Welcome to the Lisata Therapeutics Third Quarter 2023 Financial Results and this is a day conference call. Currently, all participants are in a listen-only mode. Following managements' prepared remarks, we will hold a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded today, Thursday, November 2, 2023. I will now turn the call over to John Menditto, Vice President of Investor Relations and Corporate Communications at Lisata. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Welcome to Lisata's third quarter 2023 conference call to discuss our financial results and the opportunity to provide a business update. Joining me today from our management team are Dr. David Mazzo, President and Chief Executive Officer; Dr. Kristen Buck, Executive Vice President of Research and Development and Chief Medical Officer; and James Nisco, Vice President of Finance and Treasury. Shortly before this call, we issued a press release announcing our third quarter 2023 financial results, which is available under the Investors & News section of the Company website, along with a webcast replay of this call. If you have not received this news release or if you'd like to be added to the Company's e-mail distribution list, please e-mail me at jmenditto@lisata.com. Before we begin, I remind you that comments made by management during this conference call will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Lisata. I encourage you to review the Company's filings with the Securities and Exchange Commission, including, without limitation, its forms 10-K -- sorry, 10-Q, 8-K and 10-K, which identify specific risk factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, Thursday, November 2, 2023. Lisata Therapeutics undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that, I will now turn the call over to Dr. David Mazzo. Dave?

Thank you, John, and good afternoon, everyone. Thank you for joining us today as we provide an overview of recent business highlights, discuss our third quarter 2023 financial results and give an update on the progress of our various development programs. The third quarter was another productive quarter for Lisata as we added to the momentum of the first half of 2023, with the initiation and advancement of new clinical development programs targeting a variety of advanced solid tumors using LSTA1, our lead product candidate, in combination with multiple anticancer agents of different modalities. As we have previously reported, we have both preclinical data and early clinical data in humans that we believe demonstrates the potential of LSTA1 to become an integral part of a revised standard of care treatment regimen for many difficult-to-treat cancers. During this call, our Chief Medical Officer, Dr. Kristen Buck will provide an update on our clinical programs following the review of our financial results. And with that, I now will turn the call over to James Nisco, our Vice President of Finance and Treasury. James?

Thanks, Dave. Good afternoon, all. I'm pleased to join you today to present a summary of our third quarter 2023 financial results. Starting with operating expenses. For the three months ended September 30, 2023, operating expenses totaled $6 million compared to $37.7 million for the three months ended September 30, 2022, representing a decrease of 84.2%. Excluding the in-process research and development expense of $30.4 million related to our merger with Cend Therapeutics in September 2022, operating expenses decreased by $1.4 million or 18.6% compared to the three months ended September 30, 2022. Operating expenses comprise the following: Research and development expenses were approximately $3.4 million for the three months ended September 30, 2023, compared to $3.3 million for the three months ended September 30, 2022, representing an increase of 1.3%. Expenses this quarter were primarily due to study activities associated with the BOLSTER trial here in the United States, enrollment activities for the ASCEND study in Australia, start-up activities for the Glioblastoma Multiforme study in Europe and general chemistry, manufacturing and control activities for LSTA1 to support all development activities. General and administrative expenses were approximately $2.6 million for the three months ended September 30, 2023, compared to $4.0 million for the three months ended September 30, 2022, representing a decrease of $1.4 million or 35.3%. This was primarily due to nonrecurring merger-related costs in the prior year, a decrease in equity expense due to prior year performance stock unit vesting, merger option assumption expense and departing Board member restricted stock unit vesting and timing of our annual stockholder meeting versus the prior year. Overall, net losses were $5.3 million for the three months ended September 30, 2023, compared to $37.4 million for the three months ended September 30, 2022. Excluding the in-process research and development expense of $30.4 million related to our merger with Cend Therapeutics in September '22, net losses for the three months ended September 30, 2023, decreased by $1.7 million or 24.7% compared to the three months ended September 30, 2022. Turning now to our balance sheet and cash flow. As of September 30, 2023, the Company had cash, cash equivalents and marketable securities of approximately $54.4 million. The Company remains confident that its projected capital will fund its current and proposed operations into early 2026, encompassing anticipated data milestones from all its ongoing and planned clinical trials. This completes my financial overview and I will now turn the call over to our Chief Medical Officer, Dr. Kristen Buck for the review of our clinical development pipeline. Kristen?

