Ocugen, Inc. (OCGN) Q3 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the Histogenics Third Quarter 2015 Financial Results. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the call over to Mr. Jon Lieber, Chief Financial Officer of Histogenics. Sir, you may begin.

Thank you, and good morning, everybody. Joining me on the call today is; Adam Gridley, our President and CEO; Stephen Kennedy, our Chief Technology Officer; and Gloria Matthews, our Chief Medical Officer. A press release announcing Histogenics third 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 Investors section of our website at www.histogenics.com. On our call this morning, we will share with you our business update and our financial results, which will be followed by a 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 in circumstances, assumptions and uncertainties. These risks are described in the risk factors of management discussion and analysis of the financial conditions and results of operation section of our Form 10-K for the year ended December 31, 2014 which was filed with the SEC on March 27, 2015 and our subsequently filed quarterly reports on Form 10-Q. Our 10-K and other 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 call is 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 Gridley.

Thank you, Jon. As a reminder for anyone that is new to Histogenics, we are a regenerative medicine company, focused on developing and commercializing products for the muscular skeletal segment of the marketplace. Our most advanced product candidate is NeoCart, which is being evaluated in a Phase 3 clinical trial as a potential first-line therapy to treat knee cartilage injuries or focal chondral defects. We believe that our regenerative medicine platform, which encompasses the unique combination of biomaterials, cellular therapy expertise and our bioengineering capabilities, may create better therapeutic outcomes for our patients than the current treatment alternatives. We believe that our ability to make an implant ex-vivo with evidence of cartilage reduction is measured by specific biomarkers prior to insertion into the body is compelling. The competitive products or surgical procedures seeking to achieve the same cartilage characteristics are often unable to do so until several months after implantation and in many cases, do not produce the same degree of natural hyaline cartilage that we believe NeoCart is capable of producing. We continue to believe that these unique characteristics of NeoCart may provide for far less variability, a more rapid recovery, as well as improved long-term results relative to the alternative products and procedures. Our primary focus and priority as an organization is to move NeoCart through our ongoing Phase 3 clinical trial while continuing to execute the underlying manufacturing of equipments and scale up initiatives to support our future potential approval and launch. Now cartilage defects and regeneration are significant problems that if left untreated often leads to debilitating osteoarthritis and total knee replacement. Our target patients are healthy active adults, many of whom are sitting on the sidelines due to unsatisfactory results afforded by the competitive procedures or problems. Cartilage repair is now acknowledged as the Holy Grail of orthopedics and for good reason. Surgical procedures in multiple products have trailed and failed to address these debilitating injuries and the role of cartilage degeneration leading to osteoarthritis is well published and acknowledged. Despite the challenges with many of the alternative therapies, there are still 500,000 procedures each year in the United States, representing a multi-billion dollar opportunity at our estimated price points and that’s just in [indiscernible] Worldwide this represents an even larger market opportunity and as we leverage our platform into other areas of the body where cartilage defects are a problem, this easily represents a multi-billion dollar problem, not having the impact of time away from work and rehabilitation costs. Further amplifying the opportunity and our confidence in continuing to develop our unique therapy is a favorable reimbursement environment that’s already in place. What ultimately is going to be very attractive to patients and payers are the superior rehabilitation and quality of life that NeoCart is expected to provide. We believe patients will get better and return to work more quickly than the standard of care and for our healthy active population that we are targeting these are critical metrics for success. Even with all of the technical challenges and pre-authorization limitations that belong to our earlier competitive products which targets only a small fraction of the available market, there are still over 1,000 physicians performing these procedures. This is a market that is ready and prime for new therapies and we believe NeoCart, if approved, has the opportunity to redefine standard of care with the true orthobiolgic regenerative therapy unlike any of the existing therapies. We believe that this market is being underestimated by some and also believe that is not unreasonable to expect double-digit market penetration in the early years of potential launch. At a $20,000 price point this represents several hundred million dollars in revenue just in the early years. Keep in mind that at an assumed $20,000 price point, every 2,500 NeoCart represents approximately $50 million in revenue. Moving to our business highlights for the third quarter, first around our Phase 3 clinical trials and expected to timing for completion. As a reminder, we designed our Phase 3 clinical trial to show superiority against microfracture surgery to current standard of care. This trial is being performed under a special protocol assessment with the FDA and was initiated as a confirmatory study based on the safety and efficacy findings from our Phase 2 clinical trial. The Phase 3 is a prospective control multicenter trial of 245 adults between the ages of 18 and 55 years who have systematic focal full-thickness chondral knee defects randomized between NeoCart and microfracture on a 2 to 1 basis. Randomization is done at arthroscopy at which time final patient eligibility is determined. As agreed to with the FDA under SPA, the primary endpoint for approval is superiority at one year in the proportion of responders in the NeoCart patient group compared to those in the microfracture patient group, using a unique dual-threshold responder analysis utilizing the KOOS pain sub scale and IKDC functional assessment scales. Similar to our Phase 2 clinical trial and our Phase 3, a patient is considered a responder if he or she achieves both of the following patient reported clinically meaningful outcomes. Improvements of at least 12 points compared to the patient’s baseline score in KOOS pain and improvement of at least 20 points compared to the patient’s baseline score in IKDC function subjective assessment. And our comparison with the dual-responders in our Phase 2 trial registered an improvement of 54 percentage points over the standard of care. And our ongoing Phase 3 trial based upon the protocol and related statistics applied to develop our study sites, we need to achieve only an approximately 15 points difference to hit our primary superiority endpoint under SPA. I will repeat this, a 15 percentage point difference versus the 54 percentage point difference seen in our Phase 2. We believe that as a function of our negotiation with the agency, the study is highly overpowered as a result [indiscernible] We believe that there are several inflection points and milestones for stakeholders, firstly in the enrollment of the trial. We feel positive that once we achieve this first milestone, we will be able to move quickly preparing for positive data outcomes in our biologic license application in our BLA filing. If our Phase 3 trial is successful, we believe that our study protocol and product will become the new standard of care in the marketplace and the comparator for future therapies in FDA regulated trials in the States. As we noted in our Phase 2 study, results in NeoCart’s potential to offer patients a better alternative to current treatment options particularly as it relates to a possible earlier recovery than the current standard of care. However, as many of you are aware, these trials can be difficult to enroll and many companies have failed to do so in the past. Given this history, we continue to refine our approach to enroll them in the trial. To