Ocugen, Inc. (OCGN) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Histogenics Second Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct question-and-answer session and instruction will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Jon Lieber, Chief Financial Officer of Histogenics. Please go ahead, sir.

Thank you, and good morning, everyone. Joining me on the call is Adam Gridley, our President and CEO and Stephen Kennedy, our Chief Technology Officer. A press release announcing Histogenics second quarter 2015 financial results was issued this morning. For those of you, who have not yet seen it. You will find it posted in the investor section of our website at www.histogenics.com. On our call this morning, we will share with you some exciting business updates, which will be followed by question-and-answer session. Before we begin our prepared remarks, I would like to remind you that various statements we make during this call, about the company's future results of operations and financial position. Business strategy and plans and objectives for our future operations are considered forward-looking statements within the meaning of the federal securities laws. Our forward-looking statements are based upon current expectations that involve risks changes and circumstances, assumptions and uncertainties. These risks are described in the risk factors and management discussion and analysis of financial conditions and results of operation sections of our Form 10-K for the year ended December 31, 2014 which was filed with the SEC on March 27, 2015 and are subsequently filed quarterly reports on Form 10-Q or 10-K. Another reports are available on the SEC's Edgar System and on our website. We encourage all investors to read these reports and our other SEC filings. All the information, we provide in this conference calls provided only as of today and we undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events or otherwise. Finally, please be advised that today's call is being recorded and webcast. I will now turn the call over to Adam.

