operating cash burn looks like, but it certainly will be significantly lower than the $10 million.

Can you provide any additional color at all regarding SG&A and R&D cost [without] the PCT components?

At this point it's going to be lower, but we're not prepared to give exactly what those measures are. After the second quarter as I mentioned with discontinued operations reported, we will have a clearer picture for you.

Okay. Thank you very much.

[Operator Instructions] End of Q&A

Okay, if there are no further questions, again thank you all for participating on today's call. We look forward to making continued progress, executing our new business strategy and to providing you with timely reports on our achievements. We appreciate your continued interest in support of Caladrius Biosciences, and look forward to updating you again on our next quarterly conference call. Have a nice evening. Thank you.

This does conclude today’s conference call. You may now disconnect.