Plus Therapeutics, Inc. (PSTV) Q4 2015 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Welcome to Cytori Therapeutics Fourth Quarter and 2015 Earnings Results Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] Before we begin, we want to advise you that over the course of the call and the 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 risks and uncertainties described under the Risk Factors section included in Cytori's annual reports on Form 10-K and quarterly reports on Form 10-Q 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 Dr. Marc Hedrick, Cytori's President and Chief Executive Officer. Sir, you may begin.

Thank you, Kris, and good afternoon, everyone. Welcome to our fourth quarter 2015 earnings call. As Kristen said, my name is Marc Hedrick. I am the President and CEO of Cytori. And joining me on our call today is our Chief Financial Officer, Tiago Girão; our Chief Medical Officer, Dr. Steven Kesten and joining us from Japan is our Global General Manager of Cell Therapy, John Harris. We have recently issued our Q4 earnings release and proxy which should be posted on our website and a copy of this transcript will be available there soon as well. So here's the agenda for today's call. I want to start off with a brief update on our clinical programs, then turn it over to Tiago who will update you on the financials and then I am going to ask John Harris to provide us with a more full update on our progress in Europe and our Managed Access program in Japan. And then I am going to drill in on some of our plans for 2016 including the clinical, commercial and operating fronts and this will include more about how we intend to get the company on an optimal financial footing, a path to breakeven and on a real growth trajectory. After that we will discuss forthcoming milestones and then Q&A. So, as I begin, I’d like to just touch on 2015. 2015 was a very productive year for this company all across the board. On the clinical side we have multiple late-stage trials in enrolling. Operationally we hit or exceeded just about every external and internal measure we’ve set. Financially it’s the same story. The capital deployment in my view and our utilization of capital was targeted and effective and we established internal policies and procedures that should continue to drive financial performance well into the future. In parallel, and I haven't talked too much about this publicly, but we substantially strengthened our leadership team and it’s a group of fully committed leaders that are committed to making this company very successful in the future. So in summary I just can’t say enough good things about 2015. It was an outstanding year for this company on every front. Now on the clinical side. First scleroderma, we recently reported 24 month follow-up data from our EU pilot trial and that data showed ongoing evidence of safety of our ECCS-50 therapeutic in these patients and the longevity of clinical response. The clinical response that we saw was consistent and concordant among a number of clinically relevant patient reported outcomes and other meaningful functional endpoints. And although that data is important, I think in the interest of time today I would just refer you back to the transcript for our call approximately two weeks ago, but in summary from that data, I think there are two key takeaways that I’d like to reiterate. First of all, the data showed a significant sustained benefit of a single administration of the therapeutic and that's important because it really strengthens our own internal convictions on the ultimate utility of that therapy for the hand manifestations of scleroderma and also I think gives us comfort on confirmation on our powering [ph] calculations of the STAR trial. The second thing is that sustained benefit that we saw out to two years underpins our arguments that we are having in an ongoing fashion with potential payers around the pricing strategy for this therapy, two years response is really pretty remarkable. In Europe, these points, both of them should help support our utilization under the recently launched Managed Access Program and I think John is going to have some more comments on that later in the call. In terms of our enrolling clinical trials in scleroderma, our STAR trial which is the 80 patient pivotal Phase 3 trial is fully on track to enroll as planned by middle of the year. The SCLERADEC-II which is a 40 patient investigator initiated Phase 3 trial, very similar in design to STAR is also enrolling and continues to enroll in Europe. From the regulatory perspective, in terms of our approval plan for scleroderma, in the US, we're on track to file PMA approval in the second half of 2017 pending positive data from the STAR trial. And in the interim we are increasingly preparing to be able to launch that product in the US towards the second half of 2018, pending the positive response from FDA, reimbursement et cetera. In Europe, while we are actively making a therapy available on a compassionate use basis today via our Managed Access Program, we intend to file for full market approval based either on the EU data from SCLERADEC-II or the US STAR datasets or ideally both. In terms of additional developments on the scleroderma front, we feel that there is an opportunity to continue to build out a substantial scleroderma oriented franchise leveraging all that we have learned about the adipose derived regenerative cell therapy technology and its safety and efficacy profile in scleroderma. I think this would really leverage the scientific learnings that we have greened over the last few years particularly regarding the mechanism of action in scleroderma in the hand and then we can apply that, that same learning to other unmet indications in scleroderma. We think this is a great opportunity to build out our pipeline in the future. Speaking of pipeline, first osteoarthritis. Earlier in Q1 we discussed top line interim data from the ACT-OA trial, this data from pre-specified 24 week time frame. That data on the whole early in the follow-up period was encouraging at 24 weeks both on the issue of being safe and infeasible, but also from the perspective of showing evidence of a therapeutic benefit over placebo. We intent to have the 48 week data in Q3 and at that time we should be able to determine next steps in that development plan. The insight from that trial will also give us better insight into longer-term improvement in the symptoms, does that last from 24 to 48 weeks and then allow us any of the assessment of the magnetic resonance imaging data if any, in other words is there a cartilage effect. So in the meantime the limited unblind and the 24 week interim data allows us to use that data for partnering discussions and support other corporate uses. Our Incontinence trial called the ADRESU trial is primarily funded by the Japanese government MHLW enrolling multiple sites in Japan to 45 patient open-label trial. That’s continuing to enroll and the timeline suggest that we should look for data sometime in the 2018 timeframe. Regarding our program with BARDA on thermal burn and radiation injury, we are in the process of