Ocugen, Inc. (OCGN) Q3 2018 Earnings Report, Transcript and Summary

Good morning, and welcome to Histogenics Third Quarter 2018 Financial and Operating Results Conference Call. At this time all participants are in a listen-only mode. Later we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to introduce your host for today’s call Mr. Jon Lieber, CFO of Histogenics. Please go ahead.

Thank you and good morning, everyone. Joining me today on the call is Adam Gridley, our President and CEO; Don Haut, our Chief Business Officer; Lynne Kelley, our Chief Medical Officer; and Stephen Kennedy, our Chief Operating Officer. A press release announcing Histogenics' financial and operating results for the third quarter of 2018 was issued this morning. For those of you who have not yet seen it, you will find it posted in the Investor section of our website at www.histogenics.com. On our call this morning, we will share with you a 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 our expectations regarding the timing and success of ongoing discussions with the FDA regarding the potential submission of a BLA for NeoCart. The results of the NeoCart Phase III clinical trial, NeoCart’s potential as a treatment for knee cartilage damage; the timing, associated expenses and ability to obtain and maintain regulatory approval of NeoCart or any other product candidates, the labeling for any approved products; the market size and potential patient population in markets where we and our partners expect to compete; updated or refined data based on our continuing review and quality control analysis of clinical data; our 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 risk, changes in circumstances, assumptions, and uncertainties. These 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. We not yet received the official FDA meeting minutes from the Type C meeting held on October 30, 2018 and the information previously disclosed and discussed on this call may be altered or supplemented by the information contained in the official meeting minutes or any subsequent meetings that may be held with the FDA. 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 make on this call on account of new information, future events or otherwise. Finally, please be advised that today's call is being recorded and webcast. I will now turn the call over to Adam.