this end, we recently completed with our new management team a thorough analysis of enrollment trends and now expect to complete enrollments of the trial by the end of the second quarter of 2017 instead of at the second quarter of 2016 as originally we planned. While this delay is disappointing, we believe that we have enrolled more patients than any other current or past trials of this type in the United States and have now developed the appropriate strategies to drive completion of enrollment. Our confidence is based on several new strategies employed over the last few quarters. The addition of certain key staff with experience in these trials and the strong relationships that we have forged with many of our investigators. As we move forward, we intend to provide substantial visibility and metrics to our stakeholders publicly on a regular quarterly basis to gauge our progress and other strategies we are employing to enroll this trail. I would now like to give you some more specific statistics on the trial as well as review with you some of the changes we have made as it relates to how we will recruit additional patients. As of today, we have 103 patients enrolled in the Phase 3 clinical trial. There are also six additional patients with confirmed scheduled arthroscopy through the month of November and our arthroscopy is the final confirmatory step to determine the patients’ eligibility prior to enrollments in the trial. Historically, approximately 90% of the patients that agree to participate in the trial and also have an arthroscopy performed were eventually enrolled and randomized. Besides actual schedule of arthroscopy or scopes which are highly predictive, we are also sharing on this call that our pipeline of identified and consented patients which are those that have agreed to potentially participate, but have not yet scheduled their scopes brings us to a total of approximately 120 plus patients or almost 50% of the required 245 patients in the trial. Now we are cautious around these figure since the timing and uncertainty of these patients initially consented in the trial is not just consistent or predictable, but we felt that this was an important metric regarding the recent momentum that we’ve been seeing over the last month. These consensuses represent as a predictor of future pipeline and we intend to enhance our efforts to convert those consented patients into enrolled patients subject to meeting our final enrollment criteria. One additional patients’ enrollment metric that speaks to the positive momentum is that we have enrolled nine patients since the middle of October. While this is not predicable on the straight line basis of how we will perform each month, it does speak to our confidence and our growing momentum. In fact, one thing that we have learned and that was partially responsible for our decision to reset our enrollment timelines is that there is seasonality as well as other scheduling constraints such as physician meetings and vacations that do make it difficult to analyze and predict month to month, or even quarter-to-quarter enrollment trends. As I mentioned, we have new management team in place and over the last few quarters made a number of changes in our processes which we believe will positively impact future enrollment rates. These changes include among others a shift away from national advertising and towards local advertising done in conjunction with specific physicians in sites. Two, streamlining the enrollment process to initiate new sites. And three, changing the mix of clinical sites in the trial by eliminating those types of little or no enrollment and replacing them with new sites that we believe will contribute more patients to the trial. Going forward, we also intend to provide publicly statistics around investigators in sites on a quarterly basis. I’ll now take you through some of the additional key metrics that we use to assess our progress there. We currently have 27 to 32 sites going through the identification and consenting process, which entails the pre-qualification and screening of patients interested in participating in the trial. And we have four additional sites that are in active qualification and startup as we speak. Just in the last few months, we made the decision to close several more clinical sites than we originally anticipated at the time of our previous quarter’s earnings call due to lack of performance. With our accelerated onboarding process, we can afford to strategically add several other small new sites that have the capacity and criteria required to successfully participate in this setting. We’ve also identified and are negotiating final agreements in site qualification activities from additional or potential sites, which will maximize our investigator efforts at the 40 site cap. Since the beginning of 2015, we have terminated four sites and added six sites in total. Lastly, we have also employed a certain types of strategy to further qualify additional investigators with any clinical sites. In such cases, at larger centers, we may have up to 10 or 15 individual investigators, all participating in our trial and screening select patients. This holistic approach to further extend coverage and presence both with investigators and study coordinators, who are equally as critical appears to be working as we build momentum with potential patients. Recruiting is equally as critical to our success, they come with any commercial call point. Investigators often request our assistance to advertise in order to send patients to their sites. And we have employed some unique and successful strategies in last quarter that are providing eligible patients to certain key sites locally, which include advertising spots in Ohio, ESPN Radio network coupled with text messaging and screening capabilities. Supporting those healthy active adults through investigators, sponsors, local fund raises, and active communities, continuing our targeted demographics, continued local TV interviews with investigators that often are picked up and rebroadcast over the course of several weeks, such as those that we previously conducted in Ohio and San Antonio. Continued print advertising and hiring community magazines such as in San Diego for example, where the demographics of that community responded results of those targeted outreach activities. Our new recruiting team has largely completed our transition from national to local and customize advertising and our investigator selection efforts are now partially influenced by those types of efforts to the strategic recruiting efforts. Our goals in the current quarter are to roll out additional physician and patient directed local recruiting programs via video or TV, radio and print. And furthermore, we intend to continue with our radio advertising in additional markets such as we did in Ohio recently. In total, we had over 3 million media impressions in the last quarter and continued to expand these with the goal of over 5 million media impressions in the fourth quarter of 2015. In addition to the recruiting and investigator changes that I just discussed, we are also working with the FDA on a potential changes in our inclusion-exclusion criteria that could further aid our enrollment rates. These changes have been made under review with our investigators and regulatory experts over the last quarter and as invented carefully to ensure continuity in equivalents during our ongoing trials. In addition, we’ve recently received certain competitive information on other trials that there may be additional opportunities to relax certain criteria further, while still maintaining a robust set of criteria for the trial. Based on those data points, we’ve recently submitted the protocol amendment to the FDA that is approved later this year or January 2016 may enable us to expand the eligible patient population further. The amendment to our inclusion-exclusion criteria may enable us to include patients with cochlear lesions as one example. These patients are currently excluded and we believe that patients with such issues could benefit from participation in this trial as long as the FDA is in agreement and the request to change does not put our FDA at risk. In addition, we have requested several minor changes to the protocol around age, the timing of concomitant procedures that should not an fairly disadvantage our comparator, which is reported in the literature, several challenges in multiple patients. Historically, we have lost approximately 20% to 30% of potential patients in our