Vericel Corporation (VCEL) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Aastrom Biosciences Fourth Quarter 2012 Conference Call. [Operator Instructions] I would also like to remind you that today's call is being recorded for replay. I will now turn the conference call over to Brian Gibson, Aastrom's Vice President of Finance.

Thank you, Jonathan, and good afternoon, everyone. Welcome to our Fourth Quarter 2012 Conference Call to discuss our most recent financial results and the progress of our development programs. Before we begin, let me remind you that on today’s call, we will be making forward-looking statements covered under the Private Securities Litigation Reform Act of 1995, and all of our projections and forward-looking statements represent our judgment as of today. These statements may involve risks and uncertainties that are described more fully in our filings with the SEC, which are also available on our website. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. With us on today's call are Aastrom's President and Chief Executive Officer, Nick Colangelo; and our Chief Commercial Officer, Dan Orlando. Following our prepared remarks, we will open the call to your questions. And I would now turn the call over to Nick.

Thank you, Brian, and good afternoon, everyone. Given that this is my first conference call as Aastrom's President and CEO, I'd like to begin with a few comments regarding the exceptional opportunities that I see for Aastrom, the current challenges we face and my near-term priorities. As you might imagine, I did a significant amount of due diligence on Aastrom before joining the company. It quickly became apparent to me that Aastrom's multicell therapy, ixmyelocel-T, is a highly differentiated product with unique biological activities that promote tissue repair and enormous therapeutic potential to treat severe ischemic cardiovascular diseases. It also is evident that ixmyelocel-T has potential therapeutic application in additional disease indications, which is a very exciting prospect. Aastrom has developed world-class manufacturing technology, which is highly scalable to meet future product demand and can be utilized to develop additional cell therapy products. Finally, Aastrom is working with many of the world's leading cardiologists who are extremely enthusiastic about the clinical potential of ixmyelocel-T. It was clear to me that there is a substantial unmet medical need in commercial opportunity for Aastrom's products and that Aastrom's patient-specific cell therapy business model is a robust one. These attributes are a testament to the vision and hard work of my predecessors and new colleagues who have created a very powerful therapeutic platform, a highly promising clinical pipeline and an extremely exciting company. My goals are to build on their achievements by accelerating the clinical development and commercialization of ixmyelocel-T, and ultimately, to broaden Aastrom's product portfolio by applying our technology platform to new areas of unmet medical need. All of these goals are achievable but they will take some time to accomplish. My near-term priorities are to enhance the execution of our current clinical studies and to address the capital needs of the company. As you know, we're currently evaluating ixmyelocel-T in 2 severe cardiovascular diseases, critical limb ischemia and ischemic dilated cardiomyopathy. The patients in these clinical trials are in urgent need of new treatment alternatives. I'm pleased to announce that we are scheduled to enroll our first patients in the ixCELL-DCM trial within the next couple of weeks. As Dan will describe, we've expanded the target number of clinical sites in the study, momentum is picking up nicely, and we expect to complete enrollment of this study within a year. With respect to the REVIVE-CLI study, one of my immediate priorities is to enhance the enrollment trajectory of this study. The initial startup in enrollment phase has been slower than anticipated, and we've not yet hit an inflection point in study enrollment. However, as Dan will describe in a moment, we're in the process of implementing new strategies and initiatives to drive enrollment. Over the coming weeks, I'll be thoroughly evaluating study enrollment to date, working closely with our clinical team insights to assess the impact of new enrollment initiatives and working to identify and implement additional initiatives to improve the pace of enrollment. Upon completion of this assessment, we will then be in a position to provide an update on the overall study timelines. While we're not satisfied with the pace of our clinical activity to date, I'm confident that the studies are well designed, that they're being conducted to the highest industry standards and that the recently implemented initiatives will improve enrollment rates going forward. Importantly, these clinical trials have the potential to change the standard of care in severe ischemic cardiovascular diseases, which ultimately will drive value for patients, the medical community and our investors. My second year term priority is to address the capital needs of the company. I've already spoken with many of you about our need to raise additional capital in the near future through financing and/or partnering activities. Of course, our financing and partnering strategies are interrelated. While I cannot provide specifics on the possible timing of either of these efforts at this time, I can assure you that we're actively engaged in several initiatives and focused on financing the company in a manner that serves the best interest of our shareholders and the company. In the meantime, we'll continue to manage our resources carefully and execute our programs as efficiently as possible. In closing, let me say that I appreciate the warm welcome that I've received from the Aastrom's employees, shareholders and analysts and I'm excited about the opportunities before us. I'm also grateful to Dan for his contributions and serving as Interim President and CEO prior to my arrival. He's been enormously helpful during this transition period for me and the company. I'd like to turn the call over to Dan to review our recent clinical activities before we have Brian review the year end financials. Dan?