transitioning that program from the preclinical work over the last two years to the more clinically oriented development phase of that work. Partially that work is geared towards developing the next generation of the solution manufacturing technology which is the cornerstone of the medical countermeasure development we've been asked to complete by BARDA. An important advance as part of that BARDA related R&D is that based on what we've learned in developing the next generation of this technology we’ve been able to back engineer that into our current existing commercial and clinical trial platform. We’re not to say that the need for the next generation is not still there, it absolutely is. That's a much more fully upgradable platform, but we're able to reap some of the benefits in terms of higher cell number and it equates to potency and shorter manufacturing time as part of our current platform today. So as part of this transition and the successful completion on usually negotiated milestones, Cytori intends to file for IDE approval and begin a US feasibility trial under that BARDA contract later in this year and that should open up additional pre-negotiated funding support for the US government. [00:10:38] on track to file that IDE in the second half of 2016. Also I’d like to just mention the ATHENA trial. Remember that the ATHENA trial was a trial study in use of autologous adipose-derived regenerative cells for refractory chronic myocardial ischemia with left ventricular dysfunction. That data which is 12 month follow-up on 31 patients has been selected for presentation at the SCAI Meeting or the Society for Cardiovascular Angiography and Interventions to be presented in May 4 through 7 in 2016. And just recall that the top line data was summarized last year noting trends in endpoints related to symptomatic benefit in these patients, but the trial was truncated at 31 patients. We're also developing a manuscript which should be submitted this year to a peer review journal and then once again as a reminder, despite the promising signals that we’ve seen in that trial and other cardiovascular trials, it’s currently not in strategy at present to invest in further development for cardiovascular disease. However, we may at some point revisit that in the future, pending funding. I think with that I will turn the call over to our CFO, Tiago Girão. Tiago Girão: Thank you, Marc, and good afternoon everyone During the fourth quarter we continued to fully invest in our key R&D programs while working to reduce our cash operating burn. We reduced cash operating burns of $4.5 million as compared to $4.9 million in Q4 of last year. Our net loss is also trending in the right direction. When adjusted for non-cash charges related to the changes in fair value of warrant liabilities, net loss was $5.4 million in Q4 or $0.03 per share as compared to $6 million or $0.07 per share in Q4 of 2014. On a similar basis, for fiscal 2015, our operating cash burn was $20.5 million compared to $30.3 billion in fiscal 2014. That is a 30% reduction or approximately $10 million decrease on a year-over-year basis and over $1 million better than what we provided as revised operating cash burn guidance in just December of 2015. The reduction in cash burn was largely related to the reductions in headcount, discretionary spend and the improvements in working capital management. Our 2015 net loss when adjusted for non-cash related to changes in fair value of warrant liabilities was $26.4 million in 2015 or $0.19 per share as compared to $37.7 million or $0.47 per share in 2014, again a 30% decrease or just over $11 million better than last year. Through 2016 we believe we can realize further additional improvements in operating efficiencies and expect to continue to narrow our losses and operating cash burn in 2016 and beyond. As mentioned earlier, despite the decrease in operating cash burn, our primary focus is to bring an approved therapy to market in the US. In 2015, our research and development expenses excluding share-based compensation were $18.4 million, an increase of 27% over the $14.5 million expense in R&D in 2014. The increasing spend from 2014 to 2015 is primarily related to investments in trials as well as our BARDA related activities. As a percentage of overall spend, our R&D spend increased to 63% of total operating expenses excluding share-based compensation and charge for warrant liability as compared to 42% in 2014. This is intentional and indicative of our focus in late stage clinical programs. We continue to optimize sales and marketing activities and related expenses, which excluding share-based compensation were down to approximately $2.6 million in 2015 compared to $5.9 million in 2014. The decreases are mainly attributed to reductions in salaries and benefits as we focus resources owing to most profitable sales activities. Our sales and marketing organization delivered approximately $200,000 in contribution to our bottom line in Q4 and expect those contributions to increase going forward. G&A excluding share-based compensation was $8.5 million or a decrease of 39% from $14 million a year ago. The reduced G&A expense was related to reductions in salaries and benefits as well as reduction [ph] in professional services as a result of the renegotiated service contract and a reduction in discretionary spend. With respect to our revenues, in 2015, we recognized total revenues of $11.7 million which is an increase of 53% when compared to revenues of $7.6 million in 2014 and in line with our overall revenue guidance range for 2015. Product revenues were $4.8 million during this year compared to $5 million in 2014. Contract revenues were $6.8 million during the year as compared to $2.6 million in 2014. There was only a partial fulfillment of the purchase obligations from our license fee Lorem Vascular in 2015. As a result, we are in the process of renegotiating our data agreement and based on the current status of the contractual commitments, we elect to non-incorporate any of its potential revenues in our 2016 revenue and operating cash burn guidance and forecast that we’ll discuss in a minute. Turning to the balance sheet, at the December 31, we had $14.3 million of cash and $17.7 million of debt. Last week, we received an acknowledgement from our lender that they extended our interest only period under the facility. We will now begin to amortize it in 2017. That extension is based on their determination that preliminary six-month data from our US OA trial announced earlier in February was positive. With respect to 2016 financial guidance, we expect operating cash burn of approximately $18 million to $20 million and expect to revenues to range from $12 million to $14 million with growth coming from primarily from product revenues in Japan and our Managed Access Program. Looking beyond 2016 based on the current projections including recent achievement in the MAP in Europe and in Japan, cash burn trends would significantly improve on a year-over-year basis narrowing our losses into breakeven territory by the end of 2018. With that I’ll turn over the call to John Harris, our VP of Cell Therapy.

