Plus Therapeutics, Inc. (PSTV) Q4 2014 Earnings Report, Transcript and Summary

Welcome to the Cytori Therapeutics Fourth Quarter and Full Year 2014 Earnings Results Call. [Operator Instructions]. Before we begin, we want to advise you that over the course of the call and question and answer session, forward-looking statements will be made regarding events, trends, business prospects and financial performance which may affect Cytori's future operating results and financial position. All such statements are subject to risks and uncertainties including the risk and uncertainties described under the risk factor section included in Cytori's annual reports on Form 10-K and quarterly reports on Form 10Q filed with the Securities and Exchange Commission from time to time. Cytori advises you to review these risk factors in considering such statements. Cytori assumes no responsibility to update or revise any forward-looking statements to reflect events, trends or circumstances after the date they are made. It is now my pleasure to turn the floor over to Marc Hedrick, Cytori's President & Chief Executive Officer. Sir, you may begin.

Good afternoon everyone. Thank you, Dorris. Welcome to our fourth quarter and year-end 2014 conference call. My name is Marc Hedrick, I'm the President and CEO, joining me is our CFO Tiago Girao. Our press release was issued today and as well as 8K and both of them posted on our website and also we’ve a copy of this transcript that can be found there as well On today's call, I would like to focus on first on our clinical and operational progress over the last few quarters in the year as well as the outlook and anticipated milestones for 2015. Then I'm going to ask Tiago to update you on our financials. And then we will close out with a recap of specific milestones for the remainder of the year and then go to Q&A I would like to lead off though first with a recap of some of the corporate highlights from the past few months. I recall that over the summer we embarked upon a substantial refocus of our strategy, restructured the clinical program and operations and really launched a blitzkrieg attack on our expenses. Subsequent to that delivered on an expanded BARDA relationship in the form of an executed $12 million development milestone plus an additional $8.3 million conditional option for thermal burn injury trial. We then subsequently up that $12 million to $14 million late in 2014. We also obtained U.S. FDA approval for knee osteoarthritis trial and then subsequently enrolled the first patient in February. Also towards the end of Q3 we announced a publication of Phase I/II data for scleroderma indication and the pilot data related to that and then developed that into a U.S. scleroderma pivotal trial approved by FDA approval late in 2015 and then subsequently expanded that trial to 20 sites and then announced a parallel trial in Europe called SCLERADEC II would be forthcoming and then announced positive EMEA opinion on orphan drug status for our ECCS-50 therapeutic subsequent to the end of the year. And now in terms of new announcements, I would like to highlight from our 8K from today noting that given the recent stock price appreciation, NASDAQ has formally notified us that we are in full compliance with all listing requirements. So now from the big picture update I'm really happy to communicate, and specifically for the sake of our team of employees and for shareholders that we are really beginning to see tangible signs that the hard work and the discipline the company is exhibiting is really starting to pay off I just personally cannot say enough great things about our team here and how they have persevered over the past few months and executed on everything they have been asked to do and Cytori is truly fortunate to have a great, dedicated team that we have with us today and I just want to take a moment to thank them publically on this call. Job well done. And also I would like to take a moment to go back to our last call and remind folks of some of the goals that I articulated, that are important to us in order to help frame the call for us today. First and foremost, it's been our team’s intent to identify a number of focused or niche indications that we can bring forth to late stage clinical trials preferably in the U.S. but very quickly. We want to do that in a manner that balances the overall corporate risk profile but individually those should have a sufficient IRR to warrant their pursuit. But we have made substantial progress in this area over the past three quarters and we intend to continue to move very deliberately in that direction. Second, we do intend to better combine what remains still a very nascent sales and marketing effort and marry that to a thoughtful and systematic approach to partnering. Our goal is for those efforts on a whole to be profitable, to be cash flow positive and growing at least modestly in the near term at least until such time that we are able to meaningful data, reimbursement and see the kind of significant breakout growth that we all want to see. And I'm must say I'm obviously very pleased to the fact that we’ve achieved a positive contribution margin in Q4 for the first time in recent history Maybe more specifically in this particular area, we intend to make our direct sales force efforts under our CE mark approval and our Class I device clearance, cash flow positive. We will continue to ensure that our BARDA partnership is as cash flow positive to the company as possible and we will do our best to better leverage the current economic benefit of our existing partners and licensees as well as anticipated future partnerships. And then third and finally, I want to also mention the obvious importance of improving what a two long standing weaklings in the company, namely our balance sheet and our cash burn. As Tiago is going to discuss, we have made substantial progress in that area in terms of expense management and have a high degree of confidence right now in our current plan to strengthen the balance sheet, including our debt obligations The operational and cost improvements made over the past couple of quarters have to my mind really put the company in a more sound position to be able to prudently capitalize the company while continuing to meet our critical business objectives So today Tiago and I together will hit the key clinical, operational and financial highpoints. And I'm going to start off with a clinical update, but before I dig into some of the details of the clinical indications and trials, I would like to give you a little insight into our thinking as it evolves regarding the global regulatory environment and its effect on our clinical development strategy and planned commercial approach and then happy to take any questions later. So today, all of our clinical efforts, both R&D and commercial, incorporate the use of a variety of mixed cell populations or outputs derived from the patient's own adipose tissue, we call those collectively adipose derived regenerative cells. An increasingly sophisticated electromechanical device we call it Celution, it's software code, the pharmaceutical agents involved in this and the single use consumables are all combined at the bedside to rapidly manufacture pharmaceutical grade, autologous cellular therapeutics or drugs if you will for an individual patient and disease Generally speaking, around the world, the whole process, the device, the therapeutic or drug are all regulated though the device regulatory pathway, CE mark in the Europe, PMA device in the U.S. This makes complete sense because when you’re making a therapeutic at the bedside it's going to have distinct regulatory attributes and points of emphasis versus something that might be made in a factory and transported and stored at a hospital. It's our view increasingly that the FDA has provided us leadership and we believe the trends for us are pretty clearly and emerging that the regulatory scrutiny is going to be increasingly more around the therapeutic agent or drug and the clinical claims and the recent FDA guidance documents clearly support that notion to us. So the good news is I think that there is increasing regulatory confidence around our device, our reagents, our software and our manufacturing equipment. And on the whole it puts us in a great position because today we can sell or market the cellular processing technology via CE mark or Class I, that allows us to generate positive contribution margin, revenue and proof of concept clinical data which we have continued to do for some time and we will continue to do it, I think that’s a real advantage for us. On the flip side, we have really done [indiscernible] job over the years