Thank you, Jon. Agenda for today's call will include a brief overview of our business and highlights from the second quarter. Jon will then take you through a summary of our financial results and then we'll open up the call for questions. As a reminder for anyone that is new to Histogenics. We're regenerative medicine company, focused on the advancement of NeoCart. Our novel Phase III candidate being evaluated as a first-line therapy to treat knee cartilage injuries or focal chondral defects. We believe that our regenerative medicine platforms, which encompasses a unique combination of biomaterials, cellular expertise and our bioengineering capabilities may create better therapeutic outcomes for our patients than the current standard of care. Our ability to make an implant ex-vivo with [indiscernible] cartilage production, as measured by specific biomarkers prior to insertion into the body is compelling. The competitive products are surgical procedures see to achieve the same cartilage characteristics [indiscernible] do not occur until several months after implantation. We continue to believe that this unique mechanism of actions may provide for far less variability. Importantly, a more rapid recovery as well as improved long-term results. Our primary focus and priority as an organization is to move NeoCart to our ongoing Phase III trial while continuing to execute the underlying manufacturing scale-up and reimbursement initiatives to support our future potential approval and launch. As we believe, NeoCart [indiscernible] significant unmet medical need, our target market is active and healthy adults, who are seeking better alternatives to the current standard of care, both in terms of near-term recovery dynamics and long-term durability. And this represents a significant opportunity with positive demographics despite the well published challenges with many of the alternative therapies including standard of care. There are still 500,000 procedures each years in the US representing a multibillion product opportunities, their estimated price points, and that's just in the knee. Our enthusiasm and confidence regarding the potential hope [ph] that NeoCart may have in redefining the standard of care is based on compelling clinical data from our Phase I and II clinical trials. Those led to our ongoing Phase III clinical trial that, we are currently conducting. We expect to submit for public our five-year results demonstrating the long-term effects of NeoCart prior to yearend and anticipate several other long-term publications demonstrating the utility of our therapy. In fact, our lead investigator, Dr. Dennis Crawford received an award at the May 2015, International Cartilage Repair Society Meeting for his pioneering work. Both on the technical advantages of NeoCart as well as our Dual-Threshold Responder design in our clinical trial that is unique compared to competitive therapy. Additionally, we made significant progress in our collaboration with Intrexon Corporation with whom we have an exclusive channel collaboration agreement to development next generation allogeneic products to treat cartilage repair. Early technical results over the last couple of quarters, has led to targeted development pathway, with the goal of taking next generation therapies that combine Intrexon cell sources and Histogenics proprietary manufacturing processes to potentially make an allogeneic versus NeoCart. We anticipate the initial manufacturing of materials for future research and development programs in the first quarter of 2016 and we're pleased with the rapid progress in potential utility of these next generation therapies. We think that this is going to allow us to expand our potential target market substantially. By offering patients a potential one-step alternative in the future. We'll continue to update our investors on the longer term development plan and associated milestones as the plan progresses in the coming quarters. Concurrent with these efforts around our lead asset, we're moving to harvest our existing portfolio of product candidates and intellectual property to create one of the leading regenerative medicine companies in the industry. The technological developments and associated investments that we've made to support our ongoing NeoCart trial have now also led to what we believe to be industry leading cell therapy, tissue engineering and biomaterial capabilities that we intent to leverage internally in our portfolio and through partners and collaborators. In addition, we're exploring ways to enhance and expand our product pipeline to one or more business development opportunities. Both in terms of future utilization of our IP portfolio and also exploring potential international commercial partners to both NeoCart either in the knee or in potential applications such as ankle. Finally, we are also focusing on opportunities around our underlying scaffold and biomaterials products. While it's difficult to predict the timing your outcome of such efforts. We look forward to updating you in the coming quarters regarding those activities. So moving to business highlights for the second quarter. On our Phase III clinical trials, NeoCart as a reminder, we designed our trial to show a superiority against microfracture, the current standard of care. This trial is being performed under a Special Protocol Assessment or SPA with the FDA. And was initiated as a confirmatory study based on the promising safety and efficacy findings from our Phase II clinical trial. This is a prospective control multicenter trial of 245 adults between the ages of 18 and 55 years. Who have systemic focal full-thickness chondral knee defects and they're randomized between NeoCart and microfracture on the two to one basis. As a reminder, randomization has done [indiscernible] at which time, final patient eligibility is determined. As agreed to with the FDA under special protocol assessment, the primary endpoint for approval is superiority at one year. In the proportion of responder in the NeoCart patient group compared to those into the microfracture patient group and a dual-threshold responder analysis utilizing the KOOS pain sub scale and IKDC functional assessment scales. Both of these assessment are validated patient-centered, self-administered outcome instruments intended to assess patient middle of outcomes. The KOOS separately assess and scores five dimensions of outcomes from the patients perspective pain symptoms, daily living, function and knee related quality of life. Similarly, the IKDC subject assess and scores three dimensions of functional outcomes from the patients perspective. Symptoms, functions during activities of daily living and sport. So these scores have been tabulated and transformed to a 100 point scale, where 100 represents the best outcome for either pain or function and zero represents the worst outcome. A one year superiority endpoint was deemed appropriate for the Phase III trial based on the magnitude of difference between the responder rates at one year for patients receiving NeoCart implants and patients receiving microfracture surgery in our Phase II trial. Similar to that Phase II trial and the Phase III, a patient is considered to respond [indiscernible] both of the following patient reported outcomes. Improvements of at least 12 points compared to the patients baseline score in KOOS pain and improvement of at least 20 points compared to the patients baseline score in IKDC's function. As a reminder, the dual-responders in our Phase II trial registered an improvement of 54 points over the standard of care. And our ongoing Phase III trial and based upon the protocol and related statistics applied to develop our study sides. We need to achieve only an approximate 15 points difference to hit our primary superiority endpoint under the SPA. The NeoCart Phase III trial successfully, planned to seek and retain and build upon our technical advantages further in the regulatory and clinical environment. We believe, that this study protocol and product becomes the comparative for future therapies. On timelines, we continue to target completion of enrollment of our NeoCart Phase III trial by the end of the second quarter of 2016. With our one year primary endpoint, we expect to be in the position to file our Biologics License Application or BLA. With the FDA in mid of 2017, with an FDA decision in 2018, if approved. During the quarter, we continue to see encouraging activity from our clinical trial investigator sites. On our last call, we shared with you a plan that not only replace certain underperforming sites with new higher performing sites. But also ship to a more customized approach the management of each site. We believe that these efforts are beginning to generate enrollment momentum. Previously, we were highly reliant on just a few select sites for the bulk of our volume. But we're now seeing a more balanced enrollment. Furthermore, in our last conference call May. I communicated to you, that we had streamline our site initiation and qualification process and I'm pleased to say, that those changes are working well. In our last three study sites were onboard, enrolled their first patient in less than six weeks. You may recall, that we can have up to 40 sites per our agreement with the FDA. So let me take you now through some of the key metrics, that we will use to assess our progress. We currently have 26 of 33 sites consenting. This is up from 23 of 31 sites consenting at the time of our last call in May. We've also identified in our negotiating final agreements and site qualification activities for an additional eight to nine potential sites, which will maximize our investigator efforts at the 40 site cap. We also terminated several sites during the quarter and those sites that were on probationary periods have actually reengaged substantially, at a much higher rates than we had anticipated. Over the next several weeks, several other new sites will be seeing their first potential enrolled patients and we look forward to reporting our progress on the next quarterly call. Furthermore, we have now 21 sites enrolling patients. It's also important to keep a mind that we've switched out several lower performing sites with higher performing ones. And then, since our last call in May. We have three sites that have now consented their first patients. Furthermore, several sites that have enrolled patients in the first quarter are now seeing their first patients