Thanks Tiago and good afternoon everybody. Previously, Marc had provided some background into our initiatives to provide hand scleroderma patients with access to ECCS-50 in EMEA beginning in 2016 via Managed Access Program or MAP. Cytori’s MAP partner in Europe is Idis and is in the process of setting up the required program documentation, product supply chain, packaging, labeling and conducting a country by country regulatory assessment with the competent authorities in each of those areas to ensure compliance and prioritize our targets list. We are effectively acting as a commercial licensing. Cytori is performing an independent pricing strategy assessment for ECCS-50 in EMEA that will also support the MAP program and downstream commercialization which is critical to get that right today. We have included in our 2016 guidance, a conservative utilization scenario specifically regarding adoption and pricing. However, based on Idis’ typical operating experience and some positive patient and physician interest and feedback about the MAP, we see potential scenarios of upside utilization in 2016 to 2018 horizon that may be achievable. In the coming months, Cytori plans to exhibit and answer questions about the MAP at the Rheumatology 2016 Conference in Glasgow and The Annual European Congress in Rheumatology in London. Now let me turn a little bit to Japan here. I've been with the Company since October of last year and here are some of my insights in joining Cytori. I joined Cytori directly from Becton Dickinson and that in that role as I was intimately familiar with the market dynamics in Japan regarding cell therapy and regenerative medicine. My decision to join Cytori team was driven based on my view of the opportunity for both Cytori technology and the opportunity for Japan generally. First let us focus and strategy in Japan. One, it’s to maximize the near-term revenue opportunity made available to us with the current class one approval and permissive new regulations in Japan. And second, to build the leading regenerative medicine company in Japan based primarily on a combination of compelling clinical data and an effective business model. Now I want to turn the time over and turn to talking about some near-term accomplishments in Japan. We’ve had a real comprehensive and complete understanding of the new regulations. These new regulations permit broad use of our technology via the combination of the Class 1 approval sort of like a 510-K in the US and a relatively simple registration process for each provider. Two supporting data points, first, thus we’ve supported facility certification and procedure approval in over 50% approval of our installed base in 2015. We anticipate double-digit increases for our installed base in 2016. Second, to strengthen growth, we have selectively offered incentives for both instruments and consumables resulting in a placement of a number of new instruments in Q4 and also in early Q1. More importantly, we've seen 130% year-on-year growth of the consumable utilization. It's best to think about this near-term or early access program opportunity for Cytori like a system supplier wherein customers which be it hospitals or clinics source the instruments and the necessary consumable for use in their facilities for a variety of conditions that they determine for patients willing to self-pay for the procedure. Cytori provides the systems and supports the clinics and hospitals to determine the treatment modalities. We see a growth runway in Japan for this self-pay system supply model particularly with the growing buzz surrounding regenerative medicine. It is normal in Japan for a patient to pay about 30% of the cost of health care that’s their co-pay here. And in Japan we think that provides a reasonable starting point for bringing the self-pay aggressively to market. As Marc mentioned in his recent shareholder letter, our installed base targets are focused on three specific areas, the aesthetic, self-pay medical and academic clinical research areas. Near-term growth will be largely driven by the aesthetic and self-pay medical areas. We’ve made a few strategic moves in late 2015 in the aesthetic and self-pay areas that will support an anticipated uplift in 2016 and beyond. We expanded partnership with the largest privately owned chain of aesthetic clinics in Japan to deploy solution in a number of clinics throughout the country. We’re very happy with what we see and their success should spill over into other clinic chains. We've also developed relationships with top-tier physician groups who are treating certain orthopedic conditions such as OA on a self-pay basis growing global safety and efficacy data on medical indication should drive this trend going forward. And there are a number of ways to increasingly leverage this. So obtaining reimbursement and improve indications for use here in Japan is a long-term mission critical initiative. As mentioned previously, the Nagoya University SUI trial is tracking towards 2018 data. And while these are all very encouraging mileposts and we see continued growth in Japan, some challenges remain. We need to better refine our strategy for other key indications such as scleroderma in Japan and optimize our ultimate post approval go-to-market strategy. A solid foundation has been built and our long-term strategy is rapidly taking shape, more to come on this. Beyond Japan and Europe, other sources of product revenue represent upside opportunity for us. One such upside opportunity is China and Southeast Asia; I’m very familiar with this market from my previous positions in Asia-Pacific. We are in the process of conducting an in-depth analysis of the opportunities in the region assessing the appropriate next steps and will make recommendations to our leadership team. And looking forward, on a global basis, I have a strong personal belief that we need to deliver on the opportunities of today in parallel to building for the future. I think the time is come for this technology in many markets. For 2016 specifically, I believe we have achievable revenue targets, so when met will result in an increase over 2015 in a global positive contribution margin to the business. Beyond the 2016 plan, I’m very excited as we formulate our plan for the next two to three year horizon. I see enormous opportunity. To best address that opportunity we’ve developed relationships with a number of leading experts and business advisers who are fully engaged alongside us in both the Japanese market and for the global opportunities. New markets and technologies as this require deep creative thinking, I assure you that this is ongoing as we focus on the corporate priorities Marc has clearly laid out which are US scleroderma approval, achieving breakeven by 2018 and building out a pipeline with executable niche applications. Now let me throw it back over to Marc.

