Ocugen, Inc. (OCGN) Q2 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Histogenics Second Quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] I would like turn to turn to the host of this conference call, Mr. Jon Lieber, CFO of Histogenics. Please go ahead sir.

Thank you and good morning everyone. 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’ second quarter 2016 financial results was issued this morning. For those of you who have not seen it yet, you’ll find it posted in the Investors section of our website at www.histogenics.com. On our call this morning, we will share with you a brief business update and our financial results which will be followed by a Q&A 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 operation 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 and Management Discussion and Analysis of Financial Condition and Results of Operation section of our Form 10-K for the year ended December 31, 2015, and Form 10-Q for the quarter ended March 31, 2016 which are on file with the SEC. Additional factors may be set forth in the sections of our Form 10-Q for the quarter ended June 30, 2016 to be filed with the SEC in the third quarter of 2016. Our Form 10-K and other reports are available on the SEC’s Edgar system and our website. We encourage all investors to read these reports and our other SEC filings. All the information we provide on this conference call is provided is 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 and thanks to our investors returning the call this morning. I am pleased to say that our operating business continues to perform well and we have already achieved many of our 2016 corporate objectives. Enrollments in our NeoCart Phase 3 clinical trial continues to run ahead of plan with 167 patients enrolled as of today and we are now less than one year from the expected completion of enrollment which we remain confident while we complete by the end of second quarter of 2017. This timing leads to an anticipated 1 year superiority data readout and the BLA filing in the middle of 2018 and a potential approval in long-term 2019. During the second quarter based on the FDA clearance received in April 2016, we also began using collagen produced internally at our manufacturing facility in Lexington, Massachusetts and the ongoing Phase 3 trial. This transition to an internally sourced critical raw materials followed positive feedback from the FDA and the regulator approval for clinical supply of certain critical raw materials for NeoCart and as a direct result of the critical work done by the team here at Histogenics. In addition, as we began to implement a more global regulatory strategy, we have reengaged with the Japanese regulatory agencies develop a conditional approval for NeoCart under the new regenerative medicines laws in Japan. This follows our acquisition in May 2016 of the Japanese development and commercialization rights to NeoCart from our long time partner, Purpose. We also generate a compelling new data as part of our collaboration with Intrexon Corporation that is a part of further development of a potential next generation one step allogeneic NeoCart cartilage implant. This data has accelerated our potential development strategy to expedite this program and we are conferring with regulatory and technical experts to develop appropriate data packages to advance this program. Finally, we continue to receive positive feedback from our clinical investigator on the performance of NeoCart as more investigators see increasing number of patients in the trial’s various stages after receiving a NeoCart implant regain more comfort with potential for NeoCart’s authorization [ph] and more rapid and durable recovery that can be achieved with microfracture and with an eye towards the BLA filing and potential commercialization while working with many of our investigators to further enhance our collective understanding of the target NeoCart patient, the surgeon profile and the potential for NeoCart to replace microfracture as the standard of care for the treatment of cartilage defect in knee. Moving on to some specific metrics around our Phase 3 clinical trial, as you may recall, we have enrolled 147 of the 245 patients at the time of our first quarter 2016 conference call in early May. I am pleased to report that the momentum in enrollment has continued and as of today, we’ve enrolled a total of 167 patients or just over two thirds of the 245 patients required to complete enrollment. After a record first quarter we had a solid second-quarter enrollment of 19 patients which represented the third highest quarterly enrollment total for the trial. We enrolled 47 patients in the first quarter of 2016 an almost 70% increase over the comparable period in 2016. In this process the total number of patients who have been trialed were 161 as of June 30. Given the slowdown that occurred in prior summers and typical in the industry, we expected that we might encounter that same challenge this year and was reflected in our forecast. Overall, the summer and August in particular is shaping up to be slightly stronger than we expected and we remain ahead of the enrollment goals that we set last fall. Moving on to the pipeline, we have eight additional patients with scheduled arthroscopies or scopes thus for the remaining days of August and are currently scheduling patients in September and as far as out as October. As a reminder, arthroscopy is the final confirmatory steps prior to the patients’ enrolment in the Phase 3 clinical trial and historically approximately 85% of the patients that has an arthroscopy are then enrolled in the trial. Also as of today, our pipeline of consented patient which includes those that have agreed to potentially participate in the trial but have not yet scheduled their scope total more than 195 of the required 245 patients in the trial. We do feel this is important information [indiscernible] that we are continuing to refill the pipeline on top of these strong enrollment trends we have seen in the first half of 2016. As a result of this continued positive momentum, we are narrowing our yearend 2016 enrollment guidance by increasing the bottom end of the range from 180 to 190 patients at yearend 2016, a revised target of 190 to 200 patients by the end of 2016 and we remain confident that we will complete patient enrollment by the end of the second quarter of 2017. At the investigator level, we currently