Plus Therapeutics, Inc. (PSTV) Q3 2018 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Welcome to the Cytori Therapeutics Third Quarter 2018 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 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. As such statements are subject to risks and uncertainties, including the risks and uncertainties described under the Risk Factor 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.

Good afternoon, everyone. Thank you, Ian. Welcome to our third quarter 2018 earnings call. I’m Marc Hedrick, President and CEO of Cytori. Joining me on today's call is our CFO, Mr. Tiago Girão. On the call today, I’ll provide an update on the Company's Nanomedicine, oncology and cell therapy programs. Then Tiago will update you on the financial and commercial performance. After which, I'll update on the forthcoming milestones. And then we'll have time for Q&A. To begin with, Cytori is developing and manufacturing the chemotherapy drug ATI-0918, which is a generic pegylated liposomal doxorubicin hydrochloride, intended to be bioequivalent to the European reference drug. As mentioned on previous calls, we intend to position this as a high-quality U.S.-made product with maximal clinical effectiveness, primarily targeting breast and ovarian cancers. We have the goal to be the first or second generic on the market in Europe with the target launch in 2020 via commercial partners. Let me give you a few specific updates on the programs. The products proposed in this domain is currently under review by the mononuclear within the EMA. The product will be available in 10R and 25R vials, identical to the EU comparative drug and we are currently finalizing the packaging design. The program is in the manufacturing validation phase and once both manufacturers complete, we will outsource the bulk product for sterile filling, packaging, and product finish. The first finished slots will then be placed on stability testing. And the company is in the process of preparing its Marketing Authorization Application to be filed with the EMA. That will happen next year following six months of stability testing and other testing of our validated lots. The Company also continues to actively engage with the number of potential interested commercial partners for ATI-0918 and these discussions are focused outside of the U.S., specifically in Europe, EMEA and EAP. As mentioned previously, the global market for this drug is conservatively estimated to be approximately $400 million to $750 million annually. And specifically in Europe, the estimated annual market opportunity is approximately $120 million to $300 million. Now let me switch over and provide an update on our ATI-1123 program. 1123 is a Phase II-ready albumin-stabilized pegylated liposomal docetaxel. Protein-stabilization enhances both the integration of the lipophilic API docetaxel, and the stability of the liposomal. The polyethylene glycol on the liposomal surface extends blood circulation time, while reducing mononuclear phagocytes system uptake. Cytori is developing ATI-1123 to provide key multidimensional enhancements to existing formulations of docetaxel. Specifically, we intend 1123 to improve safety by removing the need for unwanted solvents, reduce morbidity by eliminating the requirement for standard pretreatment medications, provide better patient and provide our convenience and comfort require less time spent in a treatment center, lower the cost of therapy, and enhanced docetaxel exposure to the tumor, which may have efficacy benefit. The Company has recently obtained orphan drug designation from FDA for small cell lung cancer, one of our clinical targets. Next, the Company will seek to update its active R&D and seek applicability via the FDA's 505(b)(2) new drug application pathway in the U.S. This may offer an accelerated development timeline and lower development cost. We currently estimate FDA's 505(b)(2) clarity in the first half of 2019. Now let me shift over to discuss our Cell Therapy program. In terms of Cell Therapy, our team is awaiting two data readouts from clinical trials. The most important of which is in our SUI trial, but also we are actively conducting a clinical trial in the U.S. for thermal burns. The pivotal ADRESU trial for stress urinary incontinence performed in Japan was fully enrolled and will yield one-year follow-up data from 45 treated patients. Last patient, last visit in terms of the follow-up in this trial is scheduled for March 2019. Thus far, the trial has demonstrated that the treatment is safe and the primary endpoint readout expected in the first half of next year is a responder analysis of the subsidy treatment over baseline in urinary incontinence. This data meets the primary and key secondary endpoints, the Company will be prepared to seek expedited approval and reimbursement in Japan for this indication and potentially broaden our development activities. The Company would also likely leverage its correct commercial infrastructure in Japan by bring this product directly to market, so we would also consider partnerships as well. As to the market size for this indication, as I mentioned on the last call, according to the Japanese National Cancer Center, over 86,000 men are diagnosed with prostate cancer each year, in a recently published study up to 42% of those patients undergoing radical prostatectomy, subsequently develop stress urinary incontinence, which may profoundly compromise quality of life. In