Thank you John, I appreciate those remarks and thanks for joining us this afternoon. So to summon up then, in terms of our 2016 financial plan here is what we see. A continued emphasis on burn reduction in 2016 and despite the substantial efforts our team has made since I took over as CEO, which includes reducing the headcount by about 40% and reducing the operating cash burn by nearly 40%. The ongoing - the future gain will not come as easily as they did over the last couple of years. As next we focus on further cost containment activities and some other initiatives that we think are going to drive operating efficiencies. Things like structural reductions such as overhead reduction and ongoing initiative to lower our current products cost of goods and increase the margins related to sales of those products and continued pressure on discretionary expenses. We also see revenue opportunity as John mentioned. First of all, revenue growth in Japan and that’s primarily due to clarity that we see on the regenerative medicine law front as well as implementation of some new strategies that John mentioned that we think have legs. The second thing is an important new source of revenue, the Managed Access Program which provides us immediate on ramp and to a sizeable market in scleroderma that we think is going to materialize this year and then grow until we get the full approval in the US which is where growth should really - we’ve transitioned upward. And then finally, we are anticipating continued government contract revenue and related offsets. Now as Tiago aforementioned we can forecast a further reduction in burn in 2016, however most planned expense reductions will largely be implemented in the 2016 timeframe and therefore we see continued burn reductions in ‘17 and ‘18 primarily related to anticipated revenue growth with the MAP in Europe and in Japan. Operationally, with the ground work laid in 2015 and due to our increasingly positive outlook in 2016 and beyond, we are increasingly becoming confident that we are on a path to overall cash flow breakeven territory by 2018. So as we started to over the past year understand that we really had an opportunity to leverage this operational progress, we started to ask how do we more beneficially engineer our financial and capital structure. And I think we did this in several ways. First, it sounds like a broken record, but continuing to preserve existing cash and put pressure on burn is key for us and related to that, over the past 18 months, we’ve retired or restructured essentially all the key outstanding liabilities the Company including our Olympus liability. In December, we scrubbed our capital structure such that we now only have about $3.5 million very straightforward warrants outstanding. We also accomplished a deferral of loan principal repayment by virtue of a good lender relationship in our interim positive OA data which triggered a pre-negotiated interest only extension and reduction and about $3 million in amortization payments. And we preserved an active $33 million ATM facility to be used if and when appropriate. So one way to look at this albeit sort of artificial, but you can look at the world and say, if Cytori adds up the cash it has on-hand at year-end and adds to that all the elements I mentioned such as declining burn trajectory, the anticipated revenue growth, throw in the flexibility provided by the ATM and then add in a reasonable upside scenario from our active licensing program, on a pro forma basis today, we have enough current cash, access to capital and visibility to non-dilutive opportunities to get us to overall corporate breakeven in 2018. And to be clear that's prior to formal US scleroderma launch and that's without an additional new financing transaction. So in a big picture, we view this situation as a major improvement in the fundamental outlook of the company and a great point of differentiation for us in a potential challenging market environment. Obviously though there is a practical risk to relying on this approach alone and a stronger balance sheet is critical. So what we think about financing at this point? Our plan right now is to focus on the above activities. Management has thus far declined every available opportunity to further increase capital via some of the structured financings of 2014 and 2015 and strongly prefers