Good day, ladies and gentlemen, and welcome to the Histogenics' Fourth Quarter and Full-Year 2017 Financial and Operational Results 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] And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Jon Lieber, Chief Financial Officer. Please go ahead.

Thank you, and good morning, everyone. Joining me today on the call are Adam Gridley, our President and CEO; Don Haut, our Chief Business Officer, and Stephen Kennedy, our Chief Operating Officer. A press release announcing Histogenics' financial and operating results for the fourth quarter and full-year ended December 31, 2017 was issued this morning. For those of you who have not yet seen it, it's available on the Investors Section of our website at www.histogenics.com. On our call this morning, we will share with you a business update and review of 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 more fully in our SEC filings and are available on the SEC's EDGAR system and on our website. We encourage all investors to read our SEC filings. All the information we provide on 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'll now turn the call over to Adam Gridley.

Thank you, Jon. And thanks to all of you for joining the call this morning. We had a very productive year in 2017 with the achievement of several important milestones, and we are well positioned to create additional value in 2018 and beyond. Most importantly, we completed enrollment in the NeoCart Phase III clinical trial in June 2017 and we are on track to report topline data in the third quarter of 2018, with an expected Biologic License Application filing also in the third quarter of 2018, subject to positive Phase III data. This may lead to a launch of NeoCart in late 2019 if approved. As a reminder, the Phase III clinical trial is a prospectively designed, randomized, controlled clinical trial comparing NeoCart to microfracture, to the treatment of cartilage defects in the knee. Microfracture is the current standard of care and despite its well-known limitations, it is the procedure used most frequently by physicians to treat small, a painful cartilage defects in the knee. With 249 patients enrolled, we believe this trial is the largest of its kind to evaluate the safety and efficacy of a cellular therapy to treat cartilage defects in the knee. In addition, it's the only clinical trial with a one-year superiority endpoint which we believe is due to be unique ability of NeoCart to enable patients to experience more rapid pain relief and return to function and other products and procedures either on the market or in development. Furthermore, the design is currently covered under a special protocol assessment with U.S. FDA. And with the Phase III enrollment milestone behind us, we look forward to the opportunity to make this potentially game changing therapy available to patients who suffer from knee cartilage damage that are seeking a faster recovery. We also made significant…

Thank you, Adam. For the year ended December 31, 2017 Histogenics reported a loss from operations of $25.0 million compared to $30.3 million for the year ended December 31, 2016. The decrease in operating loss is reflective of our effort to advance the NeoCart development program on minimizing our burn rate and is attributable to a reduction in research and development expenses that was offset by a smaller increase in general and administrative expenses. We continue to focus our efforts and related expenses on the completion of the NeoCart Phase III clinical trial, preparation of the BLA, planning for the potential commercialization of NeoCart if approved, and related administrative efforts. Moving on to some specifics for the year, the decline in research and development expenses in 2017 as compared to 2016 was primarily due to decreases in collaboration, consulting and temporary labor expenses, clinical trial-related costs, personnel-related expenses and repairs and maintenance costs concurrent with the wind up of enrollment in our NeoCart Phase III clinical trial. General and administrative expenses increased to $9.4 million in 2017 as compared to $8.5 million in 2016 due to increases in personnel-related consulting and facility-related expenses and were offset by a decrease in recruiting expenses. The increases were largely driven by activities to support the potential BLA submission and commercialization of NeoCart if approved. Basic net loss attributable to common stockholders was $22.5 million in 2017 or $0.99 per share, compared to $13.9 million or $0.97 per share in 2016. The increase in basic net loss attributable to common stockholders is attributable to the conversion into common stock in 2017 of a significant portion of the convertible preferred stock issued in connection with our 2016 private placement and changes in the fair value of warrants issued in connection with the 2016 private placement…