back at three month time point. And anecdotally have noted that the patients progress with NeoCart was comparable to competitive products at nine months and 12 months, in terms of patient activity in quality of life. These are the type of events that turn our investigators into believers, where they often actively push their colleagues for referrals to further explore the utility of our product once they've seen firsthand, that a demonstrable impact of the NeoCart therapy. As we noted before, our Phase III trial with our significant customer support and practice management, to assist our sites and finding appropriate patients to meet our enrollment criteria. To this end, we put into place in the second quarter an innovative tool such as an interactive website, help patients better understand cartilage repair, NeoCart in the Phase III trial, so that they're more knowledgeable when they see the physicians. We believe, that this also frees up the physician time making it easier for him or her to participate in the trial, while still managing their practice. We're continuing to work closely with each of our investigators to employ strategies that maximize their individual contributions in the trial. And then turn around and look to deploy those successful strategies achieved at our highest enrolling sites, with others in the trial. We've also moved and deployed a large number of local recruiting efforts in last quarter following our national campaigns in 2014 to create broad awareness. Now we're moving deeply into each of the local sites and these include some traditional media placement such as radio and television and we've seen an immediate patient inquiries and impacts on these efforts. These customize approaches along the capacitive management efforts by our internal teams. Are analogous to the commercial sales cycle, one will see in the product launch. And this mindset, that we've employed a demonstrable change from our previous strategies. And the good news is that, we believe our surgeons are responding positively. Lastly, we made additional progress in negotiating with certain sites in California, which will enable them to enrol either from an [indiscernible] patients and believe that this will open up additional patient opportunities in the future. We're taking those learning's from those previously hard to crack insurance environments to ensure that there are no reasonable barriers to bring eligible patients in our study. Supporting our future commercialization efforts are the continued reimbursement initiatives, with the deployment of our updated heath economics and outcomes research protocol amendment, that was approved in the first quarter of 2015. We intend to turn to pricing and private payers interviews in the second half of this year, as we consider our long-term pricing strategies for NeoCart. Our efforts are intended to bolster and already solid reimbursement platform in place and further demonstrate the pharmacoeconomics benefit NeoCart currently offer. In May 2015, our consultants in Histogenics received an award at the International Society of Pharmacoeconomics and Outcomes Research Annual Meeting for our poster publication entitled Long-Term Failure Rates Associated with Knee Microfracture Surgery. This poster demonstrated the long-term failure rates of the current standard of care, which confirms the unmet need for better therapies such as NeoCart. At five years, up to a third of microfracture patients have moved to another invasive surgery after failure of their first surgery confirming the need for better therapy such as NeoCart. As noted earlier, we've completed in the second quarter, our initial research and technical efforts on immunogenicity and the appropriate platform pathway for further development and our partnership with Intrexon. Taking the combined synthetic biology and genetic engineering capabilities of Intrexon. And our regenerative medicine in cellular therapy expertise, the teams have conducted several ex vivo and bent [ph] studies to determine our future development plans, which we finalized very recently at our July 2015 Joint Steering Committee meeting just a couple weeks ago. Results from these efforts will be submitted for publication later this year, re-earning our efforts to develop potentially allogeneic one-step products as follow-ons for NeoCart. These developments not only expand the potential market for NeoCart to knee with added convenience but also open up, future applications such as hip and shoulder, where our market research have indicated a one-step therapy is necessary for adequate development and market penetration. The partners have elected to pursue an induced pluripotent stem cell, ITSC approach. The next technical milestone is the demonstration of the capability of Intrexon developed ITSC drive cell line in the NeoCart cell and tissue engineering manufacturing process in the first quarter of 2016. Our goal is to make, a NeoCart tissue and cartilage implant with the underlying cell technology from Intrexon. The teams are deep in their longer term development plans including supplement regulatory strategies to our existing NeoCart programs and we'll share those with investors those plans in coming quarters. Earlier in the second quarter, we announced the establishment of the scientific advisory board. We've already had many valuable discussions with individuals, SAB members, who are already providing meaningful scientific and technical oversight to the NeoCart development program. We expect to have our first full SAB meeting in the fall and are confident that this team will play an important role, as we seek to leverage our biomaterials manufacturing expertise. And to advance our product pipeline, which may include next generation therapies and additional indications of NeoCart. Concurrent with those efforts, we've expanded our academic collaborations with several highly experienced teams at Cornell to Brigham and Women's, Harvard, MIT and the University of Michigan. We are very encouraged for exemplify the progress among our sponsors research agreement with [indiscernible] research group at Cornell. The Cornell SRA is focused on characterization of the biomechanical properties of the current NeoCart product and developments of 3D bioprinting technology for use in next generation cartilage tissue processing. We anticipate the biomechanical and mechanism of action data generated from NeoCart surrogate [ph] examples will be published later this year. We've also reengaged with one of our scientific co-founders Dr. Shuichi Mizuno from the Brigham, who is also on our Scientific Advisory Board. And there we're exploring the additional utility of our scaffolds, poly [indiscernible] gels and bioreactors to determine the utility of different formulations, applications and therapeutic targets in the musculoskeletal treatment areas. While early days, we do believe that there are obvious extensions of our IP and product portfolio to other ligaments and hard and soft tissue applications. Part of our strategy is to continue to leverage these capabilities to broaden our regenerative medicine platform beyond NeoCart. We also recently turned our efforts to expanding our broad intellectual property portfolio. With over 60 issued global patents across the broad range of our biomaterial cellular therapy, growth factors and bioengineering. We're preparing to take these previously unattended assets and seek to further monetize these. With patent expiry out to 2030 and several patent applications under review. We have an enviable portfolio that provides future competitive prosecution opportunities, sand importantly further collaboration opportunities as well. In June, we have noticed a patent allowance and expect further allowances in the coming quarters, on top of several additional recent submissions to augment our existing portfolio. On our last call, I communicated to you that we are seeking to bring on the top caliber Chief Financial Officer and Chief Medical Officer. I'm excited to say, that we've completed this task, having added Jon Lieber and Gloria Matthews as CFO and CMO respectively. We had significant interest from several high caliber candidates during these searches and chose these two individuals because of their unique blend of experience and approach that we think will be a terrific fit with the existing team, both culturally and from an expertise perspective. In addition, we promoted Steve Kennedy to Chief Technology Officer in July reflecting his important contributions over the last several years in our manufacturing and raw material development efforts. The establishment of our SAB's and several collaborators including Cornell, MIT, Brigham, University of Michigan among others. We are very much looking forward to the contributions of Jon, Gloria and Steve and our senior management will make as the company seeks to advance NeoCart through the Phase III. And into evaluate additional opportunities with our own pipeline as well as in complimentary technologies and products. While completing the Phase III trial for NeoCart remains our top priority. We believe, there are several interesting opportunities that may enable us to advance or augment the launch of NeoCart outside of the US market or to add to our pipeline. I look forward to working with our newly expanded management team, scientific advisory board to evaluate these opportunities. Lastly, on the investor front, we're continuing our investor outreach efforts through our participation in industry and investor conferences. Hope to have the chance to meet with many of you in the near future. Along those lines we'll be participating in 35th Annual Canaccord Genuity Growth Conference this week. Also scheduled to be at the alliance for Regenerative Medicine Stem Cell meeting in early October among others. With our new management team investors should expect their products [indiscernible] background to contribute to a higher public profile and also participation in various scientific and investor conferences over the coming quarters. We are also seeking to further expand our research analyst coverage we'll be conducing additional non-deal road shows with our existing banking syndicate, with new potential banking partners and are seeking to engage further with the investor and public relation teams to raise our profile within the investment community. At this point, I'll turn the call over to Jon Lieber to discuss our financials. Jon?