Thank you, James, and good afternoon, everyone. As those who have been following us know, Lisata's pipeline is built on a portfolio of proprietary and patented technology that is grounded in strong scientific rationale and a body of published preclinical and early clinical data. Our platform technology is designed to address major impediments to the successful treatment of advanced solid tumors in an environment of increasing pharmacoeconomic pressures. Generating meaningful clinical data is critically important in this field and I can assure you that our entire organization has this goal top of mind in everything we do. With that, I will now provide an overview of LSTA1 for the treatment of advanced solid tumors in combination with other anticancer agents. Despite advances in cancer therapy today, many solid tumors remain difficult to treat effectively. Cancers, such as pancreatic cancer, gastric cancers and other solid tumors are surrounded by a dense fibrotic tissue known as the stroma, which limits access of most pharmacotherapies to the tumor. Many tumors also have a hostile tumor microenvironment, or TME, which suppresses the patient's immune system and makes it less effective in fighting cancer. The combination of a dense stroma and a hostile tumor microenvironment prevents many chemotherapies and immunotherapies from being optimally effective in treating these cancers. This, coupled with the fact that most anticancer therapies are not efficient in targeting only cancerous tissue, defines the major challenge of maximizing effectiveness and safety in the treatment of solid tumors. To combat this, Lisata's approach is to activate the C-end rule or CendR system, a naturally occurring active transport system to selectively deliver anticancer drugs through the stroma and into the tumor. Lisata's lead product candidate, LSTA1, the recipient of multiple orphan designations, including for pancreatic cancer in both the United States and Europe as…

Thank you, Kristen. In the last three and nine months of 2023, we have made notable progress on several fronts, including the growth application of LSTA1 in combination with a variety of anticancer agents for the treatment of a variety of solid tumor types. To maximize impact and confidence in the results, we have designed our studies to be scientifically and medically rigorous and to provide results expeditiously while also assuring that we are operating in a maximally capital-efficient manner. Now with more than two years of capital available on our balance sheet, we believe we are well positioned to focus on the execution of our development plan and to achieve our goal of getting meaningful clinical data readouts as soon as possible. And with that, operator, we're ready to take questions.

[Operator Instructions] Your question comes from the line of Steve Brozak of WBB Securities.

I actually have one, but a follow-up as well because they're related. You've gone over a lot of trial descriptions. How would you describe as the meaning the import of what these designations that you've been describing are to the trialing system? And I've got a follow-up after that, please.

Thanks, Steve. Appreciate the question. So I think actually, it's a very pertinent question because in the industry, we talked around the nomenclature of orphan drug designation and fast-track designation pretty freely. And I think most people might have at least a partial understanding, but I think it's worthwhile explaining. So let's start with fast-track desiccation. Fast-track designation allows the applicant that would be for a given product and a given indication to be eligible for accelerated approval consideration and for a more rapid review cycle with the FDA, both of which are extremely beneficial in terms of getting to market faster. It also allows for more interaction with FDA in a specialized way. And similarly, orphan drug designation. First of all, it points to the fact that the indication will have less than 200,000 patients in a given year diagnosed with that particular indication. And as a result, it's also eligible for more rapid review cycles, more rapid and consistent interaction with the agency. Importantly, you're also eligible to receive grants from the orphan drug division of FDA to develop new products because often, they're not as commercially lucrative. And finally, you get an extended period of exclusivity in the market. So that is a -- this in addition to patent protection, you have some market exclusivity. So they're actually quite valuable designations. They're not given out freely. It's not something that you just make an application and you're guaranteed a result, but there's a pretty critical review process and we were very pleased that the FDA and the EU have granted orphan drug designation for mPDAC to LSTA1 and also for GBM, Glio for LSTA1 here in the United States.