Thanks, Jon. With a growing body of anecdotal data and the results of our market research activities are more competent than ever. But there is a significant unmet need to treat knee cartilage damage and that NeoCart if approved may provide a novel solution for this complex and costly healthcare challenge. We firmly believe that a product such as NeoCart has the potential to address our three primary customer groups and grow and expand the market. First and foremost for patient, NeoCard has the potential to offer clinically meaningful pain relief and return to function on roughly half the time of microfracture and other treatments with potentially less rehabilitation and lower use of opioids. For physicians, we are the only product with the one-year superiority endpoint and established mechanism of action that can be administered in a relatively simple 30-minute procedure that does not require special training. We are developing a robust set of data that will include both short and long-term clinical outcomes as well as non-clinical data. We already have long-term durability data through five years from our Phase I and Phase II clinical trials. And at the time of launch if approved, we expect to have two-year data for all of the patients from our Phase III clinical trial and longer for a subset of other patients. For payers, we believe that NeoCart may lower the overall total cost of care starting with the first debridement of microfracture surgery where NeoCart has the potential to get patients back to work and activity more quickly with the potential for less costly rehab and lower opioid use. We also believe that if we are able to treat the cartilage defect effectively the first time, we may be able to prevent a 30%-plus of patients that currently have a second costly procedure within the first two years after receiving microfracture. Finally, by treating these small defects at the source with a product such as NeoCart, there is the potential to delay or prevent osteoarthritis progression and eventual total knee replacement, which further brings down the total cost of care. We are excited to present topline clinical trial results later this year and we recognize that successful products are built on both robust data and successful long-term commercialization strategies, achieving success in both of these critical areas are a top priority for every member of the Histogenics team. We believe we have a committed and talented team, a data driven strategy and resources to execute the potential NeoCart launch in the second half of 2019 if approved. Our goal is clear. If approved, we believe NeoCart can become the new standard of care for patients with small painful cartilage defects. Thank you for joining today's call. We'll now open up the line for any questions. Operator, please open up the line.

Thank you. [Operator Instructions] And our first question comes from Josh Jennings of Cowen. Your line is now open.

Hi. Good morning, gentlemen, and congrats on the progress in 2017. I was hoping to just start out and see if you could map out some of the specifics around topline data, how you plan on communicating it to the street, and then also communicating submission timing and when we could expect potentially a full dataset presentation at a medical meeting?

Sure. Happy to do so. Thanks for joining the call Josh. So our plans are that we would report via press release to our investors the topline results including the primary endpoint and other relevant data points this summer in the third quarter of 2018. We would then subsequently file the Biologics License Application filing by the end of the third quarter 2018, assuming everything is positive. We have of course, also noted by our investors at that point, and around that time we would immediately start to move that data into a peer-reviewed publication. Our expectation is that ones that topline data and then the fully audited package has gone to be agency. We would then work with our top clinical advisors and investigators to publish that as level one evidence in a peer-reviewed journal. My expectation is, knowing review times as that comes out some time in 2019 probably around the time of launch or potentially approval.

Great. Thanks for that. And just with AAOS being just recently passed, can you talk about just some of the enthusiasm within your stable principal investigators, any anecdotal commentary they share with you on plans to adopt NeoCart assuming positive Phase III data that was showing superiority of microfracture?