investing in the processes, the products, make sure they are the highest quality and they can stand up to the most rigorous regulatory standards in the world. We can play it both the device and the therapeutic world equally well. But going forward, we intend to follow the regulatory lead in the U.S. and increasingly focus our clinical and future commercial activities specifically on the therapeutic or drug and its clinical claims while still maintaining our device base regulatory pathway. So commercially what does that mean? Rather than a one size fits all razor-razor blade model that we have focused on over the past years, this new approach will allow us to better take advantage of the niche opportunities such as rare diseases, enabling better -- realizing their pricing benefits, helps us to better market our products toward the clinical benefit of the therapy and provide more clear cut product differentiation between individual markets or competing technologies and this will be a transition process of course but I want to lay that out for you. As we move forward, on a relative basis, expect to hear more from us, from the management team, from the company about the specific therapeutic or drug, and it's clinical claims, it's benefits and the pharmacoeconomic outcomes and less about the device, the consumables, the enzymes and the cells. So let me now turn now to Scleroderma because it's a great example of the evolution of the business, so we’ve two pivotal scleroderma trials, STAR in the U.S. and SCLERADEC II in Europe, both of which we plan to begin enrollment this year, and in those we test the use of our ECCS-50 cellular therapeutic for the hand manifestations of scleroderma. With respect to STAR trial, we have final protocol approval and the FDA has cleared us to bring on upto 20 additional U.S. sites to which to enroll the 80 planned patients. We anticipate that we will begin enrolling sometime in the middle of 2015 and it anticipated taking approximately a year to enroll the trial. SCLERADEC II is really still in the planning phase, and all centers will be French with the intention to enroll 40 patients in that trial. A 2015 start date is possible and we expect for that trial to about a year to enroll once started. Thus far the published data suggest that the ECCS-50 therapeutic under study in both trials may have a disease modifying effect at six months follow-up. Longer term 12 month results from SCLERADEC I should hopefully be accepted for publication this year. In the U.S., we are clearly regulated as a PMA device and we have been effectively fast tracked to pivotal, despite the rare orphan nature of the disease, however, our current plan would not be to seek orphan designation in the U.S., so it's really no benefit to that. But the disease is itself a rare disease affecting approximately 50,000 - 75,000 patients in the U.S., and we currently feel that we may be able to obtain very favorable product pricing based on analogue diseases and the current pricing trends in related markets of greater than $50,000 per year per treatment In Europe however, we have sought and obtained a preliminary opinion from European Medicines Agency and the committee on orphan medical products that we may be able to obtain orphan drug designation there and that’s a real benefit for us there for a number of other reasons. So as one final point, as a rare disease treated at approximately 35 centers in the U.S. which is Scleroderma, Cytori intends to commercialize this without a partner and will update you increasingly as we move closer to that point in time. And by virtue of being an active-U.S. pivotal trial, our team will over the year be increasing our resources toward planning for ultimate commercialization of the therapeutic if and when approved. Now filling over to Osteoarthritis. Our U.S. phase IIb/pilot trial in knee osteoarthritis, the trial is termed ACT-OA, is presently enrolling at a number of centers in the U.S. On our last call, I presented an overview of the disease and the clinical plan. Unlike, scleroderma, osteoarthritis, is a very common disease and it's our intention to seek a partnership to help carry this therapy through pivotal and to commercialization if the data is positive We began enrolling that trial in February in a number of sites are at this point screening, scheduling patients and treating them. Based on the early site activity we see and it's still early, we believe it's possible to enroll this trial in 2015 and have data in 2016. Our plan is to update you directly when we obtain key milestones over the course of the trial. Relatively data from European investigator initiated pilot trial for ACL repair planned for later this year and the newly enrolling pilot trial for meniscus repair we hope both of those are going to help support our ability to obtain a partnership in the area. Now to the Urinary Incontinence trial. Cytori, Nagoya University and the Japanese Ministry of Health, Labor and Welfare plan to begin collectively as a group of pivotal trial in men with urinary incontinence in 2015. Pending PMDA approval, which we’re waiting for and as anticipated to be forthcoming this year, enrollment could begin this year. The trial will be a 4 site, multicenter trial treating 45 men with urinary incontinence, funded almost completely by MHLW. Once we have PMDA approval we will update you on the specifics of that trial and then again once enrollment begins. Now let me discuss our BARDA partnership in Thermal & Radiation Injury. With the August 2014 BARDA decision and subsequent increase in financial support announced in December 2014, Cytori will receive approximately $14 million in development support over the next couple of years and another $8.3 million earmarked during the same time frame for clinical support upon IDE approval for a thermal burn trial in the U.S. The bulk of this money is earmarked for activities needed to obtain FDA approval for the clinical trial in thermal burn but also include support activities for the next gen solution system called CTX-2. Based on the difference between the planned, timing to receive the ramp up in BARDA funding and the actual timing of receiving the funding we now anticipate that the U.S. clinical iteration of the new system CTX-2 that will be available late in 2015 or early 2016, but its availability will not hold up any other clinical or key commercial activities. And now finally just an update on our ATHENA trial, since removing the safety concerns and the decision to truncate the trial to 31 patients due to the delays in enrollment and assessment of the cost benefits of the trial we plan to have the raw data this quarter and after complete analysis the data make a decision as to the proper venue for presentation and it's publication. Now permit me to pivot from the clinical pipeline update and discus more in conceptual mode our business development approach and do so in context with our product and contract and revenue picture. In terms of our current activities to-date, we have managed our sales and marketing expenses as well as our overall expenses down significantly. As a result, we achieved the hoped for breakeven milestone in our product revenue in Q4 and we feel comfortable forecasting a breakeven on sales and marketing for the whole year. Remember it's best to evaluate this on a yearly basis not on a quarterly basis. There is potential upside and that’s going to rely on the performance of our current partners such as Lorem Vascular and Bimini, and the performance of our KK on the heels of the announcement of the new regenerative medicine law there. In terms of contract revenue, we anticipate a greater share of BARDA revenue and contribution in 2015 and 2016 over 2014. Now as I mentioned on the last call, we intend to target new business relationships in the following 3 broad categories, broad strategic partnerships with med tech or pharma, limited commercial partnerships that could result in some meaningful commercial revenue at favorable margins for the company or access to expanded networks of patients also resulting in increased revenue. And then finally potential partnering around new technologies that could be synergistic or value add with our current technology. In terms of how we think about the economics in these areas, we’re looking specifically on one hand for balance sheet impact in terms of upfronts fees and milestones, and perhaps shorter term commercial impact in terms of opening orders and system sales. But we’re also looking for longer growth opportunities that will more greatly impact the P&L over time. So with that as a backdrop I would like to turn the call over to our CFO, Tiago to present the financials. Tiago?