have 35 sites in the trial here to 34 is our last call. As we previously discussed, we monitor enrollment trends at each of the sites on an ongoing basis while also evaluating the potential of new site to determine the best mix that will maximize overall trial enrollment. To that end, we recently opened second site in Arizona and are also looking at few additional location. We strongly believe that sites out in the second half of 2016 can still have an impact on enrollment given our expedited on-boarding process than the ease of the NeoCart surgical procedure which our physicians seem to prefer compared to the alternate. On the last couple of calls, we also shared with you some specific recruiting initiatives we undertook in conjunction with some of our sites, having gained an understanding of which markets respond best to these initiatives, we began to narrow the focus of these efforts as we move to the end of the trial enrollment period. We continued around local TV spots most recently in conjunction with Steadman Hawkins in Denver. We are also leveraging our early work and regulate to additional geographies and sponsoring or attending many running an athletic events often with our local investigators. Given the momentum we have seen over the last several months and with the end of enrollment in site, we are now beginning to increase our focus on the NeoCart BLA filing as well as preparing for the potential commercialization of NeoCart. Our activities in these areas including generating and publishing additional data that can support future regulatory filings as well as commercialization activities and these include our five year data, Cornell ORF data other symposiums held at ALSFM [ph] recently. In addition to the more formal discussions we have with our investigators, we continue to receive positive anecdotal feedback from them regarding the ese of the procedure and the recovery of their NeoCart patients. We are told that many of their NeoCart patients are back to their normal activities within 3 to 6 months of receiving he implant a marked contrast to microfracture which often takes much longer. We also continue to make progress on the transition and regulatory approval for clinical supplies as critical raw materials for NeoCart to our manufacturing facility in Lexington, Massachusetts. We started this transition project almost three years ago with federal goals including one, improving the quality and documentation of these materials, two compiling data to support our eventual BLA filing. Three, lower our and four ensuring ample clinical and commercial supply. So after completing our facility build out in 2014 and the manufacturing qualification runs for collagen in 2015, we submitted the data to the FDA in the first quarter of 2016. Then in April 2016, the FDA approved the use of our internally produced collagen for us in the ongoing NeoCart Phase 3 clinical trial and we began using the new material in June 2016. As a reminder, we started with collagen because the key raw material needed for manufacture of NeoCart, the NeoCart scaffold and adhesive. And we believe that we significantly reduce the overall risk associated with the manufacturing parts of the development program. We do anticipate that this progress will also add value to any commercial partnering discussion we have regarding NeoCart. The two primary issues our new partner may have are likely around enrollment and manufacturing both of which we’re rapidly putting behind us as we plan for eventual commercialization in the event NeoCart receives approval. Stepping back and putting this into perspective, entire medical device companies are formed and fold on the basis as what we did in less than three years for our raw material plant in Lexington. While our primary focus is completing enrollment in the Phase 3 clinical trial and generating the data to support the NeoCart BLA filing, we also believe that we can leverage the technology platform and capabilities to create additional product candidate. As such, we continue to work with Intrexon Corporation to develop next-generation allogeneic products to treat cartilage defects and have made significant progress with these efforts. The initial focus of much of the work from the date was to use in Intrexon iPSC technology to potentially isolate and reprogram chondrocytes for use as a master cell line in future applications with NeoCart. During first-half 2016, Histogenics manufactured second-generation NeoCart implant using the iPSC derived chondrocytes supplied by Intrexon. These implants produced at Histogenics exhibited similar critical biomarkers of cartilage production to those in our current NeoCart manufacturing process. Based on the initial findings as well as additional data generated in the last few months, we and Intrexon convened the panel of regulatory experts in June to review and analyze the data. Based on the feedback we received, we are working with Intrexon to putting together an integrated development and regulatory strategy that we can present the regulatory authorities either in the U.S. or abroad. Given our burgeoning international regulatory strategy, we may evaluate Japan as an example for the completion of clinical work to support our worldwide commercialization plan. Along those lines in May 2016, we acquired the rights to develop and commercialize NeoCart with the Japanese market where the newly commissioned regenerative medicine pathways are conducive to cell therapy evaluation. Shortly after closing that transaction, we quickly moved to begin to lay the foundation to re-engage with the PMDA, the regulatory body in Japan and are working towards meeting later this quarter. We had a positive meeting with them last fall regarding NeoCart and help to identify the development and regulatory pathway for both the current generation of NeoCart as well as potentially the next generation iPSC derived NeoCart. We intend to use feedback from the PMDA and strong body of data generated to-date in the U.S. to support the business development discussion in Japan and Asia where we intend to seek commercial and manufacturing partner. There is considerable interest and excitement by many Japanese pharma companies who are all trying to get a foothold into cell and gene therapy technology platforms and we will begin those discussions until after those with the PMDA. At this point, I will turn the call over to Jon Lieber to discuss our financials.