Thank you, Adam. And good morning, everyone. For the second quarter of 2015, the company reported net loss attributable to common stockholders at $7.6 million or $0.58 per share compared to a net loss attributable to common stock holders of $11.8 million or $19.85 per share in the second quarter of 2014. As a reference point, we currently have approximately 13.2 million shares outstanding. Total operating expenses for the second quarter were $7.6 million compared to $6.0 million in the second quarter of 2014. The increase in 2015 operating expenses were primarily due to increased external research and development cost, related primarily to the advancement of the NeoCart Phase III trial and our collaboration with Intrexon. Increased internal research and development cost primarily resulting from an increase in headcount to support the Phase III trial and our manufacturing and tech transfer activities and higher rent as a result of our Lexington manufacturing facility. Also we had increased general and administrative expenses resulting from higher D&O insurance premiums and director fees both are result of our December 2014 IPO and higher non-cash compensation and other expenses, which were offset by a reduction of professional service fees including audit and legal fees. At June 30, 2015 we had cash, cash equivalents of marketable securities of $45.2 million compared to $58.1 million at December 31, 2014. Based on current operating plan and the expected timing of product development programs. Histogenics believes its current cash position will fund its operations into 2017. I'll now turn the call back over to Adam for concluding remarks before we go to Q&A.