Okay. And that actually highlights the next follow-up, and I'll pop back in the queue. You've got these designations, which are obviously significant. You've got multiple programs running with quantifiable endpoints. Your -- you've been pretty much delivering on everything you said you were looking to do. Yet obviously, the market isn't really viewing or understands this. What are your thoughts around on your market cap and specifically your stock price, given your execution? What do you think it is? And thanks, and I'll hop back in the queue.

Well, thanks, Steve. I actually appreciate the opportunity to address that somewhat forthright because it's something that's on everybody's mind. There is a clear inconsistency with the advanced stage of our clinical programs, the positive data we've generated, our financial position and the fact that we continue to execute according to plan is that the plan is rather comprehensive and a rather low market cap. In fact, anyone can look and see we're trading roughly at somewhere between 35% and 40% of our cash on hand, which is just irrational. I think we have a couple of explanations for that. The part of it is that the entire biotech market has suffered considerably since the beginning of the year with high interest rates and everybody's stock is down. But in our particular case, there are few unique characteristics that I think are impeding a stock advance within the short term, but that I think are available to be overcome in the long term. One of those is that we are fortunate to have a large body of our shareholders. By our calculation in rough terms, about 2/3 of our shareholders are long only holders. These are people who have bought into the Company, either when it was in its private stages or at the time of our recent merger or in recent financing, but did so because they believe in the potential of the programs. And in order to see the programs reach their maximum value, they are not trading the stock. They're ignoring the fluctuations in stock price and in the market, they're treating us much like they would treat an investment in a private company and they're sitting back and waiting for the "pivotal data" that come out of these trials. And so with a very little float…

And your next question comes from the line of Kemp Dolliver from Brookline Capital Markets.

First question in regards to the ASCEND trial and admittedly, it may be too early to provide any insight on this. But the trial has enrolled very consistently and ahead of your original plan. And other than unmet need and potentially a great drug, which will just lay out as given for now, what are your thoughts with regard to why this has worked so well? Is it a function of the populations in Australia and New Zealand being relatively treatment naive and there's less competition for trials? Or what have you seen going on that has worked to your benefit here?

Thanks, Kemp. Appreciate that. I think we see a couple of factors that are helping the trial enroll very, very rapidly. First of all, it is a randomized and blinded trial. But in this particular trial, the people who receive the control arm are still receiving standard of care. So there's no downside to joining this trial. It's not as if you would be put on a true placebo and you would not get any treatment, which would obviously be unethical in an oncology trial. I think you've already touched on one of the situations there. There seems to be a large and growing presence of pancreatic cancer in this part of the world. And there are relatively few treatment centers because the population of Australia is concentrated around the edges of the country. The country is enormous. But as you all know, the interiors referred to the -- as the outback because it's a desert-like area, there's really very little population. People are concentrated in areas and they go to these larger centers pretty regularly. It's not as if there are many, many centers around the country for them to go. And so the people who are at those centers have been actively involved in the development of our trial, of our drug from the beginning. It was in Australia that the early Phase Ib, Phase IIa, very compellingly positive data we generated. And so there's an enthusiasm that I think is moving forward. And the fact that the addition of LSTA1, the standard of care doesn't seem to exacerbate the safety side effects of the standard of care is another reason why people are very eager to take on this particular trial. So as you pointed out, it's enrolling very rapidly. Cohort A has been enrolled since that May-June time frame and we're about 95% of the way there. So the official projection is we'll be done by second quarter of next year, but I think anybody can do a quick extrapolation and recognize that it's likely to be done very, very much sooner than that.

Right. And just looking at your spending guidance and the -- which honestly looks pretty level over the course of the runway period, how sensitive would that be to the ebb and flow of enrollment in your trials? Because you have ASCEND wrapping up sooner than expected. It's probably one of your larger trials at this point. So how should we think about the correlation between those two things from here?