Thanks Adam. For the second quarter ended June 30, 2016 the company reported a net loss attributable to common stockholders of $8 million or $0.61 per share compared to a net loss attributable to common stockholders of $7.6 million or $0.58 per share in the second quarter 2015. As a reference point, the company have approximately 13.3 million shares outstanding. Total OpEx for quarter ended June 30, 2016 were $8 million compared to $7.6 million for the quarter ended June 30, 2015. The increase in operating expenses was primarily due to a small decrease in research and development expense in the second quarter of 2016 which was offset by an increase in G&A expense in the quarter. The decline in research and development expense in the second quarter of 2016 at compared to the second quarter of 2015 was due to the purchase of raw materials to support the NeoCart Phase 3 clinical trial in the second quarter of 2015 which are not repeated in the second quarter of 2016 and a reduction in consulting expenses. These amounts were partially offset by increased clinical trial cost related to increased enrollment in the NeoCart Phase 3 trial. The increase in general and administrative expenses in the second of 2016 as compared to the second quarter of 2015 was due to increased head count, facility related cost and higher legal fees which were partially offset by increased consulting costs. At June 30, 2016 Histogenics have cash, cash equivalents and marketable securities of $15.9 million compared to $30.9 million at December 31, 2015. Based on current operating plans and the expected timing product development programs, we believe our current cash position will fund our operations into the middle of first quarter 2017. We continue to impressively manage our business and liquidity needs with the goal of getting to our expected trial enrollment by the end of the second quarter of 2017 with minimal or additional capital. To that end, we made changes to our operations in the second quarter with a reduction in headcount and outside expenses that will reduce our operating expense by approximately $1 million per quarter through 2017. We are able to make these changes due to the positive feedback we received from FDA related to the raw materials transitions and the strength and enrollment which has enabled us to reallocate some internal resources. I will now turn the call back to Adam for concluding remarks before we go back to Q&A.

Thanks Jon. In summary, our investigators, scientific partners and collaborators provide consistent positive feedback about the performance, the data and potential of our unique cell therapy and tissue engineering platform. We continue to believe there is a large market with a real unmet medical need for patients and unnecessary [indiscernible]. NeoCart if approved may grow and expand the market substantially as patients now opt back in treating their defects with our unique personalized biologic therapy. I am incredibly proud of the progress we made in the first half of 2016 and the business is stronger than it has ever been historically. We have executed well with our new team. We are ahead of the plan that we committed during the second half of 2015 and we enroll close to 50 patients in the NeoCart Phase 3 clinical trial which is now two thirds complete. We received important positive feedback from the FDA in both clinical and manufacturing areas, advance their collaboration with Intrexon and acquire of the Japanese development and commercialization rights for NeoCart. Internally, our talented employees have affected the material turnaround and how we run the business and this is evident in these results and daily as we make NeoCart implants for our trial and prepare for future commercialization. We are grateful to their diligence and commitment to this important therapy. Looking forward, as we think about the next 12 to 18 months, we are excited about the opportunity in front of us. NeoCart is a late stage, relatively de-risked Phase 3 biologics with several near term milestones including an interim analysis, completion of enrollment and we are targeting a multibillion dollar market in need of a better standard of care. We believe there is a significant opportunity to capture a meaningful share of the 150 to 200,000 [ph] microfracture procedures performed each year in the U.S. and with reimbursement already in place to potentially generate several $100 million per year and revenue just a few years after launch. Remember at current reimbursement rate of 10,000 procedures generate $300 million per year in revenue. We are on track to achieve our near term milestone and we will work to ensure the organization is adequately funded through these milestones to further in advent, de-risk this opportunity and capitalize on the market opportunity. Thank you very much for joining today’s call. We will now open up the line for any questions. Operator, go ahead and open up the line please.