Thank you, Joh, and thanks to everyone for joining the call this morning. In the third quarter, we announced our top-line results from the NeoCart Phase III clinical trial. Following this announcement, we met with the FDA to discuss the potential NeoCart Biologic License Application submission based on the data from the clinical trial and we've continued an active dialogue with the FDA on all parts of that potential BLA. We continue to believe the data from the Phase III trial demonstrates the NeoCart a safe and provides both clinically meaningful improvements and statistical superiority over microfracture using current FDA standards. NeoCart performed very well better than the statistical plan called for demonstrating early and sustained improvement at six months, one year and two years. We have continuing confidence in the potential NeoCart benefits and the clinical data aligns closely with surgeon, patient feedback. However, we remain pragmatic regarding the regulatory pathways for a product with the trial that just missed its primary endpoint. This morning we’ll provide a brief summary of the status of the NeoCart program, the interactions we've had with the agency and our next steps. Please note that we will seek to provide as much visibility on such interactions without compromising the active and continued conversations with the FDA. We’ll also provide an update on the other equally important aspects of the BLA and our financing activities as well as address the questions we've received from investors over the last two months since the announcement of the top-line Phase III clinical trial data. So let's start with a brief recap of the trial history and data as presented to investors on September 5th and as we presented to the FDA and the briefing package for our recent Type C meeting. The 249 patient Phase III NeoCart trial is the first randomized well-controlled clinical trial conducted in the United States that was developed with FDA input. We narrowly missed statistical significance versus microfracture with control arm in the evaluation and the primary endpoint. The company chose a much higher hurdle responder analysis as the primary endpoint in 2009 prior to the FDA's formal guidance in 2011, which covers products approved in 2016 as well as those under development today. In the primary endpoint responder analysis in the modified Intent to Treat, or mITT population, 74% of NeoCart patients were responders at one year versus 62% of microfracture patients, missing statistical significance by just one or two microfracture responders. However, 62% of our NeoCart patients were statistically significant responders at six months versus 46% of microfracture patients. We also demonstrated statistical superiority in the dual threshold responder analysis on a variety of other covariate analyses such as in patients with BMI greater than 28 and then in lesions greater than 2.2 square centimeters, which we believe represent the broader patient populations treated by surgeons. The underlying IKDC function and KOOS pain outcome data utilized conduct the responder analysis and other efficacy analyses were prospectively defined and collected and can be used to demonstrate efficacies in current FDA standards. On those FDA standards, NeoCart demonstrated both clinically meaningful improvements in pain and function from baseline versus microfracture and statistically significant improvements in both KOOS and IKDC endpoints as compared to baseline at one and two years. These early and sustained improvements in pain and function results in meaningful clinical outcomes for patients. We also believe them to be compelling when compared to other products either in development or on the market. Based on the conduct of the NeoCart Phase III trial, the inclusion exclusion criteria and resulting patient demographics, our surgeons have remarked how meaningfully different than NeoCart results are when evaluating patients during follow-ups. So why do we miss our endpoint? NeoCart performed well in the trial better than the statistical plan and better on virtually every endpoint analyzed. However, the microfracture control arms simply showed a treatment effect even greater than expected in the statistical plan. This is not a normal placebo effect whether it is well established that in the limited patient population with strict rehabilitation protocols, active controls or microfracture patients can do well for some period of time. We saw exactly that and as well designed in conducted trial using the appropriate inclusion exclusion criteria as compared to other trials that have a patient population where microfracture would be expected to do poorly. Importantly, NeoCart safety results were comparable to the microfracture control arm and there were no unexpected safety events. In conclusion, our proposal to the FDA is simple. Based on the totality of evidence from the Phase III study, particularly with the six month and one year data versus other therapies with two year endpoints and the NeoCart safety profile, we believe NeoCart has a positive benefit risk profile in the knee cartilage defect space where treatment options are limited and there's a clear unmet medical need. So let's turn to what has happened since we announced this data. We immediately contacted FDA in early September to schedule a meeting to discuss these results and potential BLA regulatory pathways. Along with that meeting request, we provided a robust briefing package summarizing those top-line results and the meeting request was accepted in September and scheduled for October 30th. We would be remissed if we did not acknowledge the FDA's rapid response to cooperation and assistance in scheduling the meeting so quickly. We held the Type C meeting to discuss the Phase III data and the potential for the submission of the BLA for NeoCart. The FDA has not made a final decision regarding a potential BLA submission and we're in an active dialogue with senior members of the agency and we’ll provide further update on these negotiations by the end of November 2018. The extensive discussions with FDA naturally focused around statistical plans, clinical data and relative clinical benefit. There’s not been any safety concern and we and the FDA recognized that the cell and gene therapy space is evolving and these trials are notoriously difficult to enroll, which results in a complex clinical benefit discussion given the recent standards and other policy decisions. It comes down to data and design and we're exploring ways for the BLA to be accepted with our current data package, with additional data or perhaps incorporating other regulatory pathways. Let's now move briefly than the other discussions with the FDA regarding our potential upcoming BLA submission. As the senior FDA official recently commented for cell and gene therapies, 80 plus percent of the BLA review itself is actually focused outside of the clinical data and instead on the autologous biologic manufacturing process. And our case where we make fully functional NeoCart tissue with the patient's own cells, we have had discussions with the FDA over the last decade, which have accelerated over the last several months. We have received excellent formal feedback from the FDA on two other Type C submissions over the last year. The topics in those submissions included a discussion in September 2018 regarding our comparability and validation data to be included in the BLA and then another in October 2018 covering our facilities plans including process and product flows and clean room designs. All of these feedbacks were well received and may provide for a more efficient review of BLA if accepted. Our partner MEDINET in Japan continues to work to support the initiation of a planned Phase III trial in Japan. As a reminder MEDINET is referable for all commercialization and development activities in Japan including the proposed 30 patients Phase III clinical trial. We and MEDINET met in August with PMDA, the Japanese regulatory authority, to review key manufacturing and other data they requested in our [indiscernible] negotiations. These discussions were held to ensure that we were prepared to submit the clinical trial notification, or CTN, which grants permission to start clinical evaluations. We’re pleased with that feedback. We’ll be engaging further with PMDA in the coming months based on the recent U.S. clinical data and MEDINET currently expects to submit their CTN for NeoCart in early to mid 2019. NeoCart continues to provide unwavering support based on their review of the data generated to date and believe the same unmet needs in the U.S. exists in Japan. Lastly in support of various regulatory filings, we also continue to build upon our large body of biomechanical or mechanism of action data developed with Cornell University. The most recent data were presented at The Biomedical Engineering Society Annual Meeting in October 2018. These data further demonstrates the importance of the presence of extra cellular matrix or tissue in making biomechanically competent cartilage. And these data have been important to both regulatory agencies and clinicians regarding the potential performance advantages of NeoCart when compared to other treatment alternatives. Lastly to ensure that the company was funded appropriately through a BLA submission. The company completed an offering of common stock and warrants that generated $17 million in gross proceeds and approximately $15.4 million in net proceeds. We believe the financing will enable us to reach our objective that is potentially submitting the NeoCart BLA by the end of the first quarter of 2019 and a possible acceptance of the BLA in the second quarter of 2019 subject to the outcome of our continuing negotiations with the FDA. Many of our investors also like questions regarding several corporate matters and we wish to address those. In October, we received the delisting notice from NASDAQ since our stock price had closed blow $1 for a period of time and made the required disclosures and filings with the SEC. These are normal course of communications and we have until mid-April 2019 to comply with the rule. This could include a scenario where the stock price closes above $1 for ten consecutive days, or if necessary, the company may need to employee a reverse stock split to comply. In conjunction with this, the company may hold a shareholder meeting to approve a reverse split only if needed and also authorize additional outstanding shares to support future operations. Investors will see a subsequent definitive proxy filing with the SEC if we intend to move forward with the special meeting where we will disclose that the company no longer intends to move forward with those proposals. At this point, I'll turn the call over to Jon Lieber to discuss our financials.