to continue that avoidance posture. However, with those off the table, we are open to more shareholder friendly non-dilutive transactions should the opportunity arise. So beyond this bridge, the profitability plan, which is really a key theme of this call and as we bring this exciting technology to market, and I can tell you that, the more I see from our data feedback from customers and investigators, the more I am excited about what we’re seeing out there in the market in our clinical trials. The company has got to optimize it’s financial and capital market strategies. So over time, we can attract broader set of long-oriented funds with investors. As part of this strategy, we want to ramp up or enhance our investor relations activities, which we are now doing to expand internal resources and external resources. Another part of this strategy is to remove the overhang related to our current aspect with the compliance issue. Our NASDAQ listing and the cache and liquidity that it provides is important to Cytori’s Board and the management. And the universe of institutions are able to invest or conduct open-market buying and companies not a full compliance is limited. So to show full compliance we will need to regain the dollar bid price for 10 days prior to March 31. Not realistically, there are only two ways to do that. Plan A is organic appreciation, that’s obviously preferable, we did that last spring. We think it’s possible to do that again, or we need a Plan B. And Plan B is reducing the outstanding shares via reverse split. So we need to be prepared for Plan B if Plan A fails and therefore on our proxy filed earlier this afternoon. We have asked our shareholders to allow our Board to effect a reverse split if needed. We have asked for a range, but philosophically if we need to do this, I want to make it clear what the goals would be. Number 1, minimize the conversion ratio. Number 2, decrease substantially the number of outstanding shares, which is really the overhang from an outstanding share perspective, and the maximize liquidity and access for a broader set of long-oriented funds and investors. And it should go without saying, but to be very clear, avoid the need for any such future actions. If you take all these things together, the ultimate goal of these capital markets efforts is to support the core operational activities of the company, such as our clinical development programs, which are increasingly strong, the commercial traction, which we see as growing over the next few years, and then all of that could be bolstered by partnering licensing transaction with upfront dollars and that should drive valuation in a way of sound foundation for future share price appreciation. Ultimately the breakout growth is the kind of thing that we are looking and kind of thing investors we want to see with a new innovative therapy such as this. That’s the real driver. And for us scleroderma lead indication represents legitimate, significant dollar-based opportunity. It’s an unmet medical need and it’s a prototype of what I think we can do clinically in our development program going forward. In the background, we are going to continue to operate efficiently, deploy resources wisely, expand our pipeline of indications that can be brought to market quickly and efficiently. So let me just finish up by pointing out where we are in terms of our near-term milestones. In 2016, we’ve completed the following milestones, launching the EU MAP program reporting the 24-week ACT-OA data. We have reported out the two-year follow-up data from our scleroderma pilot trial. Approximately mid-year, we anticipate having full enrollment in both our STAR Phase III trial and our SCLERADEC-II trial. In the second half of the year, we can look towards 48-week ACT-OA Phase II data and the reporting of that data. By second half of the year, we should have significantly more insight into how our Japanese revenue and MAP progress are rolling out. We potentially could have the SCLERADEC-II 40 patients’ data available towards the end of the year potentially. And then also, we should have our BARDA IDE trial filed and announced and then we should begin to be able to discuss what our plan is in terms of expanding our scleroderma portfolio. So with that, that’s ended our prepared remarks and I would like to ask Kristen to open up the call for Q&A.