early screening processes due to the fact the cochlear lesion and other age and concomitant restrictions. And we are hopeful that this change, if approved, may provide further upside to our enrollment estimates. We will provide appropriate updates to you regarding these potential changes may become available. So let me summarize our timelines again before we move on to the review of the rest of our business. We now expect enrollment to complete by the end of the second quarter 2017. This would mean our one year superiority end-point will be available in mid-2018 and we are laying the ground work internally for a rapid BLA submission to the FDA at that point. Based on industry-wide expectations on a regulatory review, we would expect to see an FDA approval in the second half of 2019. While we believe the data in BLA filings are important, we believe those are secondary to first enrolling the trials of our key milestones. Based on the shift in timeline, we intend to manage our business carefully to achieve the critical enrollment milestone without substantial additional due to fund raising. We have the ability to aggressively manage our business taken for that milestone, which is an early inflection point for this company and frankly for the industry and we are focusing on that achievement. Moving on to manufacturing, we continue to work through the [indiscernible]] of our critical raw materials of NeoCart from third party vendors to our facility in Lexington, Massachusetts. We’ve recently completed the last performance of our patient manufacturing run for one such critical component collagen. In the coming months, we intend to complete manufacturing transition of the remaining raw materials including the scaffold component and surgical adhesive for NeoCart. One benefit of the extended enrollment period into 2017 is that it will likely enable us to enroll more patients that will be treated with NeoCart implants that comprise components manufactured by Histogenics. This will provide additional data to demonstrate the comparability of patients treated with current material and new materials. As in every call, we communicated our plans to the FDA and in September 2014, we received preliminary feedback in general acceptance of our raw material transition strategy and future commercial readiness upgrades from the FDA. Although we’re comfortable with our plans based on these discussions, we also acknowledged that more clinical comparability data should strengthen a potential BLA filing and further compares for commercialization. Additionally, we have made continued progress in our collaboration with Intrexon Corporation with whom we have an exclusive channel collaboration agreement to develop next generation allogeneic products to treat cartilage repair. As noted on the last call, we have targeted a multi-step process development plan that use Intrexon, iPSC technology to potentially isolate and reprogram [indiscernible] used as a master cell line and future applications to NeoCart. The combined R&D team along with several stem cells and scientific advisory board experts are guiding a continued development as we target our next milestone of making new need for NeoCart cartilage tissue in our proprietary manufacturing process with the Intrexon cell lines early 2016. Concurrently in concert with our partners in Japan, the combined teams are starting to explore our potential regulatory pathways for a further clinical development either in the United States or abroad. For example in Japan, we are the newly commissioned regenerative medicine platforms maybe more conducive to stem cell therapy evaluations. Overall, we continue to be very pleased with the rapid progress made with Intrexon and also grateful for the initial positive feedback from our advisors regarding the potential utility of these new approaches that may significantly expand the market with a one-step procedure. Now, the benefits of course extend the greater market penetration and represent the potential transformative approach to manufacturing that may afford much greater gross margins due to automation and other continuous manufacturing efficiencies in the future. As we look around that are our peers and colleagues within the regenerative medicine space, we believe that we are in an advanced development stage with our current cGMP capabilities and look to build upon this competitive advantage in the future. Our next milestones for Intrexon collaboration are the manufacturer and NeoCart’s using Intrexon cell line and to develop the appropriate regulatory strategies with our advisors for early pre-IND discussions with various regulatory authorities. We are assembling the leading team of experts for an upcoming symposium to determine how we take these novel stem cell purchase into the clinic. Turning now to our longer-term strategic and business development activities, as we think about continuing to build a leading regenerative medicine company focused on the musculoskeletal segment of the market and maximizing the value of our assets, we continue to explore ways to enhance and expand our product pipelines through one or more business development opportunities, including further utilization of our IP portfolio, exploration of potential international commercial partners for both NeoCart or another potential applications as well as opportunities and license additional products and development that will be sold through the same commercial channel with NeoCart. We also believe that regulations with all certain key countries recently such as Japan and we’ll be in a unique position with over 10 years of cGMP experience and robust Phase 1 and 2 data that may accelerate our potential entry into this and other global markets. For example, we’ve been working with our partner in Japan to explore opportunities for us to renegotiate our agreement to more rapidly penetrate the Japanese market and we’ve also had recent productive meetings with both these Japanese regulatory authorities and potential additional commercial partners. Now, it’s difficult to predict the timing of our outcome of such efforts, we look forward to updating you in the coming quarters regarding these activities. It’s clear from our recent scientific advisory board meetings over the last several months that with our combined cell therapy, cell and tissue engineering capabilities, these should be further deployed. With the recent citing and validation around regenerative medicine therapies, we actually have far more advanced capabilities than many other players in the state. We of course will balance these efforts responsibly as we keep our focus on NeoCart enrollment as our primary goal. We continue to enhance and expand our intellectual property portfolio. In October 2015, we received the US patent regarding the method of preparing and implanting the cartilage repair. Company believes this patent further enhances the protection around the company’s NeoCart scaffold. As a reminder, we have over 60 issued global patents across the broad range of our final materials, cellular therapy, growth factors and engineering capabilities. This patent portfolio is unparalleled in our states and industry and provide significant run rate for NeoCart’s future applications. And as you know, we significantly enhanced our management team this summer with additions of Jon Lieber, Chief Financial Officer; Gloria Matthews, Chief Medical Officer as well as promotion to Steve Kennedy to Chief Technical Officer. Our executives and senior management teams are now complete and we are seeing the benefits of talented team with relative experience in clinical trials, technology development and fundraising. Lastly, on the investor front, we are continuing our investor outreach efforts through our participation in industry and investor conferences and hope to have the chance to meet with you in near future. Since our last call, we presented at the Canaccord Genuity Growth Conference in August, the alliance for Regenerative Medicine Stem Cell meeting on the Mesa, the annual bio investor forum and in the Sofinnova Japan Biopharma partnering conference in October. With our new team in place we will continue to work on raising Histogenics’ public profile through our participation in various scientific and investor conferences over the coming quarters. We also expect that our ongoing and future enrollment updates and business activities will start to drive additional investor interest. At this point, I'd like to turn the call over to Jon Lieber to discuss our financials.