Thank you Marc and good afternoon everyone. I'm pleased to announce that our cost reduction initiatives implemented over the past several months are showing significant results. Our Q4 operating cash burn decreased to $4.9 million compared to $7.2 million in Q3 2014 and $9.5 million in Q4 2013. Overall we continue to work on expense reductions and operating efficiencies, and we expect to deliver operating cash burn savings of approximately $10 million in 2015 or expected operating cash burn of approximately $25 million when compared to $35 million in 2013. Our cost reduction initiatives include the elimination and consolidation of certain commercial and development activities and containment of outside professional services. Going forward, we are seeking additional reductions largely on changes to our fixed costs and physical locations. With respect to our operating expenses research and development expenses, excluding share-based compensation were $2.8 million in Q4 compared to $3.0 million in the preceding quarter, and $4.9 million in Q4, 2013. The decrease was primarily driven by study related expenses, including supplies due to the decreased activity of our Athena trials, offset by start-up costs of our ACT-OA and STAR trials. With our effort to turn our sales into profitability, we continue to manage down sales and marketing costs, which excluding share-based compensation, were down to $1 million when compared to $1.3 million in the preceding quarter, and $2.4 million in Q4 2013. And we are pleased to inform that our sales and marketing organization delivered a profit of $69,000 in Q4 compared to a loss of $0.8 million in Q4, 2013. G&A, excluding shared-based compensation, decreased to $2.5 million compared to $3.4 million in the preceding quarter and $3.2 million in Q4, 2013. We experienced G&A expense decreases across the board with the main drivers being headcount reductions and decreases in professional services. With respect to our revenues, in Q4, we recognized $3.8 million in product and contract revenues compared to $3.5 million in Q4, 2013. Product revenues were $2.5 million during this quarter compared to $2.7 million in Q4 of last year. In 2014, we refined our revenue recognition policy causing delay in timing for revenue recognition specific to new customers. At December 31, 2014 we had approximately $1.4 million of unrecognized shipments, the majority of which we expect to recognize upon cash collection in 2015. Product revenues are driven mostly by research sales of Celution equipment and have been heavily concentrated in Japan. As we have discussed, the Japanese government finalized new regulations for regenerative medicine that went into effect late last year. We believe that these regulations will provide clarity to our potential customers and could facilitate the sales process. Contract revenues are driven by activities with BARDA, who recently amended their first contract option extension resulting in a $14 million contract to continue to fund ongoing research and development activities required to enable a pilot clinical trial in thermal burn. We expect contract revenues to increase throughout 2015. At December 31, we had $14.6 million in cash and an outstanding debt balance of approximately $25 million. We are in need of additional cash to fund both operations and our debt obligations for the next 12 months and enable the company to meet the important near term objectives. Management is working closely with our lenders and we are pursuing both financial and strategic opportunities that we believe have the ability to fund the company to near term objectives and through targeted commercial and operational improvements in 2015 and beyond. With that, I would like to turn the call back to Marc for our 2015 forthcoming milestones.