[Operator Instructions] Our first question comes from the line of Jason Kolbert with Maxim.

Hi, Marc. Hi, guys, Tiago. It’s Jason McCarthy for Jason Kolbert. Marc, can you describe for us the scleroderma market in Japan where - I know you have units being placed in Japan for stress urinary incontinence and I was wondering what the feedback has been from KOLs and physicians there about adoption for an indication like scleroderma. And just a follow up to that, it was mentioned that you’re thinking about going into China and Southeast Asia, what’s the scleroderma opportunity is in those markets as well?

Hey, Jason. Thanks for the question. It’s a good one and it’s one that’s pretty central to our planning right now. So in terms of scleroderma in Japan, the number is around somewhere between 5,000 and 15,000 cases in terms of prevalence. We are in active discussions with the key KOLs in that market and there is a relatively small number of centers that are centers of excellence for scleroderma, sort of mirrors what we are seeing in the US. And that’s great thing about this opportunity just from a - for company like ours to be able to address the key treatment centers are going to a small number of centers. It looks like in Japan, it’s between five, maybe up to 10 centers and you could pretty much capture the entire market there. So I think there is a market opportunity that’s there that’s consistent with what we see in Europe and the US. There is a similar sort of well-off strategy that one could envision in terms of heading the centers of excellence. And then finally on the regulatory and business model side, although in the past we have been focused on selling devices and consumables, the new Regenerative Medicine Law and potentially orphan designation, it looks like that could really come into play and help speed our ability to enter that indication there and begin to treat patients. In terms of China and Southeast Asia, right now we are - the rights to China with our partner Lorem Vascular, as Tiago said, we are negotiating with them to amend their contract. I think until we get that contract we negotiated, it will be tough to make much progress there, but if you add the territories encompassed by the current loan agreement and there is opportunity on the scleroderma side, but we will have to work through those on an individual basis country by country.

Right. And if you have the SCLERADEC-II study that’s ongoing now, the pivotal study, in Japan - sometimes in Japan, they really want the study or a study to be conducted in Japanese patients there. Do you have plans to move into Japan to do a clinical study, so you can have adoption for scleroderma, or would you expand one of the ongoing studies in the US over to Japan just to include maybe one center, so you can get some traction with Japanese regulators for scleroderma?

Yes, we are crafting out that strategy right now. Our plan right now is to leverage published data from Europe, take that to Japan and then do a Japan-specific study. There is really no advantage time wise or other wise to look down a broader study in our view. It should be - it’s considered a niche orphan indication in Japan and we think based on discussion so far with PNDA, similar to discussions in Europe and so forth, given the indication like that, we wouldn’t need a very big trial, and going and doing a direct Japan trial would be a way to go.

Okay, great. Thanks Marc.

Thanks. Appreciate the question.

Our next question comes from Brian Matthews with Payden & Rygel.

Thank you. Hi, guys. Really good call. Very encouraging. So I have two comments and financing question. So regarding the reverse split or your Plan B, as you call it, it’s obviously not something as I would call as rational, but it is the right thing to be prepared to do. I think that’s a no-brainer. And if you need to do it, I think giving the Board some flexibility on the split ratio is exactly the right thing to do. Regarding operational performance, really impressed with the improvement, keep it up. So my question is about financing needs. Have you considered a rights offering? I mean, if your capital needs are limited, what it now seems to be and you’re getting real close to put the ball in the end zone, why would you let existing shareholders participate at these levels as opposed to doing anything else for capital? Thanks. I will get back in queue now, and again nice job guys.

Hi, Brian. I appreciate the comments and the question. Is the rights offering a possibility? The answer to that question directly, it is a possibility. It’s one of the portfolio of things we’ve looked out over the last year or two as an opportunity. We have had some interest consumer that you have articulated. There are some good things and bad things about it. The good things are that it’s non-dilutive to participants, it’s basically the most democratic way of doing an offering. Of course, we just - we spent so much work cleaning up our capital structure at the end of the year, it is one thing that maintains that clean capital structure and then allows existing shareholders to benefit from where we are today. So I guess I would agree that maybe a company like ours where I think we have an increasingly defined gap between where we are today and getting to profitability as we execute on the strategy. It could be a good alternative for us. So no decisions. I think we will take a deeper look at that. I think we are open-minded, but I think right now, we are just going to focus on the execution, be the sales and maintain the cost controls.

Our next question comes from Steve Brozak with WBB.