Thanks Adam. For the third quarter of 2015, the Company reported a net loss attributable to common stockholders of $8.1 million or $0.61 per share compared to a net loss attributable to common stockholders of $12 million or $19.38 per share in the third quarter of 2014. As a reference point, we currently have approximately 13.3 million shares outstanding. Total operating expenses for the third quarter were $8 million compared to $14.9 million in the third quarter of 2014. The decrease in 2015 OpEx is primarily attributable to a one-time expense of $10 million related to the acquisition of license rights, a connection with Histogenics’ exclusive channel collaboration with Intrexon Corporation in the third quarter of 2014. This amount is partially offset by increased external R&D cost from NeoCart Phase 3 trial and related development and manufacturing activities as well as higher ongoing costs related to development work to support the Intrexon collaboration. Result was offset by higher internal R&D cost primarily resulting from an increase in headcount to support the Phase 3 trial and our manufacturing and tech transfer activity as well as higher rent as a result of our Lexington manufacturing facility, which came online in the fourth quarter of 2014. And finally increased G&A expenses resulting from higher D&O insurance premiums and director fees both are result of our December 2014 IPO and higher non-cash comp and consulting expenses offset by a reduction in legal fees. At September 30, 2015, Histogenics had cash, cash equivalents and marketable securities of $37.7 million compared to $58.1 million at December 31, 2014. Based on current operating plans and the expected timing of product development programs, Histogenics believes its current cash position will fund this operations into 2017. As Adam noted earlier, we will carefully watch our current operating cash even more aggressively and manage business and liquidity needs to take us to our current targeted milestone of child enrollment by the end of the second quarter of 2017. I’ll now turn the call back to Adam for concluding remarks and following into Q&A.