Great, Tiago. Thank you very much. So I would like to finish up this afternoon with the prepared remarks by focusing some of our key forthcoming milestones over the ensuing year. First of all we have applied for Chinese FDA Class-I clearance as we promised to do that’s important to us because it triggers a contractually obligated purchase order for our partner Lorem Vascular, we will update you when we know more about that. We continue to work with EMA regarding a final opinion on orphan drug status for Cytori’s therapeutic ECCS-50. That will create another cascade of events and potential milestones for us and we will update you when we know more about that. We intend to initiate enrolment of our STAR scleroderma trial in the U.S. sometime around mid-year we’re doing a lot of planning and a lot of activity related to that and potentially we can get the SCLERADEC II trial up and running although we have less control over this, that’s driven primarily by the French group involved. We intend to publish our SCLERADEC-I 12 month data which will assess longevity of the clinical response in these patients and further explore whether there is a disease modifying effect of the treatment which will be very important to show. We intend to complete enrollment of the ACT-OA trial based on the current enrollment and expect data in 2016 assuming we can complete enrollment by 2015. Our hope is to begin enrollment of MHLW funded Japanese urinary incontinence trial pending PMDA approval and we will update you when we know more about that. The increase in BARDA funding in August and then December of 2014 was related to a lot of really great work that our team has performed over the last 2 or 3 years. We will have two presentations at the American Burn Association meeting in April 2015 and that data will be presented there as well. Athena 6 month and 12 month data should be available to us this year and as I have mentioned we will put that in the appropriate format when that’s available and accepted. And then we intend to complete the key development activities for the next generation Celution System over the course of the year. We have prototypes in-house and we’re in the process of doing the biological testing and the software testing on those and we should by the end of the year have the development work complete. So with that Dorris, I will turn the call back over to you and we will commence with the question and answer.

