Plus Therapeutics, Inc. (PSTV) Q4 2018 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Welcome to the Cytori Therapeutics Fourth Quarter and Full Year 2018 Earnings Results Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for 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. 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 Results on Form 10-K and Quarterly Results 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 my pleasure to turn the floor over to Dr. Marc Hedrick, Cytori's President and Chief Executive Officer. Sir, you may begin.

Good morning, everyone. Thank you, Stephanie. Welcome to our fourth quarter and year end 2018 earnings call. My name is Marc Hedrick, President and CEO of Cytori and joining me on today's call is our incoming Chief Financial Officer, Gary Titus, and also here is our outgoing Chief Financial Officer, Tiago Girão. On the call today, I’m pleased to be able to explain the corporate asset sales that was just reported this morning, the rationale for that particular transaction and the importance of the transaction to our ongoing pivot to become a leading clinical stage oncology company. Thereafter, I'll provide an update on the progress of the Company's clinical programs. Then Tiago and Gary will then update on the financial and commercial performance, after which, I'll update on the forthcoming milestones and then we'll have time for Q&A. First of all, most importantly as I mentioned, the cell therapy asset sale reported this morning is an important next step in our goal to build a leading clinical stage oncology company. The pivot nearly began based on our 2017 acquisition of then Azaya Therapeutics. To briefly summarize the transaction, we divested a portion of the company's adipose cell therapy assets for $4 million upfront to one of the company's existing partners Lorem Vascular, which is based in Melbourne, Australia. The asset sale includes much of the cell therapy assets, intellectual property and knowhow. However, the transaction excludes all rights in the company's most valuable market which is Japan. Also the deal excludes rights to the existing BARDA contract and Cytori will continue to maintain both of these key aspects of the business. The company also retained substantial inventory to supply these two portions of the business, but then in the future we'll obtain product via supply agreement executed with Lorem Vascular. The transaction is anticipated to close over the next month following completion of the requisite closing conditions. Now let me update you on our clinical program. We've made considerable progress in the last quarter in advancing our oncology pipeline. Since our last call, ATI-0918 our generic pegylated liposomal doxorubicin hydrochloride has received its official [invasive] name which will be Doxorubicin Hydrochloride Cytori that means DHC for short. The intended use of DHC is for late stage breast and ovarian cancer as well as Kaposi’s sarcoma and multiple myeloma. Our initial target market is in Europe with an estimated market opportunity of approximately $120 million annually. Furthermore in this past quarter, we have submitted an intent to file notification to the EMA also European Medicines Agency and we plan to file a marketing authorization application in approximately seven months. Furthermore, beginning in Q1 2019, our oncology manufacturing plant in Texas will begin producing the first registration lots which continues to go on in that facility. Concerning our marketing authorization for Doxorubicin or DHC is approved on schedule we have target launch plans of late 2020 potentially in conjunction with the commercial partnership. Now let me talk about the second drug for a moment. That drug is ATI-1123 which is a Phase 2 ready albumin-stabilized pegylated liposomal docetaxel. As I mentioned on the last call, the protein stabilization enhances both the integration of the lipophilic ATI which is docetaxel, and improves the stability of the liposome. Polyethylene glycol on the liposome surface extends the blood circulation time, while reducing macrophage system uptake. Cytori is developing ATI-1123 to provide key enhancements with different formulations of docetaxel alone or docetaxel plus another remedy. Specifically, we intend ATI-1123 to improve safety by removing the need for solvents, reduce the morbidity by eliminating requirement for standard pretreatment medications, provide better patient and provide convenience and comfort and also it requires or should require less patient time spent in the treatment center which results in lower cost of therapy. Ultimately we hope that enhanced systemic docetaxel exposure to ATI-1123 may have efficacy benefits as well. Now previously the company attained Orphan Drug Designation from the FDA for small cell lung cancer and currently the company is working with Camargo, a regulatory consultant, which is a firm that specializes in 505(b)(2) applications. We will update our active IND and seek the 505(b)(2) status and accelerated approval. Beyond small cell lung cancer, the company intends to target additional indications as well as ATI-1123. We estimate providing further information on the 505(b)(2) applicability and the anticipated clinical program thereafter sometime in mid 2019 and our current plan is to move aggressively to develop this drug. Now in terms of our cell therapy program, in the leftover assets that stick with Cytori, first of all in Japan. ADRESU, the pivotal stress urinary incontinence trial should readout in Q2 of 2019. All patients who have been treated and the last patient last stage which we will attain [ph]. In our BARDA funded Phase 1 thermal burn trial, the USFDA allowed us to expand the enrollment criteria which was received in Q1 that will enable us to better recruit patients and support enrollment. Those changes in concert should increase the relative patient population this trial [indiscernible]. In addition, the trial has been amended to evaluate the impact of treatment on the graft donor sites as well and seven sites were anticipated to be recruiting by the end of April. So, before I turn the call over to our new CFO, Gary Titus, I would like to take a moment to publically acknowledge the contributions, hard work, and dedication of our outgoing CFO, Tiago Girão. Tiago, thank you very much. Now to Gary, Gary started officially as CFO today and already has a deal completed, way to go Gary. For the past 15 plus years Gary has been CFO for mostly public biotechnology and healthcare companies. Most recently, he led a successful U.S. initial public offering on the NASDAQ Exchange for UroGen. Gary, welcome aboard.