Thanks John. We appreciate the online export from our investors, board and employees to move this important therapy into the hands of clinicians with benefit of their patients. While our new timeline is frustrating to our stakeholders, we are confident we now have the team and strategy in place to complete enrollment by the end of the second quarter of 2017. While other companies have been similarly challenged in enrolling these trials, we have in fact made more progress than any other company and are closest to developing a first-line therapy unlike any other product currently available on the market. Like the challenge to enrolling patients into the phase 3 trial, this is still a significant problem for patients that we believe will be able to address. Furthermore, it takes only small market penetration upon launch to generate significant revenue and begin developing this product into a multibillion-dollar market opportunity. With the anticipated insurance coverage and dramatically divergent results compared to standard of care, this is indeed an opportunity that we are committed ourselves to and will continue to do so. We’ve taken control of this process with the new team and with new strategy, and we're seeing early progress already, with nine patients just in the last 30 days. We also have an obligation to responsibly manage our operating and capital expenses, while funding the company through completion of enrollment and we will do so. For investors this would mark a milestone and inflection point that no other company has achieved. And we believe our strong data in our Phase 2 has been excellent predictor of what we’ll see in our phase 3. We remain committed to responsibly stay in the course to complete this trial in a responsible manner. Thank you for joining today's call, we will now take open and offer the line for any questions, operator please go ahead and open the line.