Thanks, Adam. For the quarter ended September 30, 2018, Histogenics reported a loss from operations of $7 million compared to $5.7 million for the quarter ended September 30, 2017. The increase in overall operating expenses was due to increases in both research and development and general administrative expenses. While we continue to focus on managing our burn rate, we are moving forward with the work and related expenses to support a potential NeoCart BLA submission. We have also started to make the initial investments we feel are necessary to prepare for the potential commercialization of NeoCart if approved, but are approaching these efforts in a staged manner. Moving onto some specifics, the increase in research and development expenses in the third quarter of 2018 as compared to the third quarter of 2017 was due to work to support the preparation and analysis of the data from the NeoCart Phase III clinical trial, any potential NeoCart BLA submission. The increase in general and administrative expenses in the third quarter of 2018 as compared to the third quarter of 2017 was primarily due to higher salaries and consulting expenses related to increased activities to support the potential commercialization of NeoCart. We currently have approximately 62 million primary shares outstanding and 99 million fully diluted shares outstanding. The fully diluted share count includes 13.4 million shares underlying warrants with a strike price of $2.25 issued in connection with the 2016 private placement and an additional 19.6 million warrants with a strike price of $0.70 issued in connection with our October 2018 underwritten common stock offering. Neither of these classes of warrants have a cashless exercise provision, so should the holders exercise those warrants prior to their expiration, we will receive approximately $44 million in proceeds from those warrants, $30 million from the $2.25 warrants and another $13.7 million from the $0.70 warrants. At September 30, 2018, Histogenics had cash, cash equivalents and marketable securities of $5.2 million compared to $8 million at December 31, 2017. In October 2018, Histogenics received net proceeds of approximately $15.9 million through an underwritten public offering of common stock and warrants and sales through its at the market offering facility. Based on current operating plans and the expected timing of product development programs, we believe our cash position will be sufficient to fund our operations into the middle of 2019. I will now turn the call back to Adam for concluding remarks before we go to Q&A.

Thanks, Jon. We're cognizant that last several months have been challenging for our investors, our partners, employees and investigators. Management is committed to bringing this important and novel therapy forward in a judicious, yet rapid manner. We will continue to provide updates as appropriate and in a way that does not adversely impact our thoughtful working relationship with the FDA and other regulatory bodies. We do remain convinced that NeoCart data are meaningful and potentially represent the new standard care of treatment and the new standard for clinical trial design with a one year end point. We believe that based on the current standards for products and development and those approved we have demonstrated clear clinical benefit. If conversations with FDA progress, we may seek to file the BLA by the end of the first quarter of 2019, which could result in the potential FDA approval of NeoCart by early 2020. 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] Our first question comes from Ryan Zimmerman was BTIG.

Great, can you hear me okay?

I can. Hi, Ryan.

Okay, great. Sorry, I apologize for the background noise. We’ve got an airport here. So I want to talk about the discussions and I know you're limited in what you can say around the discussions with the FDA, but why is November the time when we may have an update from you guys? And is subsequently also around the first quarter and second quarter of 2019 submission, why do you feel like that's the right time that you can get that mission done? And that extend in any way just kind of characterize what you're discussing if you can with the FDA? Thank you.

Sure, thanks Ryan for the question. Maybe I can take the last question first and then that will take us into the timing. So the nature of the discussion is naturally are around clinical benefit, the clinical data statistics, naturally this is not an easy discussion for both the company and the agency where we just missed our primary end point. Although we believe the totality of the data is pretty significant. And clearly, this is something that warrants additional discussion with the agency. We're continuing to work very closely with them. The nature of those discussions are productive. We are talking regularly and that leads us to your question on the timing for November. Naturally, this is an ongoing discussion. It continues to evolve and we felt that that was an appropriate timeframe at which point we should have additional feedback for investors. Naturally, this will continue over the next couple of weeks, but we also realize that our investors are going to want an update. So we thought that was a prudent timeline. And then ultimately as we think about our work internally to prepare for the BLA, we have had other ongoing discussions with the agency as we noted today on the CMC or the manufacturing side, on the facility side, preclinical. There's a ton of work and activity going on that is taking us to prepare for that BLA. And based on their best estimates today with the ongoing discussions, we think that first quarter is a fair target for that BLA submission. And then from there it would be assuming everything worked out with the agency. It would be normal course timelines for a reveal.