Thank Marc. I'm pleased to be joining the Cytori team at this pivotal time for the company. It will be an exciting time as we aggressively execute on our corporate goals in 2019. My experience with development stage, commercial stage, and particularly oncology focused public company, I've been well positioned to lead Cytori to the next level and beyond. We have a lot to accomplish this year and I'm glad to have the opportunity to help Marc and the Board during these challenging, but exciting times. Finally, I would also like to reiterate Marc's comments on Tiago's contribution to the company, a truly outstanding effort. Now for the final time, Tiago please take us through the financials. Tiago Girão: Thank you, Gary and Marc. Good morning everyone. Heading right to the numbers, consistent with our guidance, 2018 operating cash burn was approximately $12 million compared to $18.1 million in 2017. Operating cash burn in Q4 totaled $2.5 million compared to $4.2 million in Q4 of 2017. The reduction in annual cash burn was mostly related to reductions in operating expenses. Net losses totaled $2.2 million in Q4 2018 and includes a $600,000 credit related to the change in fair values of our warrant liabilities. This compares to $4.3 million net loss in the fourth quarter of 2017. For the fiscal year 2018 net losses totaled $12.6 million and includes $2.2 million credit related to the change in fair value of warrant liabilities. This compares to a net loss of $22.6 million for the same period in 2017. Note that net losses in 2017 include a noncash charge of $1.7 million recorded associated with in-process R&D part of the oncology asset acquisition. Our research and development expenses in Q4, our R&D expenses excluding share based compensation were $2.3 million as compared to $2.4 million in the fourth quarter of 2017. For fiscal 2018 R&D expenses were $8.6 million compared to $11.5 million in the same period in 2017. The decrease in R&D spend during both periods are executed primarily due to the completion of the STAR clinical trial, actively in efficacy improvements, while these reductions were partially offset by our investments in ATI-0918 manufacturing activities in some our owned plants as well as our investments in the BARDA RELIEF clinical trial. Now, on our sales and marketing, our sales and marketing activities related expenses decreased this quarter to approximately $400,000 as compared to approximately $500,000 in Q4 2017. On the same basis for the full fiscal 2018 our sales and marketing expenses were $1.9 million as compared to $3.5 million in expense in 2017. The decrease in sales and marketing expenses relates to lower salary benefits as well as lower professional services associated with higher [indiscernible] pre-commercial activities in the U.S. G&A expense excluding share based compensation rose $1.1 million in the fourth quarter of 2018 as compared to $1.5 million in Q4 2017. For fiscal 2018 G&A expenses were $6.1 million as compared to $7.1 million in 2017, another great year of a double-digit degrease in G&A expense. The continuing pattern of G&A expenses was related principally to the reduction in salaries and benefits resulting from September 2017 restructuring as well as discretionary spend. Now with respect to our revenues, Q4 total revenues were $2.1 million as compared to $1.5 million a year ago. For fiscal 2018 total revenues were $6.7 million as compared to $6.4 million in 2017. Q4 and full year 2018 total revenues included a $1 million milestone received from our partner Bimini related to the achievement of certain gross profit levels of Puregraft sales. Turning quickly to the balance sheet, at December 31, we had $5.3 million of cash and $13 million of debt. In December of 2018 we amended our debt with Oxford providing additional flexibility by pushing out our interest only period to today Now turning the call back to our new CFO and our continuing CEO, Marc Hedrick