Thank you. [Operator Instructions] Our first question comes from the line of Chris Hamblett with Cowen & Co. Your line is now open. Please go ahead.

Thanks for taking the question here. What do you think was causing this enrollment piece to be one year slower essentially than kind of the initial expectation, is it largely you think too stringent a criteria to meet this superiorities, get the right patients in and kind of what gives you conviction that you can now meet that timeline for the second quarter of ‘17 and in the chance that you do not the first in class opportunity potentially with the competitive position kind of what gives you conviction that NeoCart will still be potentially best in class of new standard of care.

Sure, thanks Chris for the question. Let me take those sort of one by one. So, first, I think as we look back over the last year, year and a half, we have been very much in the start-up mode as we’ve noted over the last couple of quarters. We transitioned to a new strategy in the second quarter of 2015, which is focused on the combination of investigator efforts, local recruiting and what we found was that in some cases, we didn't necessarily have all the full placed for investigators, but in some cases we also didn’t have all the right investigators on board. With the new management team that has come on-board, I think we are seeing a demonstrably different level of commitment from the investigators and the study coordinators. This is like any commercial call, point to be quite honest, where you need to make sure that they’re present, you’re providing support both from a recruiting perspective, but also from a personal perspective. And so I think what we're seeing is that it's really a combination of multiple effort and there is no perfect solution for all of the sites that needs to customized approach at an individual site level. I'd open it up to Gloria if you got other commentaries since you just joined and have lot of experience in these trials. Any other thoughts that you’d want to add to Chris' question.

Thanks Adam, I would add that there is currently an incredible momentum building around trial enrollment. We’re actually seeing in all the pipeline that's more robust now that it ever has been. There are a couple of sustainable drivers of this momentum, the first being rapid initiation of these new highly engaged sites that Adam mentioned. And the second is a significant cultural shift that has brought about by the new management team. So in terms of site management in the past year, we closed five underperforming sites and since the fall of ‘14, we’ve initiated 11 new sites, three of which are currently included in the top eight enrollment sites since the trial began in 2010. And there are some that are close on the heels of that number. All of the four sites that we've initiated in the past five months have patients enrolled consented or identified consent despite two of them only being online for less than a month. One site April of ‘15 has already enrolled three cases and a site initiated in the fall of ‘14 has already enrolled two five additional near-term pipeline at that site. So, in contrast, looking at sites that have been in the trial since 2012, we have four that has enrolled zero patients and while continuing to rapidly initiate new site to a maximum of 40, we are looking to close additional underperforming sites in the near-term. And then regarding the cultural shift that will help sustain the growing enrollment numbers, we critically evaluate the clinical operations team and reconfigured that team with new staff either to roll leverage of the strength or in some places we’ve replaced them in the staff that are I key roles. I have to say these moves have reenergized the team and has reset the expectations for consistent and positive engagement with the sites that we believe that this has been key determining these new sites into enthusiastic study.

And Chris onto the second part of your question, I think the question was around the ability to have first in-class therapies and this probably speaks to you some of the competitive positions that are out there. So it has been sort of stated publicly we think that there is an option where MACI which is a second-generation product to the original Carticel product sold now by Vericel may have approval prior to us having approval. I actually think that this market is big enough whether there is room for several competitors. I don't think this puts at a disadvantage at all, because quite frankly, the product performance is so dramatically different. I think it's important to realize that the significant technical and mechanistic differences between MACI and NeoCart and the implication of those difference is something that not everyone totally appreciates. NeoCart is a bioengineering tissue and we've demonstrated mechanical --of tissue at implantation that at least 50% of what is deemed the normal cartilage prior to implementation. So we think that NeoCart will still be likely to provide considerable advantage in terms of earlier return to function and much more reliable outcomes over MACI. And sales of NeoCart have already been differentiated, we’re producing matrix and in contrast, those competitive products consist of de-differentiated cells delivered on the scaffold with negligible mechanical confidence. This is the big difference. We've got internal data that demonstrates biomechanical properties of NeoCart at seven weeks of culture that are comparable to those seen for MACI after a year and publish the model. So we think that are one room for a number of competitors and two, our performance is so dramatically different that this still is the leading new standard of care once launched.

Okay, very helpful. And then, just in terms of your second-generation product, it seems like the timeline there on track and things are going quite well. How would you position now the one step product and thinking about that on the regulatory front, if all goes smoothly there, how could this be positioned potentially with kind of the one-year slip here in the enrollment of this next-generation product?