Absolutely, we have an excellent series of discussions last week at the American Academy of Orthopedic Surgeons in New Orleans as well as the subsequent meeting, the Orthopedic Research Society, ORS meeting, where a number of scientific presentations were provided. And a combination of formal meetings that we had with our leading investigators that I think confirmed the continued anecdotal positive feedback that we hear on potentially earlier recovery and return to function. And then we also of course continue to hear very positive the safety aspects of NeoCart treatment. We are starting to talk with our surgeons about commercialization strategies as we think about really trying to take those surgeons who are doing small lesion microfracture procedures and get them to start thinking about NeoCart. I think across the board from each of the investigators, they are continuing to be pretty excited where this may be one of the first true treatment alternatives for those two, three, four-square centimeter lesion and the knees of the treatment and time to do the procedure I think it can used to be very attractive. And then I think the other thing that we've heard from the surgeons is of course anecdotally they're hearing good feedback. They're seeing great results from their patients. And what they're trying to do is best to understand why they're saying that. And so we had a pretty robust discussion with folks about some of the biomechanical data that we've been developing at Cornell and describing the mechanism of action of creating ex-vivo cartilage tissue that at the time of implantation acts and feels like native tissue. So I think the surgeons were really providing good feedback that that something that will be helpful to communicate to other surgeons when we launch this in the microfracture population. I think the other thing that we heard was a lot of international interest. So at the booth, there were a number of surgeons that are coming by and asking when NeoCart may come to international markets and naturally some folks had heard about the recent Japanese deal. But I think what we heard was across the board, doesn't matter which region you're in. There is still a huge satisfaction gap for both surgeons and patients where they just don't really have anything that treat microfracture. So we have a lot of interest from folks coming by the booth. I'm wondering when we may be able to take NeoCart more broadly outside of the United States.

Okay, just to follow-up on that. When you mention that there are opportunities in other territories, I mean could we possibly hear about another partnership similar to MEDINET that could bring in some capital, but as well as establish a partnership in another regions of Asia or Europe? Thanks for taking the questions.

Sure, thanks for the question Josh. And I'll start of course this early days as we indicated there was a lot of interest from our initial negotiations with Japan and sort of more broadly in Asia and Don Haut, our Chief Business Officer has been leading some of the discussions as we start thinking about other regions. Don, do you want to take that question?

Sure. Our game plan there as we've said before is very similar to the game plan that we used in Japan, where we are currently evaluating the markets getting a better understanding of what the market dynamics there are outside of the market is an understanding of really how patients - these kinds of patients are treated in those markets. There were two getting and understanding what the regulatory reimbursement environments are and then taking that into a campaign to look for surgical partners in those areas. We're in the middle of the first two parts of that plan right now and we're getting early, but encouraging information about similar satisfaction gap in treatment of those patients and very interesting looking markets, again it's early days looking at some, but interesting looking markets similar I would say in some ways to what we've seen in Japan as well in terms of potential market size as well.

Thank you. And our next question comes from Ryan Zimmerman of BTIG. Your line is now open.

Great, thanks for taking the question. So I appreciate you guys providing the operating expense guidance for 2018 and just - if we could get a little more color in terms of the expected increase in expenses, little higher than we're looking for? And then just also the cadence of those expenses, should we think that as you submit BLA and you start to think about commercial activities that it's more of a back half loaded year in terms of higher SG&A cost in the later part of the year? Thank you.

Thanks Ryan for the question. So basically I think the way we think about it, I would say it's probably of the total guidance, a little less than a quarter, 25% will come in each of quarters one and two, and then the rest of it is more heavily weighted towards the back end of year. So I would tend to agree with your comment and your guess to start with. So I would say, call it 22%, 23% in the first couple quarters and then about the balance in the back half is more heavily weighted towards Q3 and Q4.

Okay. Great. And then as far as your commercial goals for 2018, once you submit the BLA, can you just provide a little more color in terms of some of the activities and what you're thinking about in terms of the things you have to get done following BLA submission? Thank you.

Sure. What we are doing right now is we're doing a fairly deep dive to understand the reimbursement area and prepare for that activity and building up in that - in the market access part of our organization. We are working as well to on our strategic plan on the - the planning aspects of our commercial organization and should have more concrete idea of that later in the year once we get our topline data. And as well we're working to pull together our final plans for what service and infrastructure side of the building or plenty of the business would look like.

Appreciate that Don. And then just lastly for me, I'll hop back in queue. Adam, I appreciate your comments, you said - you referenced a study that NeoCart was about 70%, and correct me if I'm wrong, similar to native cartilage. So just if you could expand on that a little bit from what that study you're citing and just anymore data points that you have there would be helpful? Thank you.