Thank you, Tiago. So let me update you on our forthcoming milestones for the near future and then we'll have time for Q&A. So turning to milestones, number one, completion and filing of the company's first marketing authorization application with the EMA for DHC or Doxorubicin Hydrochloride Cytori, followed by then an anticipated commercialization timeframe of approximately 2020 late in that year. We intend to receive 505(b)(2) pathway feedback from the U.S. FDA for ATI-1123 anticipated in the first half of 2019. And then later in 2019 we intend to provide a clinical development roadmap, budget and timeline for the drug and then furthermore we intend to reinitiate clinical trials soon thereafter. In Q2 2019 we also anticipate receiving the clinical data readout for ADRESU pivotal UI trial. So thank you, and Stephanie, I will turn the call back over to your for Q&A.

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

Hey guys, thanks for taking the questions. So, first I'd just like to see if you could discuss what you see as the major growth drivers for the Solutions System, particularly what factors could drive increased consumables utilization? And then also, have you seen any impact from the Class III Medical Device Designation you announced earlier this year or is that more of a 2019 going forward story?

Yes Jason, it's Marc, thank you. On the consumables, going back to the Regenerative Medicine approval late 2015 if you look at quarter-over-quarter consumables utilization you see steady double-digit annual growth, almost quarter-over-quarter with some lumpiness, but essentially quarter-over-quarter. So that's been driven by non-accrued, non-reimbursed sales, so there's not specific indication expected to the current Regenerative Medicine Law. So [indiscernible] likely drive growth is hopefully the clinical trial ACD OCI [ph] trial is it is pathway fix this primary endpoints that should potentially be a reimbursable indication, and so I think that will be the next near term growth driver, and as I mentioned that trial readout is chiefly based on our current timeline. On the Class III approvals, so we've been negotiating with the Japanese Government for some time as to the proper regularly path. Prior to this it was as a Class I device. So they've simply up-classified this to be more on the same plane as dialysis units, so it has a higher degree of oversight regulation. So what it doesn’t do is really drive the market but it puts us in a premium position in the market, it says that this device operates in a plane consistent with dialysis machines and so forth and really tends not to only help us but tends to make it more difficult for competitors to come into the market. Tiago Girão: Just to clarify one point Jason that Marc indicated, our sales in Japan they are approved initially through a Class I device process then after that with the Regenerative Medicine Law and what I think Marc was trying to indicate was that they are non-reimbursed. As you well know, the two drivers of sales in Japan are on the aesthetics as well as the OA field, both of which the clinics that treat patients are fully approved under the new Regenerative Medicine Law. I just wanted to make that specific clarification for the record.

Thank you. And then I just have another one on the dose attacks in the U.S. So are there any areas where you could see liposomal docetaxel having a particular advantage or is it more of an improvement across the board? And then when you're seeking approval, would approval be indication specific with additional trials to expand the label or would it be more of a blanket approval and pretty much anywhere where you can use docetaxel?

So Jason, on the question of ATI-1123 the liposomal docetaxel, so the best data we have is the Phase I trial and it shows particular efficacy or tumor reduction in patients that have pancreatic cancer and lung cancer. And as we just recently completed an exhaustive analysis of the market opportunity for this indication, and we believe that smart second line therapy for small cell lung cancer is a niche that could provide potentially accelerated development, but we also think potentially that as a first line therapy for small cell as well as pancreatic cancer and several other oncology opportunities are possible clinical targets for that drug. So, as I mentioned, I don’t want to get off prematurely with what our clinical developmental plan because there are other inputs to that, but as those indications I just mentioned are consistent with what we saw in the Phase 1 and consistent with what we think the market opportunities are. And to your basic question, we think that there a number of indication where an improved version of docetaxel can make an impact in the market.

All right, thank you very much and for Gary, congratulations and for Tiago, best of luck with everything going forward.

Thank you, Jason.

[Operator Instructions] Our next question comes from the line of Yale Jen with Laidlaw & Company.

Good morning and first Tiago, great job and second for Gary, congrats to join the team, great team. Just a few quick questions here, the first one is for the divesture to Lorem, could you be a little more specific in terms of what assets to go to them versus the things you will retain? I know there are things in Japan that you'll retain, but anymore specific in other geographic areas any colors on that?