So I think in any of those cases this will be secondary to the existing NeoCart trial on approval process, that's always been the case and the benefit of the potential strategy that we’re looking to explore the agency and other regulatory bodies across the world is that it is still the same NeoCart combination of self, biomaterials and bioengineering to make this implant on an ex-vivo basis. However, the source cell would be different rather than having a two-step process where you’re taking cells from the patient itself, you would then have a master cell line. And so I think from a regulatory process, this still will be a secondary approval to the existing NeoCart. We think however, it's much faster than a DeNovo clinical development program because everything else is the same. The strength of our core cGMP experience will still be in place and effectively we’re just coming up with the new cell source. I think from a market perspective this actually creates tremendous opportunities to take this into different indications where you may have a two-step process that’s just inappropriate. Hips for example, you were to go to try to a biopsy from a hip, just epically it’s not going to happen. It's difficult for the patient and so all of a sudden a one-step procedure or a product opens up significant market penetration opportunities in the future. And then, Steve, I don't know if you want comment, but from a continuous manufacturing and overall margins perspective, many of the advisory board members and competitive therapies, this is probably one of the single biggest challenge. This actually creates huge opportunities for manufacturing upside as well.

Yes. That's absolutely correct, Hamblett. I think that not only in the manufacturing process, but you can even imagine in the [indiscernible] process where NeoCart will be releasing a lot of products for each patient, as opposed to utilizing an approach like this where we can produce one raw material that we’ll then be able to be provided to a number of patients and so given those efficiencies, we expect a dramatic impact on cost of goods as well as control over the process.

Okay. Thanks for taking the question.

Thank you. Our next question comes from the line of Chad Messer with Needham & Company. Your line is now open. Please go ahead.

Great. Thanks for taking my questions. Couple if I may. The first is kind of on watching expenses here, which obviously, as you’ve commented on, it becomes a bit of an issue with the protracted timeline. If I look just over the last quarter of historic burn and try to figure out how you're going to get to enrolling the trial, assuming it's 2Q 17, I require in my calculations that the burn decreases slightly, not drastically, but slightly. I was just wondering if that is the correct way to think about things going forward and how that's possible if it is. It's a little counterintuitive, if you are going to be stepping up enrolment efforts and having the checks on collaboration progress?

Sure. So I'll provide just a quick macro statement and then I’ll let Jon jump in with some specific. So we have identified operating expense plans that will enable us to get to enrolment with minimal additional capital. We do expect our current cash flow to get in 2017 as noted. We’re also evaluating a number of different opportunities in addition to good operating expense management to bring additional funding into the company, which could be best business development activities or other. So we’ll be managing the business aggressively and I think accordingly it would take us to that next major milestone, while minimizing dilutions to the extent possible. As we think about operating burn, Chad, it wasn’t clear whether you had indicated that your model may have increasing expenses or decreasing expenses, and I’ll let Jon then comment if you want to clarify.

Sure. So we currently were spending roughly $7 million to $8 million per quarter and we do have a lot of fixed costs, so extending the enrolment doesn't bring down our monthly burn obviously in and of itself, although we are going to spread the cost of trial over a greater number of course, the direct costs. As we are going to manage the business aggressively and accordingly and we are going to take up to that big milestone of enrolment and our goal is to minimize dilution to the extent possible. When we do announce our year-end results, which will be early next year, we’ll provide more specific and update the guidance for our 2016 spending and how long we expect the cash to last, but we are very cognizant of the challenges and have lots of different ideas in place to deal with those.

Okay. Thank you. That's helpful. And then the next is on enrolment, you specifically talked about the competing products like MACI and I very much appreciate the technical differences between them. But my question is on, let's assume, and I know it's not a foregone conclusion or at least I don't think it is that we will see MACI in the market, let's say late next year, they’ve said the file will be away by next year, and I obviously like you are paying close attention to what Vericel says going forward. I think they report tomorrow. But let's say we do have a product like that in the market, do you see any impact on enrolment. I mean I know anecdotally, and this is just anecdotally in my one work that one concern some patients who might enroll have is that they are not put on your products, so they’re a little concerned about being randomized to standard of care, that being the case, would you see any impact on enrolment, not on the market long term, but on enrolment with the MACI product in the market?

I don't believe so. And then I’ll ask Gloria to comment further because she knows both our products and other products much better than I do, but I think the proxy of that is Carticel isn’t creating any impact to our enrolment today. We just do not hear about it whatsoever, and I don't mean this in the pejorative, but MACI saw some of the delivery challenges of Carticel, otherwise it's not so different. So in three hour procedure, maybe you've got an hour of procedure, but we’re not seeing any discussions with investigators, where Carticel is in any way impeding our enrolment. Microfracture is a standard of care and that’s the bigger challenge because there is such great variability, it does work in some patients, but in so many patients, it doesn't work and still has significantly different rehabilitation requirements. That holds true for Carticel and for MACI as well. So I don't believe that it allows any impact on enrolment. Gloria, what are your thoughts on that?