Okay. I really appreciate that color, Adam. Thank you. And then is the FDA required or do they have a specific timeline that they have to respond to you regarding the C meeting?

They don't and that's where we've been very appreciative of how quickly the FDA has responded to us. I think if we go back to the September call, we’re initially targeting a Type A meeting, which ultimately determined to be a Type C meeting. Those typically have about 75 calendar day timeframe to have the meeting itself. So in each of the cases, this is not so black and white in this particular instance. However, the agency has that every turn responded quickly. They're working with us. They're responsive. And that's where we have been somewhat challenged in providing exact dates such as the end of November. And we're trying to just make sure that we've got a regular cadence of updates for our investors, but I would reiterate the agency has been very active. We're speaking with them regularly and our hope is to at least come to a conclusion here in the near-term.

Thank you. Thank you. Our next question comes from Josh Jennings with Cowen.

Hi, good morning. Thanks. I was hoping you could…

Good morning, Josh.

Good morning. I was hoping you could just clarify – I think you talked about in your prepared remarks, your discussions with the FDA and you mentioned a positive – possible alternative regulatory pathway for acceptance of the BLA. What is that? Can you help us to understand what that – what that could entail?

Sure, thanks for the question, Josh. As we had outlined for investors, naturally we're talking about a variety of different potential outcomes, one could be that the BLA is accepted as is. Now to be clear the BLA is accepted for review that does not provide a final determination from the agency. Of course, our goal is to at least get that clarity as a first step. It is possible that there could be some additional data either from our earlier studies or ongoing collection or there could be other methods to review this. It could be that there could be advisory panels and other ways to consider the data. So we can't be much more specific than that because candidly there are a number of different alternatives on the table. Certainly, we’ll continue to work closely with the agency there. All of these, of course, are focused on making sure that the data package that we presented today does potentially get a fair review. Naturally, we think that that indeed is supportive, but at the same time we just missed our primary end point. And so that's where there is not going to be sort of a normal course review and potentially alternate strategies may be employed.

Thanks. Thanks for that. And just to follow up after the Types C meaning, does the FDA require further analysis of the data sets?

So after the Type C meeting, I think what we'll continue to do is review the existing data set. So, obviously, the data is what the data is. We presented that to the agency and our investors. We assembled a very robust briefing package following that meeting. And you can imagine there are a number of different ways to analyze that data. So the existing data absolutely, we had provided a couple of different ways of looking at it, including some of the covariate analyses, for example, and lesions greater than 2.2 square centimeters. On one of the populations we thought a clinical benefit and statistical superiority at six months. And so, those are the types of discussions and analyses that I would say continue because as we presented back in September, we believe that really no matter, which way you look at the data, NeoCart did very well. In this particular instance, we had a situation where microfracture in the patient population is known to do well. They had a bit better than the statistical plan. So, naturally, we would encourage those additional analyses and our goal is to provide as much potential data to encourage those additional analyses. And our goal is to provide as much potential data as possible for the agency to consider, but it really all goes back to that original data package.

Great. And so we should be thinking of the kind of progress here as a Type C meeting, downloaded the data, continued discussions about the data set and the analyses that you guys provided and they're continued to absorb that to digest it and then make a decision on whether you can submit this current package for a BLA review?

That's exactly it.

Okay.

I think you've characterized it well. Certainly, the FDA guidance standards that were published in 2011 after we started the trial are going to be relevant. It's certainly part of the discussion. And, obviously the data package is very robust. It took us 10 years to complete that trial. We’re very proud of the data. We're proud of the demographics and that would be part of the consideration. What’s the clinical benefit? Of course, we've seen that the product has been very safe and then how does that apply and/or be analyzed according to the current FDA standards.

Great. And my last question just on the collaboration with MEDINET and over in Japan, talk with the regulatory authorities over there, is the paths over there contingent at all on progress with the FDA? Or is that – should be thinking about that is a totally independent pathway? And the progress there is submitting the data that that you guys recruit already and then moving on with the design for the Japan trial.