Hi Yale, yes Marc. I'll take a crack at that and then Tiago can come in and correct me afterwards if I miss something. So it is easier to back into that, than it is to hit it head on. So from a cell therapy perspective what was not included were all the capabilities to operate the business in Japan and in that I mean IP, trademarks, hard assets, leases, inventories, technology transfer rights, manufacturing rights, regulatory clinical data. So that was excluded from the asset sale, all the things that Japan needs, everything that was excluded in the BARDA contract. So everything needed to operate and maintain that BARDA contract, so the appropriate rights, supply of the product, and [total] all retained by the now Cytori. So then -- flip that Lorem Vascular received the rights of territories that they don’t already have or that they are not represented by BARDA and by Japan, it includes hard assets with raw materials, IP, trademark, access, and leases to two facilities. So they have everything they need to bring manufacturing to their existing territories, but also to serve the market fully in the U.S., Europe and other markets that they like in this part of the transaction. Does that help clarify things for Yale?

Oh yes, that's very helpful, I appreciate that. And the next question is that for the docetaxel in the U.S. I appreciate that you mentioned some of the things that you want to do before providing more color to the Street, but what's the sort of the market potential you think that realistic represents for the U.S. market?

Well, I think as we've said before and we still believe that there's a very acceptable niche market and the second line drug for is small cell lung cancer. But look, you can have number of drawbacks which is the only approved second line therapeutic for that indication in the U.S., that's about $75 million a year market and we think it is an opportunity to take a sizable share of that market. It potentially is a first line therapy, they are kind of similar but potentially greater opportunity and in pancreatic cancer as you know is a significant unmet medical need, it's where we saw a lot of potential efficacy signals and a Phase I trial and an area where we think pricing and adoption could be favorable if the drug is safe and effective. So there are a number of other small niche opportunities for this drug. We're going to be very cautious about which indications we go forward first and our plan at this point is to do one trial, get on the market and then extend the indications going forward. And the 505(b)(2) pathway was accelerated approval allowed us to potentially do that.

Okay great, that’s very helpful, and maybe the last question here is, whether Doxorubicin, [indiscernible] somewhat Doxorubicin in Europe, you mentioned that you are going to do, would actually acquire in late 2019 or early 2020 just I'd like to know what are the sort of gating fact there at this point or things to do before you can do the filing, was there anything specifically related to stability or other aspects? Thanks.

Hi Jen, hi Yale. Yes so, just so everyone’s on the same page, so we’re talking about what we call DHC which is Doxorubicin Hydrochloride Cytori, which is a liposomal version of doxorubicin that’s already completed it’s bioequivalency trial against CAELYX in Europe. So, a key milestone for us was announced a few weeks ago which is submitting our Intent to File with the EMA. So for generic – like this is, once you're thinking about seven month s away from applying with your MAA is either you need to warn the EMA that you are going to throw this over the trains themselves(ph), that was a key milestone because we felt like we are able to manufacture the drug, that it is likely to be non-clinically equivalent to CAELYX and that we are ready to begin manufacturing stability lots, which is where we are right now. So, as you mentioned, and you asked about what’s required going forward, stability lot manufacture, putting those on the shelf and getting six months of stability trusting that's hopefully positive, we have some in vitro comparability testing against CAELYX as well as some cleanup preclinical work under GTP to basically confirmed what’s already been done, but put it in appropriate format for an EMA, MAA. So those are all things that will be going on in this, in approximately seven-month window between the Intent to File and actually filing. And then finally once we file, well the, idea is at that point whether we think we are approvable, then we likely will need another six months of stability testing then we’ll submit with that file to ultimately attain approval.

Okay, that’s very helpful. I really appreciate the colors here and congrats for [indiscernible].

Thank you, Yale.

Thank you. There are no additional questions at this time. I would like to turn it back over to Dr. Hedrick for closing remarks.

Thanks a lot Stephanie. It’s obviously exciting, challenging time for the company as we complete this key pivot with the goal becoming a leading clinical stage oncology company. We're trying to best leverage both our current oncology assets even as we assess potential new additions to our pipeline. As always, I just want to thank the employees, the doctors that continue to work with us, our customers, our partners such as BARDA and thank you for participating in this call. Please have a good day.

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