Hi, good evening gents. I would like to go back to one of the items that you started to talk about, specifically the approach that you take, everyone has always really looked at Cytori on a device side, but in terms of what you’re looking at on sclero and everything else, you’re actually migrating to a therapeutic side. And can you talk about that specifically vis-à-vis how you would work that with Japan? And also specifically, because you are obviously interested in non-dilutive financing. If you were to partner with someone, in theory how does that lend itself well to bifurcating different indications with potentially different partners? And I have one follow-up after than please.

Hey, Steve, I appreciate the question. Obviously, you’re doing your homework, you know the company well, and it’s a great question. So let me start off by saying, you’re absolutely right. So I’d say over the last two years for a lot of reasons, and I am happy to discuss those in greater detail. We migrated the company away from more of a razor blade device oriented model to a more therapeutics oriented model. Some of the high level reasons are the regulators are pushing us in that direction. We don’t fit nicely into the device pattern because you look at the FDA, they regulate the cell therapy and the device under the PMA umbrella, but they largely get the device in the safety and the operations. What they really care about is the safety and efficacy of the cell therapy. You see that in Europe, we have an orphan drug designation in Europe and then now as we really kind of begin to dog-ear the pages on the new regenerative medicine law, it's pretty clear that we have an opportunity there on the regenerative products side, which is really geared more towards cell therapeutics, not devices. So the global regulatory wins are growing in that direction. As you look at some of the indications that we've developed over the last couple of years, scleroderma for example, they limb themselves nicely to that model. In other words, you can have a small number of centers that can create, manufacture cell therapies at the bed side or nearby the bed side. And then also I think it helps us on the pricing side and I think there is a cash A and a benefit that comes with a highly differentiated cell base therapy. We can - our model really lends itself nicely to that on an autologous basis, and so, we're really moving aggressively into that space and you mentioned Japan, absolutely, it's because we increasingly talk to PMA and John gets closer and closer to them, as they understand kind of the, where our technology fits in the picture, we see that that approach is the proper approach and the most rapid approach to really get to the significant market opportunities in Japan. And I think you had a follow-up right, Steve?

Yeah. I do. Okay. So you're going out there and in terms of potential partnering, the potential partners that you would be interested in working with are probably the people that are familiar with the indications you are looking at. What kind of therapies or - even if they’re palliative therapies, what are they looking at and what kind of compensation, what kind of rates are they getting for that and how would you go out there and very, very briefly explain the value proposition obviously or what you’re offering and why they would be interested in terms of partnering with you and I'll hop back in the queue? Thank you.

Okay. So little bit related question, what are they seeing us, I think on the big pharma side, Astellas, as a shareholder, we talk to increasing amount of big and medium-size pharma about the technology. I think what you are seeing from them is they’re looking for highly differentiated new technology platforms and opportunities, and I think we very much fit into that. I think those types of companies with the profile I just mentioned like this more therapeutic drug oriented approach there, is someone’s - when comfortableness with the device space approach. In our partnering discussions, we've got a standard approach to how Cytori handles the device related component and the pharmaceutical partner would handle the typical things like sales and marketing, reimbursement, KLL management, and so forth. So I think we've got a really nice approach on the partnering side. I think there are three things that emphasize I terms of this partnering discussion, uniqueness of our technology, market size and stage of development. And I think with scleroderma, we got all three and then in our partnering discussions with Japan, I think we also have all three. So I think we've got a lot to add to the discussion, and I think our ongoing growing discussions with partners has really allowed us to sort of refine that message and better adapt our partnering approach to those types of companies.

Great. Obviously looking forward to the progress that you make and obviously the next call should give us a whole lot more. Thank you.

[Operator Instructions] Our next question comes from Ed Woo with Ascendiant Capital.

Yeah. Thanks for taking my question. A quick housekeeping question, what's the share count we should be using going forward? Tiago Girão: Hey, this is Tiago here. We have right now about 195 million shares outstanding. That is not fully diluted, that's the number of shares that we have outstanding as of the end of the year and those I believe were disclosed in the press release that we just issued. The other thing that is important for you to know is that the fully diluted share account is about close to 207 million shares and that was a decrease from the last call we had and the last 10-Q we had as a result of the restructuring of the warrants that we did at the end of December. These - they gap between the fully diluted today and the outstanding that we have is primarily related to plain-vanilla once, 3.5 million that we have as well as some options in RSA that were outstanding at the end of the year. So I think we’re are good from that front, but if you have any follow-up, I'm happy to take it.

Great. And then you guys mentioned earlier about guiding conservatively for your MAP program in Europe and what are some of the big challenges to probably to reach the potential upside and what are the market opportunities you think you guys can get?