addition, the same ECCI-50 cell therapeutic has also demonstrated an initial promising clinical results enrollments that has stress urinary incontinence, and the end market is much more sizable with all most 3 million potential patients in Japan. Our plan is to update shareholders when the last patient last visit occurs. Also the six-month data from the 40 patients, French investigator-initiated SCLERADEC II clinical trial in scleroderma is expected during this year. As previously mentioned, there was a smaller version of the U.S. STAR trial, the trial is not powered for efficacy and furthermore we now know that’s the majority of the enrolled patients start about 63%, 25 out of 40 enrolled, have limited disease. However, if we exhibit Positive EU data trends, this data coupled with STAR trial data, may be sufficient to file or consider filling for conditional EU approval for this orphan indication in Europe. Our plan is to evaluate that once the data set is fully available to us. Finally, with the protocol amendment for the RELIEF thermal burn injury trial approved by the FDA, the BARDA sponsored trial is now ongoing and has five sites actively screen patients. We anticipate having a maximum of seven sites screen patients by year-end in a total of 10 sites by the end of Q1. The goal is Phase I trial is to enroll a maximum of 15 patients and assess patient safety and investigate the feasibility of the intravenous infusion of ADRCs from full fitness burns, partial fitness burns in the skin graft donor size on those patients. In June, Cytori completed a successful in process review with BARDA, regarding this trial. We also have a number of additional investigator trials that are ongoing closes to home in the U.S. Cytori continues to support the Mayo Clinic, Rochester. FDA approved investigator initiated trial of Cytori cell therapy for bilateral osteonecrosis of the hip, which is a rare disease that affects up to 20,000 new patients each year in the U.S. Thus far eight patients have been treated to-date of the target total enrollment of 25 patients. Now moving on to some brief comments on our commercial and manufacturing activity. In Japan, where we are most commercially active, our solution system of products are commercially approved under the Regenerative Medicine Law for autologous cell therapy and largely used in aesthetic market to provide natural implant free breast augmentation and for the clinical benefit in orthopedic patients with debilitating osteoarthritis of the knee, we want to avoid a total knee arthroplasty. We saw consistent growth in consumables, continuing through Q3. The Company remains on track to continue double-digit year-over-year growth in consumable utilization based largely on Japanese utilization. Tiago will discuss these data and trends more specifically in his remarks. I would like to just take a couple of minutes and follow-up on a couple of points previously discussed regarding solution product lifecycle management and manufacturing progress. These points are particularly important as we work to supply the growing consumable demand and prepare for pivotal trial data in Japan. First, to the solution device, we mentioned last quarter that we've previously completed a substantial upgrade as a solution system that we call the CTX-1. That system is currently being used in the U.S. RELIEF trial. Ultimately, this will be made available commercially based on the outcome of the intended up classification of our solution technology industry in Japan from Class I to Class III, registration which is currently under evaluation. We continue to manufacture solution devices in our San Diego facility for the time being. That's the solution consumables driven the substantial growth experience in that market. Over the past few quarters, we had outsourced solution consumable manufacturing. This node or reduced the costs, improve the gross margins and enhance our supply capabilities for these products. The first sterilized consumables will be available for distribution to Japan and Europe in Q4. In parallel, we are managing customer demands with the current inventory on hand, and where in the process of resolving all existing back order situation. Finally, in terms of the obligatory enzymes involved in the solution process sold as part of the consumable bundle, mainly Celase and Intervase. We are in the process of developing an alternative supply chain to ensure consistent future supply product while attempting to reduce the costs. This program is an 18-month and two-year project, but we currently have sufficient inventory to adequately supply or customer demand while we bring new supply online. Now I’d like to turn the phone over to Tiago Girão for his comments. Tiago? Tiago Girão: Thank you, Marc, and good afternoon, everyone. As mentioned, our primary business focus is obtaining approval for our ATI-0918 product and bringing it to market in Europe to a commercial partner while targeting investments in advancing ATI-1123 to Phase II. Additionally, we are managing our Cell Therapy business for ongoing growth, while we obtained the forthcoming data readouts and the pivotal ADRESU trial. We believe shareholder value can be best achieved through these targeted mixed activities. In parallel, we continue to make incremental progress in cash management and operating performance improvements, specifically despite the additional new investments in our recently acquired oncology assets, operating cash burn was managed down to $2.6 million in Q3 2018 as compared to $4 million in Q3 2017. The reduction in cash burn was mostly related to reductions in net losses adjusted for non-cash items of approximately $1 million coupled with working capital improvements of approximately $400,000. For the nine-month period ending September 30, 2018, operating cash burn reduced to $9.5 million, compared to $13.9 million for the same period last year. The reduction, again, driven primarily by reductions in net losses adjusted for non-cash items of $4.1 million. Net losses totaled $2.3 million in Q3 2018 or $0.27 per share. Q3 net loss increased $1.7 million prior related to a changing fair value of warrant liability. This compares with $4.8 million net loss or $1.39 per share in Q3 of 2017. For the year-to-date period, net losses totaled $10.4 million or $1.49 per share, the year-to-date net loss also includes $1.7 million credit related to the changing fair value of warrant liability. This compares with the net loss of $80.4 million or $6.22 per share for the same period in 2017. Note that net losses in 2017 do include a non-cash charge of $1.7 million recorded associated with IP R&D charge with the oncology asset acquisition. On research and development expenses, in Q3, our R&D expenses, excluding share-based compensation were $1.9 million as compared to $3 million in expense in Q3 2017. On the same basis, the year-to-date period, our research and development expenses were $6.3 million as compared to $9.2 million in 2017. The decrease in R&D spending during both periods are attributed primarily due to the completion of our STAR clinical trial activities and efficiency improvement. While these reductions were partially offset by our investments into ATI-0918 manufacturing activities in our San Antonio plan as well as our investments into the RELIEF clinical trial. As a percentage of overall spend, and when excluding share-based compensation, our R&D expense for Q3 2018 and year-to-date periods were approximately 50% of total operating expenses. This is in line with our plans and is indicative of our focus into these programs. Now on our sales and marketing. Our sales and marketing activities and related expenses decreased this quarter to approximately $442,000 as compared to $812,000 in Q3 2017. On the same basis for the year-to-date period, our sales and marketing expenses were $1.6 million versus $3 million in expense in 2017. The decrease in expenses during the period are related to refocusing of our efforts to the most profitable near-term business areas. G&A expense, excluding share-based compensation, was $1.4 million this quarter as compared to $1.7 million in Q3 2017, and was $4.4 million compared to $5.6 million for the year-to-date period in excluding share-based compensation payment as well as $600,000 related to a one-time lease termination fees this past January. The continuing tightening of our G&A expenses was related principally to ongoing improvement efficiency, discretionary spend reduction and previous reduction in headcount from the September 2017 restructuring. Now with respect to our revenues. Q3 total revenues were $1.3 million as compared to $1.8 million in the third quarter 2017. Year-to-date, our total revenues were $4.5 million compared to $4.9 million for the same period last year. Our revenue total results from both product and contract revenue. As it relates to product revenue, we have seen an increase of approximately 400k where over 80% in Q3 2018 as compared to 2017 and that increase was driven by an increase of approximately 90% in consumable utilization in Japan quarter-over-quarter. On the year-to-date, consumable growth in Japan is over 70%. Growing clinical utilization under the current Regenerative Medicine Law is primarily occurring in the aesthetic and orthopedic markets. We believe under the current approvals, and planned regulatory up classification, there is a meaningful upside revenue opportunity for the company in the near future. As guided, we once again achieved double-digit consumable growth for the quarter in Japan and anticipate that trend to continue. Currently, Japanese consumable revenues represent over 80% of the total product revenue in that country for both quarter and the year-to-date period. On our government contract revenues that is specifically related to our activities with BARDA. These activities increased by approximately $800,000 this quarter as compared to Q3 last year. And this is due to the transition from the trial preparatory activities that were taking place last year to actual enrollment of the RELIEF clinical trial now, occurring at this time. Turning to the balance sheet. As of September 30, we had approximately $6.8 million of cash and $13 million in debt. Last month, we received our first $1 million royalty milestone from Bimini Technologies related to gross profit on the Puregraft product. Puregraft is a patented market leading fat grafting product that was divested to Bimini back in 2013. Cytori retains continued royalty rights in certain other potential future economic benefits for this product. We plan to balance our near-term ongoing capital requirements through a mix of activity. Specifically these include revenue growth, business development and strategic opportunity, continuing operational efficiency measures, tight working capital management and careful accessing the capital markets via our existing equity line and ATM facilities. And with that, I'll turn it back to Marc.