Thank you, Jon. So in summary, we're pleased with the progress that we made during the second quarter and we believe our team members, investigators and Board of Directors are fully aligned around executing on our Phase III trial for NeoCart. We continue to hear from patients and physicians about the enormous unmet needs for better knee cartilage therapies supported by robust technical advancements and evidenced by well design prospective randomized clinical trials. We believe that we've got both advance technology with an implant making new cartilage prior to implantation and a robust clinical program. In addition, we believe that we have a potentially significant improvement in durability and recovery in our ongoing development programs versus the current standard of care. We do recognize the last several quarters certainly were challenging with several unfortunate but necessary management changes and the depreciation of our share price and we've now reset with the new team, a new focusing clinical development and a robust strategy around the activation of our product portfolio. US investors should expect to see more visible presence from our team, a rapid expansion of our partnering efforts and OpEx [ph] focus on execution. We believe that our regenerative medicine platform has the potential to help this burgeoning industry. And do appreciate support of our board and our investors as we seem to create additional shareholder value. Thank you for joining today's call. We'll now open up the line for any questions. Operator, please open up the line.

[Operator Instructions] and our first question comes from Josh Jennings of Cowen & Co. Your line is now open.

Hi, good morning and thanks. Congratulations on the progress on multiple fronts. One, initiatives have evolved positively, you're still on track to finish enrollment in 2016, Adam. I was just - to understand you're not getting enrollment numbers. And I guess from a higher level talk about the conviction in that timeline. Based on, is it where the enrollment numbers are, is it more still based on the optimization of the enrollment initiatives or combination of both?

Thanks, Josh for the question and I would say, it's definitely a combination of both. The optimization efforts over the last several quarters as we've been diving in and listening to our investigators and surgeons, continue to reflect great optimism around the course of therapy and the trial itself. Now obviously, we needed to translate that into action and I think the activities over the last quarter in particular are starting to pay dividend. Both at a local recruiting effort example and then, also as we brought on a couple of new investigators. You probably recall and have seen this with other clinical trials that, bulk of many of these trials are often handled by just a few investigators and that has been our pathway in the past. We're now trying to expand and diversify and have brought on a couple of great sort of private practice, ability to move very quickly type investigators that also have a large patient population and pool. So we're seeing a demonstrable change in the way that, surgeons and investigators are approaching the trial. And importantly, the work we've done over the last quarter. Particularly around streamlining our consent and other processes, have started to pay dividend. Investigators are now reflecting that they're spending much more time getting those perfect patients into the trial, rather than screening a number of patients that may have knee pain. So I think it's a combination of multiple efforts. We still have strong conviction on that timeline and are looking forward to reporting future progress in the next couple of quarters.