Sure. I'm happy to do so. And I'll start with a quick overview and then hand it to Steve Kennedy, our Chief Operating Officer, who has been managing the strategic collaboration with Cornell University. So yes, that is the source of the data. We have a number of posters, publications, and then subsequent presentations at ORS just over the last couple of weeks, where based on the agents and these request a couple of years ago. All of the cartilage repair companies are having to - also demonstrate some of the biomechanical properties of these tissues either after they are implanted or in our case prior to them going into the patient. And the FDA just trying to further characterize the mechanism of action that many of the cell therapies, so we kicked off a collaboration a couple of years ago with Cornell, and they're probably one of the leading organizations really in the world to measure certain elements of cartilage tissue. And the initial results demonstrated that the NeoCart [indiscernible] before they even go into the patient have roughly 70% of the biomechanical components of native hyaline articular cartilage. And we've since then developed a number of other measures and reported a number of other data points. Steve, you want to comment on some of the things that we're measuring and how we are evaluating that tissue?

Yes. Sure, Adam. Ryan, what were kind of the three properties that we generally measure are the - how the NeoCart behaves under compressive force. How it will behave under a share force, and then what are it surface or frictional properties? So those are the three different measures you can imagine what a piece of cartilage looks like in the knee and how it does have to respond to the compressive forces and share forces, and of course the surface or fictional, or properties are very important. And so we've been doing is measuring certainly the finished product and what those look like and when Adam talked about how we achieve 70% of native cartilage properties that he is referring to. But we also look at is what happens during the course of manufacturing the NeoCart, and in particular, we will compare that end state to our initial state which is just the scaffolding themselves of course, where we don't have those properties. So we've been able to demonstrate how it the Extracellular Matrix is produced. The cartilage actually develops those - the NeoCart actually develops those properties and we are using that as a - to be able to demonstrate that capability to FDA's for our own understanding of the product.

And Ryan, I think what is important here and what we're seeing is when physician see these really impressive result albeit anecdotally in terms of their patients recovering rehab and how they're feeling overall. They hit the first time and that's great and they expect to see the second and third time and then they start to ask why? And I think this data is going to provide some additional support for why we tend to see such really impressive clinical results. And they certainly appreciate that strong mechanism of action data. It was also pretty central to some of our discussions with the Japanese regulatory agency. So what we initially did this is part of an initial regulatory requirement and we're finding that that data is providing a lot more visibility to surgeons on how NeoCart operates.

Understood. Thanks for the questions and congrats on all the accomplishments here.

Thanks, Ryan.

Thank you. And our next question comes from Sean Lee of H.C. Wainwright. Your line is now open.

Good morning, Adam and Jon. Thank you for taking my question. My first is on the planned Japanese study. Could you provide a little more color on that like, which steps are you admitting that right now? What step still needs to be done before the study can enroll patients? And do you plan on starting patient enrollment prior to or following the topline results of the U.S. study?

Sure. Thanks for the question Sean. And we've had a number of great planning sessions and meetings with our Japanese counterparts that MEDINET. We are in that planning stage as we indicated. Our expectation is that we would initiate patient enrollment in the second half of 2018. In the process right now, we're going to translation of documents, identifying surgeon, taking some of the training materials that we developed here, and then determining how we're going to then communicate that to Japanese surgeons. So the next quarter, so will very much be about planning and preparation and then we would expect as we get out to the latter part of the year. We will then actually start to see patients in that clinical trial. As a reminder, is the 30-patient trial same protocol as the U.S. study two to one randomization of NeoCart versus microfracture? And we of course would support the manufacture of the NeoCart implants from our facilities here in Boston for purposes of completing that confirmatory trial.

Just PMDA still has to sign off on the protocol or are you all done on the regulatory front?