Thank you, Nick. I'll begin with Phase III REVIVE-CLI study. The primary objective of the revised study is, as many of you know, is to assess the efficacy of treatment with ixmyelocel-T in patients with critical limb ischemia and existing tissue loss. The primary end point is amputation-free survival at 12 months following treatment compared to placebo. We began this trial last year and we've now enrolled 40 patients, which is below expected enrollment pace. However, we've taken several important steps to increase enrollment, including adding new study sites and amending our protocol. The sites we have added are screening patients quickly, which is encouraging, and a protocol amendment was submitted to the FDA in January. And just last week, we received a letter of concurrence from the FDA, approving the amendment and confirming that it is Special Protocol Assessment, or SPA-compliant. Let me share a few of the highlights from the amendment. The first of the modifications to note is a nomenclature change in the enter criteria language to fit prevailing terminology. It is helpful for physicians in identifying the appropriate patients for this study. For example, the use of the term no option in the protocol was limiting the selection of eligible patients for bivascular surgeons. We've changed the protocol language to refer to patients who have a low likelihood of successful revascularization, which is a broader and more accurate definition. We've also identified and modified the protocol to include patients with larger wound sizes and more significant aortic iliac disease, we've established broader immune therapy allowances and we've improved screening efficiency by allowing parallel cancer screening and allowance for higher TcP02 at baseline. We've just initiated a rollout of the amendment changes to the study site, and we expect that IRBs will review and approve these changes quickly. We expect the SPA-compliant amendment will improve enrollment, and as Nick mentioned, we'll be working closely with our clinical team and sites to assess the impact of the changes and their impact on overall study timeline. To wrap up the CLI program, we've done our homework, made changes and these changes have been done with the FDA agreement that will help enrollment without putting a great study design at risk. This, along with improved study site selection and ongoing recruitment efforts, demonstrate Aastrom's determination to help patients with CLI prevent limb amputation. And I'll turn now to the DCM program. Enrollment in our Phase IIb dilated cardiomyopathy trial has began and is proceeding well. The goal of this study is to enroll 108 patients with ischemic DCM at approximately 30 U.S. clinical trial sites. Previously, we targeted 20 sites, but to ensure timely enrollment and to meet the demand we received from interested investigators, we've expanded the number of target sites by almost 50%. This study is targeting DCM patients with advanced heart failure who have failed other treatments and devices and are now considering an LVAD or awaiting transplant. These patients are being randomized to receive a single administration of ixmyelocel-T or placebo via a MyoStar catheter with NOGA mapping, with the primary efficacy endpoint measure being major reverse cardiac events at 12 months. Approximately 10 sites are now up and running and screening patients. And with a handful of patients in screening, we expected the first patients be enrolled within the next couple of weeks. Additional sites are coming online quickly and we anticipate enrollment will be completed within a year and top line results available in early 2015. Many of you have asked about upcoming data presentations. So I'm pleased to report that we will be presenting several abstracts for ixmyelocel-T this spring. Several will be at the International Society for Cell Therapy meeting, which is in Auckland, New Zealand in April. And the Atherosclerosis, Thrombosis and Vascular Biology meeting in Buena Vista in May. We will provide more details about these presentations as the data is released. But suffice it to say that these are exciting preclinical findings and they continue to demonstrate the breadth of the additional therapeutic opportunities for Aastrom's platform and its products. That concludes my prepared remarks. I'll turn it over to Brian for the financial report.

Great, thanks, Dan. So for the fourth quarter and year ended December 31, 2012, Aastrom had a net loss attributable to common shareholders of $7.9 million or $0.18 per share and $33.5 million or $0.81 per share, respectively. For the same period in 2011, our net loss attributable to common shareholders was $2.8 million or $0.07 per share and $19.7 million or $0.51 per share. The change in net loss reflects the noncash changes in the fair value of our outstanding warrants, as well as the noncash accretion of our convertible preferred stock. Our operating loss, which excludes the impact of the warrants and preferred stock, was $7.6 million or $0.17 per share and $33.8 million or $0.82 per share for the fourth quarter and year ended December 31, 2012, respectively. For the same period in 2011, our operating loss was $7.8 million or $0.20 per share and $29 million or $0.75 per share. Research and development expenses for the quarter and year ended December 31, 2012, were $6 million and $26 million, respectively, versus $5.9 million and $21.3 million for the same period a year ago. The increase in R&D expense was primarily attributable to the Phase III REVIVE-CLI program and the Phase IIb ixCELL-DCM program, which included clinical site activation and patient enrollment. General administrative expenses for the fourth quarter and year ended December 31, 2012, were $1.6 million and $7.8 million, respectively, versus $1.9 million and $7.7 million for the same periods in 2011. Both periods were impacted by the reversal of nearly $1 million in noncash stock-based compensation expense related to stock options forfeited when Tim Mayleben stepped down as President and CEO in December 2012. This was partially offset by an increase in noncash stock-based compensation expense before the forfeiture and slightly higher legal and consulting cost. At the end of the year, Aastrom had $13.6 million in cash and cash equivalents. Our cash use of $7.5 million during the fourth quarter was in line with our previous forecast of $7 million to $8 million. For the first quarter of 2013, we expect our cash spend to be lower at $6.5 million to $7.5 million. We have also utilized our ATM facility to raise nearly $2.5 million so far this year and we will continue to be opportunistic in using the ATM to provide us with flexibility. We currently have the capital to move well into the third quarter, providing us with the time needed to assess various financing or partnering strategies to address our longer-term capital needs. As Nick stated, we recognized that we will need to raise additional funds this year to support our development programs and corporate activities. While we cannot comment on specific timing or structure of our capital raising efforts, we will continue to be opportunistic and act in the best interest of our shareholders. And now I'll turn the call back over to Nick.