Excellent and just from, the terminated number of sites you commented on your prepared remarks. Do you think, you're through that process in this sites, that are really now are other sites that are fully engaging and may be just some color, on why those sites were terminated and what the challenges are to enrollment?

Sure. Another good question and thank you, Josh. So yes, we believe that we got a very nice mix now. We're in the final process as working through contracts and several other activities as well as side on boarding for our final site. So we're going to be at sort of 40 only here very shortly. The couple of sites that we did terminate. Frankly were sites that have been around since 2010. As you recall, as we were trying to raise funds many years ago. We had stopped enrollment and so, a number of these investigators just hadn't reengaged. They have been around for a while, they were very supportive. But we looked at their activity and had a tough conversation with them, which was focused around moving their efforts forward very quickly and putting together remediation plan or frankly letting them off the hook and some of these cases, some folks had said, look it's a different time. We are very engaged and years ago, we've got different investigators, now it's not the time. And then in other cases, we had several folks that we weren't sure, we were going to make it, then we put them on at probationary period for the last couple of months. Even better news than having to terminate the site is actually, one who reengages. And so we had several sites that reengage substantially and one from having no activity to starting to consent in enrolled patients. So we think, that the mix that we have right now is a very nice mix of great key opinion leaders, which is going to be important for future commercial adoption, as well as the high potential enrollers with a big patient pool. We've got a select sites on the East and West Coast for example, that just have a large number of patients, the right demographics. It's those active patients that are seeking better therapies and are very well educated and a couple of those sites are seeing tremendous activity. So as we were identifying the ideal sites, it was really that combination of large patient pool, the ability to be open to our practice management efforts where we're able to support them on referrals, be open to local recruiting and we think that mix is into a very nice spot now and we'll start to see that momentum build as we diversify from some of the original investigators, who were doing the bulk of our enrollment.

Great and then just in terms of your positioning relative to competitors on these enrollment timings and commercialization. Do you still feel that NeoCart will be the first commercial product in US?

So we believe that we have still the leading program with the highest technical hurdles, there has been some updated news from one of our competitors named Vericel, which I'm sure many of our investors are familiar with. They recently in the quarter, publicly stated that they intent to file a BLA with their MACI product. We don't have further visibility on what that regulatory pathway looks like, if the BLA is accepted, whether new clinical data is required. So that's the one trial that or one product that we continue to watch. There is an opportunity that they may have a quicker entrance. But as we think about the product portfolio and then the dual-threshold responder analysis, as we put together in our clinical trial. We think that, our clinical data is going to be as and above anything that's out there and importantly, the way that our product works is just dramatically different from any of the therapies. So we're still very confident that we've got a strong leadership position, highest total endpoints, but we'll continue to watch our competitors as they make progress.

Great and last question from me. You may have, so I just want to apologize, if you're going to repeat yourself. But just any updating on the menu for actual scale-up progress and where you are relative to internal expectation six months to nine months, 12 months ago? Thanks for taking all the questions.

Sure. And so as it relates to that question. We continue to make good progress on our qualification validation activities, as a reminder. We have another facility that we put into place in 2014. That start to scale and develop our own critical raw material capabilities. Our target is move those into an FDA submission and move those into our manufacturing process towards the end of the year. Those programs still continue and they're on track to potentially be able to supply, some of the critical materials in the trial as well as for any comical scale-up activities.

Thank you. And our next question comes from Chad Messer of Needham & Company. Your line is now open.

Great, thanks for taking my question and thanks for the update on the progress. I was particularly encouraged, that you are back so quick with an update on your Intrexon collaboration and very much look forward to good to seeing, what you have to publish there later in the year. You mentioned that the next sort of milestone will be basically taking their IPSC technology producing something in your manufacturing facility and assessing if it works, if I understand correctly. I was wondering if you could maybe give us from a high level, how exactly you're going to decide whether it's working obviously, you have to do that without the showing clinical benefit? What will give you a comfort that you're indeed producing something that's worth going forward with both in terms of efficacy and immunogenicity? Thanks.