Okay. It’s Marc. On the MAP program, I think, at the caveat, everything we say about that because we are just getting it up and running right now and so our operating experience on that particular thing is limited, however, to make that determination about what we can forecast for 2016 and then some of our projections going forward, we take in what we hear from Idis, our MAP partner who is the best in the world at these programs in Europe. We look at the feedback, we get reverse increase from patients and doctors, we keep the running tally of who is interested in the MAP program, we feed that to Idis. That gives us a sense of demand. And then, we talk to doctors and we know kind of what the challenges they're having in treating these patients, and how our technology potentially fills that gap. So what we know from Idis is that their party line is you can generally get an address about 10% of the addressable market in your compassionate use managed access program. So if it’s 100,000 patients, maybe 10,000 patients in scleroderma is a reasonable guess. Now, having said that, we think that's probably aggressive for our case, but it is a benchmark. Our growing list of potential patients and doctors is - pretty much grows on a daily and weekly basis. So we’re continuing to feed that over to them. On the kind of TE operational elements of that relationship, right now, we are at a phase where Idis, much like a licensee would put all the things in place to commercialize the technology. They are doing that right now. Also, as part of that, they are reaching out to every single component authority in Europe and figuring out what the key details are for this particular technology. They pretty much already know about it, but to get on record feedback from those competent authorities that would allow us to tweak our response, see what countries to emphasize which ones should be emphasized, that's all happening in the background and at the same time, we’re giving lists of patients and doctors to them and then they will take over that key marketing responsibilities from our side, we will be at all the key meetings, primarily in Europe, but around the world talking to doctors, talking about the technology and not only providing information related to the MAP program in Europe, but also planning for what we ultimately have planned in the US and in Japan.

[Operator Instructions] Our next question comes from David Musket with ProMed.

Thanks and appreciate all the details here. Now you have different perception of the way the street felt about your OA data than you did, and to the extent that that's one of your prime candidates for a non-dilutive partnering deal, do you have any sense as to when we might see a little bit more of the metrics from that trial that would help us get on the same page that you are?

Hi, Dave. Thanks for the question. Yes. So I think we'll be able to talk publicly about the trial after we've reviewed the 48-week data and just so to bring everyone up to speed, so in the ACT-OA trial, we've built in a 24 week pre-specified end point at that time and we looked at the data. These sorts of pre-specified end points are, it's not unusual to build those in, and but in particular cases, where the trial is heavily based on patient reported outcomes, it becomes critical to maintain the blind and integrity of that data, because the key investment after the trial is going to be 48 weeks, which is probably around the Q3 timeframe and we will see that data and make that public. So we've got to maintain the integrity of the data. Yeah. We could put all the data out there, we contemplated that and discussed that internally and just felt like that it was the best thing for the trial and ultimately for the company to maintain a limited blind, report the top level data, which frankly was - even though it was early, it was encouraging to us as to whether that’s a cell fact [ph] above and beyond what we saw in placebo. So just to summarize, yeah, it, looks like it's going to be, but as we look at the 48-week data, we will evaluate the data, reveal that publicly and then we will have our decisions ready about how to move forward with the Phase 3 or further development work.

Thank you. Do you expect that there will be any possibility of partnering that project before the 48 week data is available?

Well, hard to know. Here is my guess. A key benefit to us of having a 24-week data is that we can now have at least a limited un-blinded set to go, talk to partners which is exactly what we are doing. So the partners we have been talking to prior to that knew the basis of putting that trial and that data is being shared under CBA with those partners and we think we can use that to help prepare partners for discussion in the 48 week data. So I think it does accelerate it. However, I think in terms of how I would prioritize our partnering discussions, first and foremost is to identify European partner for scleroderma. We think that's where we have the greatest chance of getting a significant therapeutic partnership. Number two is Japan, given all the other things that are going on over there in our history there and the data, and so forth. And then I think probably third in that is OA, I think it's possible to have a partner go for that 48 week data is available, but I think that is probably less likely than not, I think the partner is likely to wait until the 48 week data.

That concludes today's Q&A session. I will now turn it back over to Dr. Hedrick for any closing remarks.

Well, thanks, everyone. It's been a long call. I appreciate the Q&A and appreciate your interest in Cytori. It's obvious to the management and to the board and hopefully we've done a good job in communicating to you that the company is very well positioned, better positioned than ever and I’m more confident than I've ever been that we are absolutely on the right track with the technology, with the team that we have in place, with a growing track record of execution and getting things done, and most importantly, we have the will and the resistance to get this awesome technology to market. So we thank you for your attention again and have a good evening. Thank you.

Thank you. This does conclude today's conference call. Please disconnect your lines at this time and have a wonderful day.