Well, like all trials, spending is correlated. The large -- separate startup at the beginning and closed out at the end, the steady-state costs are per patient costs. So as you enroll, you incur expense. And then when you stop enrolling, you stopped those types of expenses. So -- but we also have to recognize that we have organized these trials, almost all of our trials, but in essence specifically to be done, first of all, in Australia, where the costs generally are lower than they might be in the United States and where we get about 48% of all R&D dollars spent rebated back to us at cash at the end of the year. And also, we are essentially co-funding this trial, if you will. I mean we're providing the maximum amount of funding, but the number of the standard of cares from the hospitals are being funded by those hospitals. So there will be a reduction in expenditure relative to ASCEND once full enrollment is completed, but it may not be of the same magnitude that one might expect for a trial being completely funded by a sponsor here in the United States. But we still see a reduction in cost associated with that.

Got it. And I'm assuming those rebates would show up as a contra to the expense line and opposed to the top -- coming in on the top line, is that right?

I'll ask our Head of Finance. James, what's the accounting on the rebate?

Yes, that's correct. We do have for qualifying research and development activities in Australia, we are eligible to receive a refundable tax incentive between 43.5% up to 48.5%. So that does largely offset, let's say, half of the expenses for the ASCEND study in Australia.

And is that accounted for as a reduction in expense or as revenue?

That is accounted for as a reduction in expense. So that would be a reduction to the R&D expense. So it's incorporated therein.

And your next question comes from the line of Pete Enderlin of MAZ Partners.

My first question is a follow-up of earlier one about valuation of the stock and that is since LSTA1 seems to enhance the efficacy of a wide variety of oncology drugs and a variety of different modalities as well, the question is, have you guys experienced any increase in inbound inquiries from bigger pharmas that are interested in collaborating with you?

And thanks for the question. It actually gives me a chance to talk a bit about the business development activities. The simple answer to your question is, yes. And I mentioned earlier, the confirmation of a lot of those potential deals is going to be based very, very much so on the delivery of the data that will come out over the course of these years. I think all of these companies have products that do well by a variety of different definitions, but could clearly do better and there's the implication so far with the data that's been generated to-date that LSTA1 can allow them all to do better. And that should lead us to a number of possibilities for either exclusive or nonexclusive deals, both on the R&D and the commercial side with a lot of players in the oncology world or just simply the ability to market list to one more broadly and have it utilized more broadly in the market when that time comes. But yes, we've had quite a lot of interest shown and I think an expectation that that interest will continue to increase as data is generated.

And if I can qualify that a little bit in terms of drilling down. Do you see different levels of interest depending on the types of cancer or also since there are varying side effects in a lot of these treatments, does it vary somewhat by the type of modality like chemo, RNA, immunotherapy or whatever? Or is it pretty much across the board?

I would say it's reasonably distributed. The interest is reasonably distributed among people who are either developing new cytotoxics or already marketing chemotherapeutics or immunotherapeutics. We even had discussions with radiopharmaceutical companies, companies that have antisense products, even companies with cellular therapies and nanoparticles. So I think there's a broad level of interest because the mechanism of action of LSTA1 in theory should help all of those better target solid tumors and infiltrate those tumors. So I think that...

And also reduce side effects, I guess, is an important part of it as well because they're...

I don't know if it will reduce side effects. I want to be very careful what we say. That would be wonderful. But what we will say is that the evidence to-date shows that LSTA1 will not increase the side effects of those agents. So you should get better efficacy with the same level of side effects. Normally to get better efficacy, we increase concentration and that leads to greater side effects. So I think we're going to be able, but I wouldn't say that we eliminate side effects, we're not so far along that.

Okay. No. And then just one quick one for Kristen. Did you mention the number or the percentage of enrollment so far in the BOLSTER trial, I didn't get it if you did.

No, I did not. The BOLSTER trial recently opened and we're early in enrollment.

[Operator Instructions] And there are no further questions. This concludes the question-and-answer session. I will now turn the call back to Dr. Mazzo for closing remarks.

Well, again, thank you all for participating in today's call. We look forward to speaking with you again during our next quarterly conference call and to continuing to provide updates on our achievements and progress. We remain grateful for your continued interest and support. Stay well and have a good evening.