I would agree completely with that. I think the only thing I would add is that my perception talking to surgeons is that people don't necessarily perceive MACI as being as anything other than a second generation of Carticel, which is a great improvement, whereas they see NeoCart as a very different class of therapeutic for this indication.

All right. Thanks. Actually, one way I thought about this and I wonder if you can affirm or add in anyway, I think Carticel and therefore probably MACI does have it, it's group of fans, but I think it may be just limited to a smaller number centers and it very well maybe that they are in just too smaller packets for you to feel any effects from those products?

I think that's correct, and the upside of it is that it speaks to the opportunity for NeoCart. There are a lot of fans, there are 1,200 physicians that were trained the first year when Carticel came out. Many of our investigators used Carticel. They were some of the early adaptors of this product. So it has its opportunities to make an impact on patients, but has so many other limitations and so I think it has been relegated to smaller pockets, but candidly, it's all the same focus that we are talking to, and it's not had any impact on enrolment. Gloria nicely captured it, there are some sort of nice baby steps in terms of the utility of the procedure with MACI, so that you don't have a three hour procedure that you have with Carticel and having to put in sutures, but you’re not seeing in that sort of second and third generation leaps that we think that NeoCart will provide in terms of both performance and also recovery. This is such an easy procedure to do, the 20, 30 minute skin procedure with our proprietary bioadhesives and the best thing for patients to do is get back on their feet, so that patients can start to integrate that part of it that’s already being produced via implantation. So they’re just different from that perspective.

All right. Great. Thanks for that. And then just one more if I may on your Intrexon collaboration, you talked today and in the past about how you think an ex-BLA should be a much shorter procedure. I wonder if you have any idea, any thoughts on what actually might be required from a clinical trial and you’d just have to show that basically the products have the same characteristics clinically and what do you think the bar is there in terms of actual clinical data you might have to show?

Chad, it’s a great question and this is prospective and we have not had very detailed conversations with regulatory agencies at this point. To a certain degree, some conjecture, but the overall operating plan I think shared by both companies is that effectively what you have is a different source raw material. So, in its simplest form, whether it be devices, drugs or biologics, in many of those cases, the regulatory path is typically a confirmatory equivalent study. Typically, it’s not as many patients as an ongoing trial. What are you trying to demonstrate is that your new or next-generation version of a product with this different raw material is performing largely the same as that existing material. Specifically, these are not the normal clinical trial against a standard of care, such as what we're doing right now. You are merely trying to show safety and efficacy equivalents, typically on a shorter term basis against your current spot. So we think that the pathway is a supplemental BLA. We have to explore that further. Every regulatory body is different. As I noted, Japan, for example, is having very constructive conversations with companies in real time about stem cell therapies, part of the reason why we’ve opened up those discussions, but even the United States is where we are pulling together sort of a group of thought leaders probably unparalleled in the industry, both stem cell therapies as well as the regulatory process to make sure that we're thoughtful about this. But we definitely think that there are some advantages to move into a quicker second-generation product here because our manufacturing process is also so darn robust. That's the other thing that is interesting here is all we’re changing is the source cells, everything else is the same.

All right. Great. Thanks so much. I appreciate the updates and I think we all knew this was going to be challenging going in, in terms of recruitment and I do appreciate your guys’ efforts in staying due course.

Thanks, Chad. We appreciate you for it and we look forward to sharing with you metrics on a quarterly basis going forward as well.

Thank you. [Operator Instructions] I'm showing no further questions. I would now like to turn the call back to Adam Gridley for closing remarks.

Thank you, Brian and to our investors who are listening in today. We are appreciative of the patience and support from our stakeholders as we retooled our team and our strategy. Our employees have done a tremendous job partnering with our world-class investigators and advisors and we thank them for their efforts. We do believe that we have everything in place now and this is really a story of execution. To be clear, this trial can and will be enrolled. US investors will now share with our investigators and internal teams, the progress of our trial and the impact on our patients. You’ll have clear visibility to our milestones on a quarterly basis and will see a much better focus on investor awareness with our new team in place. We believe Histogenics is an attractive investment opportunity with clear milestones in place to measure our progress and with potential upsides around our pipeline through partnerships and other new indications, our progress that then tracks on. And we look forward to updating our stakeholders in the future. Have a good day everyone.

Ladies and gentlemen, this does conclude today's program. You may all disconnect. Everybody have a wonderful day.