Thank you [Operator Instructions] Our first question comes from Chad Messer of Needham & Company. Your line is open.

Great, thanks for taking my question and congratulations on another good quarter execution. The enrollment has a very reassuring and consistent throughout the year and I appreciate that took a lot of hustle to keep that going into the summer. What is less reassuring and has made me nervous is the cash balance. I know you have been consistently guiding to get through enrollment with minimal additional capital but as I am sure you are aware there is nothing magic about the moment of finishing enrollment that you have got another year plus to get to an end game, so it’s looking to me like strategic alternatives are becoming increasingly likely to be part of the solution here. I was just wondering if there is anything else you can add to what you are considering. I know, you did talk a little bit about Japan and seeking a manufacturing partner there but what other alternatives are you considering and maybe give us a little bit of an idea where you are in some discussions in that process?

Sure. Thanks, Chad. I appreciate the feedback on enrollment. We agreed there is a palpable change in the way that the business is operating and we are literally coming down the month at this point. One, is quick clarification, we are now less than 10 months away. We continue to be ahead of plan on the enrollment side. But your question on financials of course is a very important one, so we are looking at this from multiple angles, strategic alternatives really are in the backseat and I would project those as really just creating upside on today’s business. So first from an expense perspective, we are managing the business appropriately. Some of the recent successes allows us to modulate or moderator our expenses appropriately. We’ve already done that, so brings down our future burn a little bit and regards to complete enrollment particularly given that we are slightly ahead of plan is not that great. We are confident that through a variety of discussions we are having on equity or other financing alternatives that will be able to fund the company appropriately. As we think about the sort of upside created through other let’s say non-polluted sources of funding such as partnerships, we are looking at a number of efforts in parallel primarily overseas as we stated for many years, we don’t intend to commercialize there. And so we are running a number of those discussions in parallel. But for modeling purposes, I think you should assume that we are confident that will be well-funded and ultimately any of those other future alternatives to provide upside.

Great, thank you. And so you mentioned some cost-cutting about $1 million a month that’s $3 million a quarter, when should we think of those as having on an into effect 2Q spend has been very much in line with what the previous few quarters were like?

And so thanks, good question, so just to clarify with its $1 million per quarter not for month.

Thank you.

And those changes should come into effect in the third quarter, so you know by the fourth quarter, you can think about just your model for the $4 million in third quarter you can kind of do a partial adjustment from that perspective and you can think about those for the time being going all the way through 2017 at this point.

And I guess just one more question along that lines, a lot of the you know trial cost that can be an acquiring patients, what kind of run rate and burn would you have after you’ve enrolled versus before?

Sure, it’s a good question Chad. I think you should assume that the burn continues to come down on the completion of enrollment. Obviously that’s primary driver of cost on a per patient basis. There are still associated follow-up patient costs that are then built at the time that those patients return. We then move into largely some of the same activities that are focused on now but really getting ready for BLA prep but in that context you are not spending a lot of money on material, development fund, and for the daily manufacturing, you are really transitioning into the BLA prep. So in that context, I would expect that the operating expenses need to come down for some period of time as we continue to assemble the data and get ready for top line data readout. Then for in the future of course you start to ramp up the plan for commercialization, but with all good news both on the timeline for enrollment and on the recent raw material and progress of the agency, we are finding that some of the projected spend that we anticipated is just not required. Similarly, as we think about recruiting as an example as we are really only about 10 months away from completion or potentially less, you can imaging there is tail one at the recruiting expenses and you don’t book those all the way up until the trial has enrolled. Those start to peel off prior to that. Is that helpful clarity?

Yes, very helpful, thank you and again congratulations on operating very well now for several quarters.

Thanks, Chad. Appreciate it.

Thank you. I am not showing any further questions in queue at this time. I would like to turn the call back over to Adam Gridley for any further remark.

Excellent. Thank you, operator and thanks to our investors for listening in today. We appreciate continued support of our investor, our employees and our investigators and we look forward to updating you on our continued progress both on the trial and the organization. Have a good day, everyone.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a wonderful day.