[Operator Instructions]. Our first question is from the line of Joe Pantginis with Roth Capital Partners.

Marc, I think I want to ask a couple more broad based questions but it's obviously focused on the scleroderma study to start. Can you really go into a little more color with your FDA discussions because I mean it seem to really rapidly progress with regard to the FDA's openness, being able to have a pivotal study with really what I consider to be a very small amount of patients.

Yes we have really been in constant communication with the FDA going back to 2004 and as I have mentioned in my prepared remarks the regulatory path, although still the same, still the device there are things that because our technology is so new so innovative and it wasn’t originally contemplated in the 1271 regulations that govern the therapy area. So we had to some of those out in an iterative way. But it became clear to us over the last year or two that while there wasn’t a specific orphan drug pathway in the U.S. it's available to a device that manufactures the cell therapy in the OR, the FDA would effectively if the data was right, the indication was right and we can make that rare disease argument that the FDA would be permissive to green light us through to pivotal Phase III and that’s indeed what happened. I think we worked well with the FDA in overcoming some of the challenges with Athena. I think they have a lot of comfort with our -- the quality of our products and our technology and our regulatory filings. So I think it really sets up a nice precedence for us to pursue similar indications in the same way.

And then if I could just switch quickly to the other side of the pacific, thank you for the quick update on the Lorem Vascular and I guess the broader question is on the Japanese side with regard to the regulations. They are still evolving but over the last few months since say early 2015 update with investors, are there any anecdotes or updates you can share with regard to the regulatory environment in Japan?

I will tell you Joe, I should be in Japan next week and at the Japanese Society of Regenerative Medicine presenting there. I will able to meet with our physicians that are involved in using our technology. We’re meeting with the key point person at MHLW regarding the regenerative medicine, while he is actually speaking at a Cytori offsite conference. So he and I are both the two speakers there. So I will have some dedicated time with him and our physicians and I will have a greater insight. I think nothing has really changed since our last update both the call and the release around the new regenerative medicine. While we think it's a net positive but as you sort of implied by your question, we will have to play that out and once we know more I will be happy to update everyone and update you specifically.

Our next question is from the line of Stephen Brozak with WBB Securities.

Quick question on your next generation device you’ve obviously have been talking about the current device and obviously it's robust, can you tell us what are some of the differences with the next generation device and who is paying for the development on that so how does it affect your operations? And one follow-up after that.