Thank you. Tiago. Operator, the Q&A, let me just update you on key forthcoming milestones as there a number that could positively impact the company. First of all, we intend to complete the ATI-0918 development program and the manufacturing activities required, so that we can complete the Marketing Authorization Application to file with M&A and then with anticipated commercialization plans 2020. We anticipate that we will receive 505(b)(2) pathway feedback regarding the ATI-1123 product from U.S. FDA in the first half of 2019. Also in the first half of 2019, we intend to report six-month and one-year Japanese ADRESU clinical trial data for post-surgical male stress urinary incontinence and make the requisite filing with the Japanese regulatory authority space in the data. We also hope to achieve and receive Japanese regulatory feedback on pending up classification from Class I to Class III on the solution system in Japan. Soon, we intend to fully activate all U.S. RELIEF clinical trial BARDA enrollment sites as mentioned on the call and enrolled 15 patients in the BARDA funded trial. Finally, we intend to evaluate and report investigator-initiated EU SCLERADEC II clinical trial data anticipated for later this year. Now with that, I’ll turn it over to Ian for any questions from the floor. Ian?

The floor is now open for questions. [Operator Instructions] And our first question comes from the line of Jason Kolbert from H.C. Wainwright.

Hi, Marc. Hi, Tiago. I got a bunch of questions for you guys. First, can you talk a little bit about what the EU filing for Scleroderma might look like and what the implications are for driving the U.S. program? Previously, I had those programs and kind of sync and it looks to me like if something's going to happen in Europe it will happen way ahead of the U.S. So help me understand the timing for ADRCs in Europe versus the U.S.?

Hi Jason. So with respect to the European trial, there are two parts of that trial. The first is the data as it relates to safety and efficacy. And as of three and six months that will be the initial readout and the expectation is we will get that by the end of the year. That's an investigator-initiated trial as I mentioned. We don't have the same line of sight in terms of timing, but we would have the Cytori sponsored trial. But that's the timing there. There's also a second set of data that we're expecting from that, which is the data on the prior preserved line. Recall that, in that trial, the patients that were randomized to placebo, we’ll give another [indiscernible] and then data will be coming downstream from that. So the thing that could potentially drive a decision to push this forward in Europe would be once we get the three and six months data. And then based on that, we'll just probably react to the data. It's hard to know at this point where that will go until we get the data and also we would propose that if we do anything that will be packaged with the data that we've already collected in STAR in U.S.

And so Marc, can you switch gears with me and focus a little bit on Japan and help me understand what the data from the ADRESU trial means. And if the data is good and meets its primary and secondary endpoints, what does the timeline for filing in Japan look like? And then what is the business model in Japan? Will it be consumables plus system? Will it be a therapeutic-based pricing? Help me understand what you're thinking in that scenario?

So Jason, it’s important to emphasize with respect to that program are the following. First of all, there's no approved treatment for these patients in Japan, unmet medical need. Number two, it's an under appreciated, under diagnosed clinical indication, as I mentioned in my prepared remarks. Unlike trials that we have been asked to perform in the U.S. or including scleroderma, this trial is essentially a responded trial, so there's no placebo group. The average of the urinary leakage volume as measured by the leakage is based on the improvements over baseline at 52 weeks after treatment. So it's a very different trial. It’s constructed in a different way and meet the bar is certainly achievable. Now in terms of the business model, it's a unique situation. So the nuance here is that this approval, if the data supports that would be as a Class 3 device. And so it really is within the current historic device-based regulatory approvals in Japan. The goal is to move our up classified current technology, and then later on claims for stress urinary incontinence. And as I mentioned, we anticipate having that data likely in Q2 timeframe and then immediately applying for expedited approval, which are already in communications with the authorities about that. And then I think the appropriate timing would be about a year to approval, perhaps less with the expedited timeline and then also we would hope to receive reimbursement shortly thereafter. We've done an analysis of historically approved although now often market treatments for stress urinary incontinence, and a price point between $5,000 per treatment or more, it’s something in the ballpark that we're looking at, that's not inconsistent with our current ASP for self-pay markets. And then that model will be based on the sale of the consumable bundle, not as a therapeutic.

Okay, understood. Thank you. Marc. Tiago, can you talk a little bit about the share count, both the weighted-average shares and the fully diluted shares? I see the share count stepped up. I also know there's been preservation of capital in the quarter. I assume that means that you're using the ATM facility. And then can you close with me a little bit about your plans to retain the NASDAQ listing? Thanks. Tiago Girão: Sure. Jason. So on the share count, just to clarify we had a significant increase on the share count right now because of the financing that took place in July. There were a significant number of conversion of the Series C that was issued and there were about 50% converted by the end of the quarter. So if you consider the current issued and outstanding share count on that was just filed on the 10-Q is 13.2 million. If I consider all the shares on a net debt converted basis from the Series B and Series C that are still outstanding, I get to approximately 18 million common shares outstanding. I also add to that the warrants and options that are outstanding for a total share count on a fully diluted basis of 27 million shares. But that's what we have when you add about $9.5 million – 9.5 shares of warrants and options. You are right that the Company has used its ATM as well as the Lincoln Park facility that it has currently put in place. It functions like as an ATM, but we can leverage one of the other depending on the quality of the volume of the day. We plan to continue to utilize those programs to maintain a stable balance sheet, throughout the balance of the year and 2019. On your last point is it relates to the NASDAQ listing. The Company has until about February and that we’re likely able to obtain an additional six month extension that would put us into the Q3, Q4 territory. And we will plan on balancing that those activities and depending on the readouts of these data, if the share price is don't resolve in itself on the performance of its own. We have been able to address that with NASDAQ in the past and will continue to ensure that the listing is preserved for the Company.