All of the protocol and major activities were negotiated as part of our time in [indiscernible] or formal meetings that took place last spring of 2017. There is of course a standard clinical trial notification, some additional details that will be provided, but all of the major elements of the protocol have actually been provided and agreed to. So this is part of this standard administrative process to move through the initiation of that formal clinical trial.

Great to hear that. My second question is on the manufacturing preparations for commercial launch potentially in 2019. I know that you guys are planning to manufacture the dosing house, but what's the number of doses that you can ramp up to in this first with the second year? And if needed, is it possible to transfer additional manufacturing to and third party to help ramp up faster?

So it's a good question Sean, thanks. This is Jon. So we intend to launch out of the facility here in Waltham, Massachusetts, where we've actually been making a lot of clinical material for a bunch of years now and when the process of making some improvements to the facility and doing that actually as we speak getting ready for the BLA upon potential pre-approval inspection some point after that. We're going to - our plan is here at Waltham, we think we have about $20 million of revenue generating capacity here, which equates to 500 units and that will be what we will launch with and then once we kind that get our - hopefully we have positive data this summer and upon the receipt of positive data we would then begin to look at it at our next set of capacity expansion. We talked - we think about capacity expansion in terms of $100 million of revenue generating capacity or about 2500 units. It's about $10 million of capital to put that and assume you have a facility to put it into. And of course that would be our intent. We're still evaluating how we're going to do, but building a new facility is not in our plan, just to be clear. And then it takes about 18 to 24 months from sort of total start to finish to get that sort of equipment planned order validated and other warning and so our intent would be as we exit sort of the first full-year of commercial production to put that new capacity in place.

Thank you for the additional color and that's all I have.

Thanks Sean.

Thank you. And our next question comes from Brandon Vasquez of Canaccord Genuity. Your line is now open.

Hi, everyone. Thanks for taking the question. Can you hear me all right?

We can. Hi, Brandon.

Great. Thanks. Just in terms of competition, you've obviously had some competitors launch in the U.S., just can you speak to the dynamics are you guys hearing increased noise in the market, and I guess what I'm really trying to understand is there an opportunity there for you guys to benefit from just increased market awareness of a novel solution like this and is it going to be something that can help you hit the ground running a little bit when you approach a lot in 2019?

Sure. Great question, Brandon. And I think you're spot on. The competition has created substantial awareness over the last year. They've had a fantastic launch in our opinion and kudos to them from the team here at Histogenics. We've been really pleased to see the market awareness that is increasing. I think there's a general excitement that they're starting to beat some new cartilage therapies that are hopefully going to provide better outcomes than some of the surgical procedures or some of the first generation products. Until very first Macy program launched about a year in quarter ago, they reported some great results last week. They've seen robust reimbursement coverage, and I think that both surgeons, patients, and investors as well are really starting to pay attention to this space. I think that this for us and other competitors is positive overall. This is an extremely large market. The Macy team is focused on a number of the sort of larger lesion activities. Some of the previous cartilage cell surgeons and they've just done a tremendous job educating, training, and creating awareness for that product. As you know our focus is really on those smaller lesion microfracture procedures of which there are about 150,000 of those each year in the United States. And there's a surgeon population that does those every day, and in our case 10 to 20 of these a month. And our hope is that they are starting to pay attention and watching some of these new products come out that will benefit as well. So we're really pleased and excited to be following what is a good product, and hopefully we can bring something that is differentiated and targeting those small lesion microfracture patients.

Great. Thanks for taking the question and congrats on a great 2017.

Thank you.

Thank you. [Operator Instructions] And I'm showing no further questions at this time. I would like to turn the conference back over to Adam Gridley for any closing remarks.

Thank you, operator. And thanks to everyone who participated in today's call. We have an exciting and potentially transformative year ahead of us, and I look forward to sharing our progress with you, as we report our Phase III topline data, and hopefully move forward with the BLA filing and ramp up our commercialization and launch efforts for NeoCart. Have a great day everyone.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.