From a big picture perspective the new device will be smaller, less expensive which was a much lower cost of goods both on the system and on the consumable. It appears that it will substantially increase the efficiency of extracting cells from patients so that you can take the same number of cells with less tissue or reformulating that with the same amount of tissue you can take a lot more cell. So that allows for now taking 25, 50 CCs of tissue from a patient and then generating the types of cells that we were getting with higher volume. So it really lowers the patient impact related to that. The viability looks good and the user friendliness of the system will be substantially improved. It will be cloud connected, we will know what's going on with every system around the world in real time. We will be able to seamlessly control the software that’s in the device. The patient related data from that it will have online real time diagnostic capability, it will have sensory functions that will allow it to recognize specific consumable lots and only ones that are made by us or those that we redeem appropriate to make those and then the time of processing will go substantially down so that we can realize what we have always said these cells in about an hour or less and so it's almost hard to compare to previous systems which are really geared towards the research capability. So in terms of paying for the system, our relationship with BARDA it's great on a number of levels, it helps us offset our overall burn part of my salary and part of our overhead and so forth. It's allowing us to do more basic R&D projects that will be difficult to fund on our own. Potentially creates a commercial path to market that is funded and opens up the potential, the government as an acquisition customer. They are paying for some of that the technology that’s going into the CTX-2. Some of the testing related to that. It's a not insignificant percentage but Cytori is still funding the -- a good component of those development dollars.

Okay. And going back to your, I'm not going to say switch but on accentuating the scleroderma part. Since it is an orphan indication and by definition orphan indications obviously have a more robust how should I put it, patient population because obviously in this case there is nothing that these people can do. What kind of feedback are you getting obviously now having gone out there and stated that you know you’re in the field. What are you seeing from the clinicians? What are you seeing as far as feedback and I will hop in the queue. Thank you.

As soon as we have reviewed the data and published it and recognized that there was a meaningful late stage clinical potential, commercial opportunity. We reached out to these societies and some of the key opinion leading doctors in the U.S., formulated a scientific advisory board, brought them together, looked more deeply at the indication and the viability of the therapy. The feedback was extremely positive by both rheumatologist and surgeons and then we increased our communications with the patient advocacy groups in the U.S., a couple of main ones that are more national presence but they also have local affiliates as well as those beyond the U.S. And we have been featured in newsletters and other communications from them thus far. I think there is a lot of excitement around this trial because it's specifically dedicated to the number one cause of disability of these patients which is the hand dysfunction and that appears to be worse than rheumatoid arthritis which is a much more prevalent disease. So I think part of our ability to enroll this trial quickly will be predicated on getting the support of those societies and it's our intention to work very closely with them as we get the trial ramped up.

Our next question is from the line of Jason Kolbert from Maxim.

This is actually Jason McCarthy for Jason Kolbert. It sounds like although the restructuring and the refocusing of the financing, is just looking great for the scleroderma and the osteoarthritis trial going forward. I have a question going back to the FDA discussions and it's related to how they are viewing out of adipose derived stem cells and we just think it's important to kind of understand how they view I guess manipulated versus unmanipulated because we keep emphasizing that Cytori is really far ahead of everybody else and they can put one up on the cell therapy score board with the FDA this year. So we just kind of wanted to get a little more clarity on kind of how that discussion went.

So Jason I would say it's not your lucky day, because my intention was to have [indiscernible] our regulatory guru here with us today and he has to the flu unfortunately. But we will try to bring him back on the next call because he is really the expert in this and has really been working hand and glove behind the scenes with the FDA and with the Japan and the European regulators for that matter. You rightly mentioned that the FDA guidance documents that came out recently helped clarify to a great degree what in a public manner what we have understood privately and that is that the FDA doesn’t view anything that unpacks out of post-tissue whether it's be an enzyme or be some other physical force, ultra sound, [indiscernible] thing, whatever creates a cell population from adipose tissue is beyond minimal manipulation and therefore is an important regulatory, a regulated event. It doesn’t qualify for 510(k) approval, we learned that a long time ago, perhaps the hard way. But they are willing to consider device based approaches when appropriate but by in large our view is that the fall pathway will be LA and they will be regulated as a biologic. So the ability to be regulated in the OR as device which is the most appropriate pathway for us and we have an RFD from the FDA request for designation from the ombudsman saying that we’re device and that we don’t anticipate that changing anywhere around the world, we think that’s iron clad. But they will look at us differently and we will get the benefits of the device path but -- and our therapeutic it's captured under the device path. So hence my comments earlier in the call to help clarify the fact that the FDA -- they get the safety of the device they have our 12 foot tall stack of paper that shows the details of the performance of the device, their focus is really on the therapeutic and the outcome and that’s why I think we’re going to overtime increasingly focus on the therapeutic it's name, it's safety profile, it's mechanism of action, it's clinical effect and the claims around it. It all backs up into the fact that adipose tissue if you release the cell it's beyond minimum manipulation and you’re creating a cellular therapeutic.