Sure, quick question as well. So, overall, the 30 patient study that the PMDA has requested was seen as a confirmatory trial. And it was a confirmatory trial based on the submission of all of our U.S. data. What was clear was that while we would be looking at similar endpoints, naturally they're strong congruent between PMDA, FDA and the EMA authorities on how you do these studies. You have to have pain in function. We really needed to show a trend versus statistical significance as compared to some of the U.S. data. So there was a broad degree of interpretation there naturally as we do with the FDA. We engage similarly with PMDA. And so, with MEDINET, we’re continuing to work with PMDA. We were there in August, preparing for the clinical trial notification. We have very productive discussions. We've since talked with them again post data and naturally they're looking at it just as the FDA is. And our expectation is that we'll continue to interface over the next month or so before we kick off that 30 patient trial with MEDINET. MEDINET overall continues to be very supportive. I think they see the same thing that we do when you look at the totality that data and has not many way dampen their enthusiasm for not only the development, but the goal of bringing NeoCart to their patients. We already have a number of patients as we understand that are standing by waiting to be enrolled into the study based on the number of surgeons, who have done work here both in the U.S. and Japan. The overall unmet need is the same no matter where you are in the world.

Great, thanks for all those answers.

Thank you. [Operator Instructions] Our next question comes from Kumar Raja with Brookline Capital Markets.

Hi, good morning. Thanks for taking my questions. So I just wanted to get a sense with regard to the nature of interactions with the FDA. Particularly, if the FDA trying to get a sense in terms of the safety and efficacy by probably based on some statistical analysis getting to account for its own. And once they are comfortable with that – after the BLA filing, the focus will mostly be on CMC as you mentioned earlier, did you said the strategy?

I think that's a fair perspective. So, there's a couple points to your question. First, absolutely, first and foremost the agency is going to be at safety and we've demonstrated an excellent safety profile. Naturally, this is autologous. We've had patients throughout seven years in the existing trial and 11 or 12 years if you go out to our Phase II. So that's the starting point. The second, of course, is going to be the risk benefit. And that's the comparison of safety and efficacy and that's where we're having a fairly substantial discussion on those clinical data and results. Now in the context of the BLA review itself, there will be additional analyses of that clinical data. So our goal is I would say step one, determine whether the data today is sufficient for a BLA review and then once it is accepted, there would be a further deep dive. Naturally, I think your question is a good one to a certain extent we're having a pretty deep dive already into the clinical data that may then provide additional clarity on what the BLA review would look like. And for the last part of your question, absolutely, there is a significant amount of work that also takes place in the BLA review for these autologous cell therapies where an enormous portion of the review is around manufacturing, around comparability, around the validation strategies, and of course our ability to manufacture. Similarly, we've got 10 years of experience doing that just in the Phase III. That has lead to excellent discussions with the FDA over the last couple of months on TMC and then also on the facilities. So we are in an active review as we speak. Steve Kennedy, our Chief Operating Officer, has been leading those discussions and overall the feedbacks from the agency in September and October on those other discrete packages have been very robust. They have provided excellent feedback. All anticipated to support a more robust BLA review if in fact we get to that point. So I think the way we should be thinking about this is quite holistic. It is of course the clinical data. It's looking at the clinical data in conjunction with the FDA guidance criteria and then preparing for that very robust manufacturing facilities, validation and other reviews.

, :

Sure, great question. So as we've described for our investors over the last four, five years now at this point, we have been manufacturing NeoCart in the same facilities at the exact same biologic manufacturing process and it's the same with many cell and gene therapies. While the process is the product and each patient is its own lot, which leads to a lot of complexity, well known in the industry. The goal is that you're not making any substantial changes. And we have been working closely with the FDA to make sure that we review any of those changes to the extent they're made. The top level changes that we have made in terms of suppliers are bringing in the production of some of the critical raw materials. Now, the processes, the standards, the specs are exactly the same, but we brought in the original Type 1 Bovine Collagen, which is used to suspend the cells and then also used in a variety of the other raw materials. We've been bringing in scaffolds and other elements to the raw materials, but this has been part of extensive Type C discussions going all the way back to 2014 and those have carried forward over the last couple of years, including two additional recent conversations that we had in September and October.

Thanks.

Ladies and gentlemen, thank you for participating in today's question-and-answer session. I would now like to turn the call back over to Mr. Adam Gridley for any closing remarks.

Thanks everyone for taking the time this morning. We remain optimistic regarding our prospects with NeoCart and will provide additional updates as we progress our conversations with the FDA. We appreciate both your patients and your continued support. Have a good day.

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