Perfect. Thank you guys. So one last question, can you just give us some hints as to how active the BD is around ATI-0918 and clearly there's a hope to monetize that asset and bring non-dilutive capital into the Company. Can you just give us some idea of how the progress is going in terms of that effort? Thanks. Tiago Girão: Yes. Anything about BD is always working problematic. But there is a lot of interest for that particular drug in Europe. You can imagine that there's – as I mentioned about a $120 million to perhaps as well over $200 million a year market opportunity with that drug. We think there is the opportunity to be the first or second generic. If we can monetize it in a way that we think it’s fair to the opportunity and shareholders in the near-term, we'll do it. However, we think that the longer we go, the closer we get to the goal line that the opportunities for that maybe improve as a little bit competition potentially for partners. So we're out there in the market aggressively talking about European licensure, but we'll wait for the right deal comes along. There's also interest in, call it tertiary market regarding that drug being a high quality U.S. maker drugs that it had a lot of stumbles were made in outside of the U.S., even in the U.S. Here is real opportunity to position that for outside of Europe, and there is some opportunities related to there. So we're actively engaged in weekly discussions with potential partners and developments related to that.

Marc and Tiago, thank you so much. I know how hard you guys are working to keep everything moving and it's really evident with a number of things you have going on. Thanks.

Thanks.

[Operator Instructions] Your next question is from the line of Yale Jen from Laidlaw & Company.

Hi, thanks for answering my questions. And I only have two here. Number one is the housekeeping one, in this quarter you have a beneficial conversion for the convertible. Is this the one-time item or this will be a continual elements in the P&L? Tiago Girão: Yale, thanks for the question. This is Tiago here. And there is a one-time hit to the P&L related to the beneficial conversion feature that exists on the Series C. Those shares were immediately convertible, and as a result of that, all of that charge was booked on the quarter, no more on a go forward basis.

Okay and what about the change in the fair value of warranty liability? Would that be a more continuous element? Tiago Girão: Yes. That is a continuing element. The warrants that were issued as part of the rights offering this past July included anti-dilution provisions and full ratchet provisions that caused these warrants to be classified as liability and those are mark-to-market every reporting period until they either get exercised or expired.

Okay, great. That's very helpful. Maybe one last question here, which is ATI-1123. Could you talk a little bit sort of market potential in the United States, particularly for this sort of generic or these drugs?

I: Is that we saw orphan status for that as a potential second line therapy that we think could be better than the only approved drug, which is [special CT-scans]. So second line therapy, orphan small cell lung cancer, competitors to special CT-scans, which has a very extremely high grade three, grade four neutropenia rate, that's probably about a $50 million to $80 million a year revenue opportunity. So relatively narrow, but a direct and targeted way to market. The other framework to look at that, which is as a competitor to tax or docetaxel on the ATI. There are several reformulations of docetaxel that are under development or thermal sensitive, other nanoparticle formulation. So right now we're in the process of doing a very detailed market analysis and just trying to determine which indication are the most promising for that drug outside of small cell lung cancer. We will have that data by the end of the year and we'll begin talking about that around January 1. At the same time, we're completing that very detailed market analysis. We're working with our external consultants on the 505(b)(2) pathway. And so we'll plan on bringing those two work streams in terms of a detailed market analysis in 505(b)(2) feedback from the FDA forward and hopefully around end of the first quarter, early second quarter and then we'll provide a much more detailed development plan for that drug outside of small cell lung cancer.

Okay, great. That's very, very helpful and best of luck for the progress forward. Thank you.

Thank you. End of Q&A

At this time, I'm showing that we have no further audio questions. I’d like to turn the floor back over to Dr. Hedrick for any additional or closing remarks.

Thank you, Ian. And just to – those are still on the call, on behalf of the Board and Management, we just want to thank you for your time this afternoon for your participation. The Company is very appreciative of those that continue to follow-us. We're very appreciative for the increasing number of patients and documents and now customers that trust us and our products and of course to our hardworking and dedicated employees in Japan, San Antonio and San Diego. Thank you and have a good evening.

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