Our next question is from the line of David Musket with ProMed.

I think reviewing the changes here, and just to expose I don’t know if we have fully appreciated this change in the business model where we have gone from coming number of disposals that’s to being able to charge for an end product I think you said you might be able to charge something in the order of $50,000 a year in scleroderma market. Is this something that you’ve been flushing out with respect to the commercial effort to be able to orchestrate that?

Yes it is and we definitely want to be careful that we’re playing catch up in the sense that we have gone relatively rapidly from Phase I/II to Phase III and -- but we’ve some very experienced voices in the orphan field in the U.S. that’s in companies that have broad orphan drugs to market and have been active in the M&A side when it comes to orphan pharmaceutical so I'm happy with the advice we’re getting. We’re spending a lot of time and effort looking at disease base analogs to scleroderma, therapeutic analogs, their pricing and the clinical data regarding performance as we look at potentially making a more premium based pricing argument for the therapeutic based on it's [indiscernible] clinical benefit and the fact that we actually maybe modifying the disease progress in the key lifestyle related issue in these patients. So I would say we’re kind of upto our shoulders in that work. We have more to go but thus far kind of based on our language we have been careful, we think there is an opportunity to convert the business model to more of a drug based model.

And I assume that you’ve started to compile list beyond scleroderma that kind of fits this model?

We have. And one of our key clinical deliverables and commercial deliverables mix with our Board of Directors is -- now that we have -- what seems to be a clear path to bridge Phase I/II data that if promising in a relatively small group of patients to be fast tracked directly to Phase III what other diseases might the hand manifestation in scleroderma, is a real clinical need and a real opportunity to build a sound rapid to market pathway for those indications and we’re going to look at those and based on funding and other issues our intention is to bring more than one of those to the clinic and potentially to the market down stream using the same core technology and leveraging the same investment that we have made over the last 10 years.

I couldn’t help but noticing in your first paragraph you highlighted the fact that you’re hoping to extend your agreement with your lenders, obviously the shorts [ph] have been a field day with that coming due here and not so in distant future. I know you probably can't say anything specific about that but can you give us some idea about why you’re so optimistic about that and what you will be looking for here like what you’re looking for six months more or like last time or a year or something along those lines?

You’re right, it's tough to be specific when a lot of this kind of going on behind the scenes and maybe at the risk of being too simplistic but answering the question hopefully and some detail you know what's our philosophy regarding repairing what I mentioned the two big weaknesses in the company in my view the balance sheet and the debt and at the -- when I took the job over as you thought about it, the first thing we have to do is stop spending and I think we have made substantial changes, [indiscernible] has been fantastic and helping reign that in which we have done. We also took some time to early clarify what's important to us and in the flip side of that which is what's not important and what we’re we going to quit doing, and we just quit doing that. So we quit spending. We stopped doing the things that we decided weren't important and then really more recently in the last month or so we have really been focusing on increasing the number of tools in our capital toolbox. On the inflow side we want to protect our NASDAQ listing which we have done, we have had a lot of volume and some depreciation of stock price. We’re expanding our partner outreach and we’re looking very specifically at sources of capital. We have warrant set are well in the money, we have an ATM of $40 million, we have the ability to raise capital. I think we’re in very different position than we have been in the past in terms of our tool to address capital inflow issue. And then if you look at the tools on the capital outflow side and that gets to your specific question about restructuring the debt. I will look to do something might be one step, it might be two steps to significantly push out the debt but also pay some of the debt down. We paid some of it down I think there is an opportunity to do that. The lenders have been great and I anticipate that we will be able to continue to do what we have done in the past which is to work with them to make that not an issue for us but not a significant issue. And then just in terms of completeness on the sales side, you know let's make what we’re doing with BARDA and with our revenue, positive contribution margin and let's be wise about how we manage that. So, to some it all up we have worked like dogs to do all three of those things at once, stop spending -- stick to what's important, stop doing what's not important and increase our toolbox. I think all these things in different measure but take them all together that we’re confident with the tools that we now in place that we could fix this issue not in the band aide style but once and for all.