Thanks, Chad. And I appreciate you joining the call and for the question. And so, I'll address the first part of it and then I look to Steve Kennedy our Chief Technology officer for additional clarity there. One of the benefits of our manufacturing process of current NeoCart, is that our release specifications include several biomarkers of cartilage. And so our existing manufacturing process allows us to demonstrate, that we're making cartilage tissue very similar to the articular hyaline cartilage that you would have in a patient's body. I mean, that's very unique about our product and we think actually leads to all of the very good results that we thought in the clinical trial. So for purposes of evaluating and comparing let's say, a NeoCart second generation which maybe with the Intrexon cell line will actually be conducting some of the same specifications, some of the same release criteria and other studies to demonstrate that comparability. So for us, it actually becomes a pretty easy way to evaluate whether you can make NeoCart tissue with the patient cells as we do every day, when we're supplying our clinical trial or in the future when we use the Intrexon cells. Steve, you want to comment any further?

Yes, I think, well things to add to that are, are that first of all, this would be. The technical evaluation will be conducted in our, we have a pilot plan, where we conduct the exact manufacturing process. So we do have the advantage of being of knowing that, we can run trials and pilot plans that will exactly mimic the manufacturing process. So when we bring the Intrexon cell lines and we can do this evaluation that Adam just described. The only thing I would add to the comments regarding our knowledge of biomarkers is that, we hit through our collaboration with Cornell in biomechanical testing. We have really very good data on the biomechanics of NeoCart and of our actual NeoCart material, are going to be published later in the year. And now that we have that, that biomechanical data in place, we're going to be able to compare the Intrexon derived NeoCart with the NeoCart that we're producing in this biomechanical model. Remember the last piece on the immunogenicity, everything that we've learned about immunogenicity I think is really retracing the steps of the industry has been through and so we understand the immunogenicity in our counter site and we don't see that there is going to be any difference between material that we generate from the Intrexon process and allogeneic implants that are done today in the clinic either through kind of accepted surgical procedure. So we don't expect we're going to have a huge hurdle there and that obviously remains to be seen exactly, but we feel confident that we're generating the data to address that issue.

Great, thanks and maybe just one more. Presuming you have a positive outcome to this tech evaluation in Intrexon aided product is everything you want it to be. What is sort of the timelines from that point to potentially getting this into the clinic?

So that's what we're actually working right now, Chad. We literally just had our meeting only about two weeks ago, not even two weeks ago and we've been doing two things. So one, are putting together those project plans which include our clinical and regulatory assumptions. At sort of the top level, our goal is to look at potentially a supplementary clinical study versus a whole new DeNovo clinical program. Effectively what you have is the same robust proprietary NeoCart manufacturing process, just a different source of cells. So the teams are actually working through pretty robust project plans as we speak and that would include and probably the next quarter, further update on not only the clinical and regulatory pathway, but what some of those timelines maybe. I would say on the technical side, we've made rapid progress probably a little bit more quickly than we had anticipated. And so we want to be very thoughtful, how we think about a clinical and regulatory strategy. So I was expecting roughly the next quarter will have that and we'll also be communicating with our investors as well.

All right, I appreciate that and it does sound like you're making very good progress there and just welcome to Jon and Gloria and congratulations to Steve. Thanks for taking my questions.

Thanks much, Chad.

Thank you. [Operator Instructions] and our next question comes from Bill Plovanic of Canaccord Genuity. Your line is now open.

Great, thanks. Good morning, can you hear me, okay?

We can, hi, Bill, how are you?

Good. So couple of questions, just more follow-up to the other ones previously asked. You know with Intrexon moving a little quicker than expected. Can you remind us the milestone payments, what are those milestones and what are those payments? Do you hit them over the near term?