And lastly I know you can really predict exactly, nobody has that much experience with the time table and the Chinese approvals but do you’ve any feel whatsoever, is that months away? Is that you know next quarter or is it second half, what should we set our expectations where on what you’re thinking right now with respect to the Chinese approval?

I think it is sort of okay to us but we -- the good news is this is we’ve a partner that’s fogging our glasses on getting that regulatory approval. They are extremely interested, they are like a coiled spring in terms of getting out to the market. They are working behind the scenes. We have a consulting group that’s Asia-Pacific base that’s dealing directly with Chinese FDA. All the feedback from that is good. I don’t anticipate it to take very long -- we really don’t want to put kind of weeks, days, months sort of on that but we feel pretty confident it's coming and we don’t see any reason why it shouldn’t come in relative to short order but it is a first time we have done that with them. So I just hesitate to be more specific than that.

Our next question is from the line of Greg Huston with Oppenheimer.

I’ve to say from the onset it's one of more gratifying calls we have had in quite a while. The level of detail that you’re going into and the fact that you’re making not just incremental changes but real changes. I'm sure it's well received by most people on this call. The question I’ve -- you addressed it, it was asked by one another person but I'm wondering if you would expand a little bit on the effects of the clarification that the FDA made on the regulatory pathway for your product. It seems to me on one hand it eliminates a lot of other people who were tinkering around in the area and not doing high quality work. On the other hand I'm wondering to what extent it diminishes some of the greater institutions I know [indiscernible] and Jacksonville and others are doing lots of work using adipose drug stem cells for treatment. I'm wondering the balance there, the good, is there any negative to the kind of anecdotal information we may have been getting from some of these major institutions? Thank you.

There is some benefit in some of the more preliminary Phase I type of clinical work that’s gone on around the world and notwithstanding any discussion about our intellectual property which is very robust in terms of numbers of patents and the geographical coverage of our patent portfolio and that’s a discussion that we can have downstream when we have lots of revenue and market presence and we will talk about that but specifically related to your question, you can only go so far with that preliminary data and what we hear from FDA and frankly what we hear from partnership discussions that show us really robust Phase II or late stage clinical data that shows separation of the curves between treated and placebo controlled patients and there are just no substitute for doing that and it's very difficult to compare what one guy is doing in his garage with what's going on at the Mayo Clinic or at UCLA. And I can tell you there are a number of approaches that people are utilizing to take adipose tissue out of patients and do something to it and then put it back into that patient or someone else and it's very difficult to compare. You’ve to pick an approach and you’ve to build a regulatory file around that, show that it's safe, people are died by rogue doctors and clinics putting adipose related products back into patients even autologously. The FDA is mindful of that and they are going to regulate it but they are trying to do that in a way that doesn’t stifle what you know the positive side of the giving treatments to patients but also trying to protect patients and I see the struggle that the FDA has had. I think they have done a tremendous job to be perfectly honest with wrestling with those two issues.

Has this caused your phone to ring with people who are trying to advance the science but now are recognizing that perhaps they need to work in a framework that might be viewed more favorably the FDA?

I think that’s a fair statement. I think that really positions us nicely given all the work we have done and where we are with the field and if we can get clinical approval -- Phase III get FDA approval on a clinical indication that will just take us from a position of leadership to whatever that next level is.

And as always, to everyone that participant in the call I would like to thank everyone for their thoughtful questions. For those of you who have been actively following us over the years we’re just very appreciative of your continued interest and a lot of shares turned over in the last couple of weeks and for those of you that are new to company and the technology, we really welcome you aboard. Kind of coming back to the last two quarterly calls, as I was reviewing those I noted that very clearly told you that our focus was going to narrow and indeed it has, and we’re going to continue to narrow and maintain a laser focus on what we think is going to drive shareholder value. I also told you that our expenses are going to be reduced and they have, and we’re going to continue to put emphasis on that area, be good stewards of our resources. I also told you that we are going to be substantially on track with regard to our forecasted milestones and thus far we have and our goal is to continue delivering on those. So we will keep you updated and we have recently updated corporate presentations on our websites that are available from our recent conferences. Please feel free to take a look at those. Reach out to myself or Tiago or Shawn Richardson at Investor Relations and once again thank you for your interest and continued support. Have a good evening.

Thank you. This concludes today's teleconference. Please disconnect your lines at this time and have a wonderful day.