Sure, so the way that the exclusive channel collaboration works, is that we're reimbursing them for roughly 50% of the expenses over the next couple of years, before we get to the first key milestone, which is the acceptance of the sort of FDA's ability take this into a clinical trial. At that point, then there are several milestones totaling up to around $10 million over the course of the development program and that would be over several years. And then, there are back and sales milestones, also totalling around $10 million based on several $100 million worth of sales. So the way the agreement is really sort of set up is that, it's back end loaded. We want to make sure that we're preserving our cash, but also advancing the near term efforts. And if both parties are successfully in the clinical developments then there is big upside for both. On the very, very back end. There is a single digit royalty that also would be applied on sales. Our belief though is that, the integration of this into let's say NeoCart second generation will not only simplify and streamline our manufacturing process, but bring down our cost of goods sold demonstrably offsetting any royalty payments. So the agreement is set up for both parties to succeed and if we do, we're happy to pay out those milestones as we make progress.

Okay and then, you mentioned I guess I don't know, if the terms is correct, but probationary sites or what have you that the enrollment increased for those sites. What changed at those sites that motivated them to increase enrollment?

So I think part of it was just having candid conversations, very similar to any commercial sales cycle, around what were their challenges, what were the things that we can do to further support them or had things just change for them from the environmental or from a practice standpoint that wasn't going to allow them to commit. So it was similar to any discussion that you have with an employee internally or a partner. And we laid out common interest and in some cases, things have change and it didn't make sense to continue. In other cases, part of that I think was just listening better and in a couple of instances, there were couple of real challenges for those sites internally. We're able to work through those collectively to find sort of a common solution and they engaged quite a bit. The other thing that we done with our internal staff, I think as a reminder most people know that we have clinical research associates that are staffed internally, that call on each of the sites very similar to a sales representative or a medical science liaison. And those folks have now been spending much more time about helping them to remove barriers, how do they continue to build their practice and instead of just sort of checking in and saying, have you enrolled everyone. We're partnering with each of them and for the sites that sort of reengaged, a lot of it was just listening and providing them the appropriate attention that I don't think, it was provided before. A lot of good blocking and tackling and in some cases, we were able to turn things around in a very nice fashion. In other cases they've been at being, a sort of good split for both parties.

And then, you had mentioned you have new private practice site. Is there a cost differential for these sites in and do you think an enrollment differential versus kind of some of the other sites that you have?

Sure, I think there is and I'll give you maybe two examples and they're probably extreme examples. But it sort of describes the different type of folks that we have in the group. So on the sites that are, let's say traditional private practices that may not have the full blown infrastructure that one of our let's say larger, more academic or sort of hospital oriented sites may have and so, for those private practices typically, the negotiated cost per patient as well as other support is lower, than some of these fully integrated sort of hospital environments. The difference there though, is that many of these private practice teams may not have the appropriate infrastructure to help screen, to help actually go through patient charts and to be calling the appropriate patient. So what we've done is, in those cases where the private practices have a lower cost differential. We may actually sponsor a research coordinator to help run the study. So in many of these cases, these private practices have a huge volume of patients. They want to do clinical research, but may not have the infrastructure. So we'll make select investments to help them do that. And when we compare, let's say, those newer private practice sites that are coming onboard with some of the historical larger hospital centers, the cost ends up being about the same, when we continue to support those private practices. So net-net, it ends up being sort of a good solution for all parties. And if they don't have the infrastructure, we obviously don't pay for it upfront, but it allows us to fund it on the back end.

Great, that's all I had. Thank you.

Thanks, Bill. Thank you. And I'm showing no further questions at this time. I would like to turn the conference back over to Mr. Gridley for closing remarks.

Thank you, Candice. And thanks to our investors for listening in today. We believe that we've got special opportunity to improve outcomes in a meaningful way for our patients and surgeons with our NeoCart product and importantly our regenerative medicine platform. The efforts by our employees, consultants and board and the commitment provided by our investors and partners such as Intrexon have been especially gratifying. And we thank each of them for their respective contributions. Every time we hear from an investigator or a patient on unique benefits of NeoCart, it affirms our unwavering commitment to bring this special technology to all of our patients. We'll look forward to updating each of you on our future conference call and our progress. Have a good day.

Ladies and gentlemen, thank you for participating in today's conference. This does conduce the program and you may all disconnect. Have a great day, everyone.