Thanks, Brian. I think you could see that we are making good progress in initiating the Phase IIb ixCELL-DCM study, taking the necessary steps to accelerate enrollment in the Phase III REVIVE-CLI study and managing our cash resources carefully. As I mentioned previously, my top near-term priorities are to ensure flawless clinical execution and address the capital needs of the company and improve our financial position and manage our programs as efficiently as possible. I'm very excited about the work ahead and look forward to reporting on our progress throughout 2013. That concludes our prepared remarks. Now I'd like the operator to open the call to your questions.

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

A couple of questions. How many sites do you expect in total that you're going to target in the CLI trial right now?

I'll answer that one, Jason. We're targeting 100 to 120. We've got approximately 70 active sites currently.

Okay. And just kind of a question that's come up in my trials and tribulations on cell therapy. Have you guys thought about -- the cells in the DCM trial, they're going to be delivered via NOGA, is that correct? And why via NOGA? Do you believe that they have to be delivered via NOGA? Or is there utility maybe in delivering them via the infarct-related artery? Or is that not relevant in DCM?

So to answer your question, we're really not sure, right? So it's not just NOGA, it's the MyoStar catheter and NOGA mapping. And we're in a Phase IIb. So the idea was to get as much information as possible. But we are not certain that we're going to need that mapping to deliver the cells. Certainly, we want high engraftment and we believe that the current 2 together, the MyoStar connected with the NOGA mapping that ensures that for a Phase IIb. But certainly, we are considering and would look to other vehicles that would give us high engraftment but might not need some mapping.

My last question is, even though the nomenclature on the enrollment criteria around CLI has been revised slightly. Have you changed the enrollment criteria in terms of the Rutherford category or class? I know you were trying to find that sweet spot, patients that were severe enough that the therapy could rescue them, but not so severe that they were beyond being rescued. And so just help me understand, do any of these changes change the criteria for which patients qualify to be treated?

Yes, so Jason, you've articulated that well. We're really trying to find that sweet spot, right? We had expressed on an earlier call that some of the early screen fails had to do with patients who really didn't qualify because they had end stage renal disease. Once folks have gotten through the screening and they learned that patients like that aren't qualified, they obviously don't screen them again. What we've seen a little more recently is that we've gotten some patients who are too far advanced and the ERC will reject the patient and say that that patient really should just move on to amputation or is not stable enough. They have to be stable for 3 months to be able to enter the trial. So our hope in the change, and this is the feedback we've gotten, that the change in nomenclature as well as some expansion in wound size taking the TcP02 a little higher, that we will get that patient who really isn't suitable for the next revascularization procedure instead of the patient who got that one more procedure, if you will, and then now is so advanced that they can't be enrolled via the review of our ERC.

Our next question comes from the line of Boris Peaker from Oppenheim. Boris Peaker - Oppenheimer & Co. Inc., Research Division: My first question is regarding the change in the enrollment criteria for the CLI study. Now by allowing the larger wound size than maybe initially planned, I'm just curious what we could learn from the Phase II data set if we apply that criteria, just retrospectively?

What I don't have, Boris, is specific to wound size. I can say that we did an analysis of all of the changes and we looked retrospectively. So I'll answer the question to the information I have. And it's a little bit tricky to do because physicians may have screened out a patient before formerly screening them. So you could say they prescreened out a patient for a TcP02 value or something like that. But for patients who were formally screened, if we applied the new criteria to the patients who screen failed, it would improve the enrollment by about 10% to 15%. Boris Peaker - Oppenheimer & Co. Inc., Research Division: But what about -- so that's helpful in terms of enrollment, but if you apply the whole new criteria data set for patients that are enrolled, and I understand there are the statistical issues with that number. But just to kind of get a sense from the Phase II data set, how would that impact the actual results between the 2 arms of the study?

I don't have the information that -- we didn't apply that back to the Phase IIb results, I'm sorry. Boris Peaker - Oppenheimer & Co. Inc., Research Division: Okay. And further on enrollment for the CLI study, could you tell us what enrollment criteria, maybe the top 3 enrollment criteria that are responsible for the largest patient rejection?

I shared the one that's most common recently is that the patients have been too far progressed and we're hoping that the changes that we're making here address that. There really is kind of a tie for everything else. Typically it's wound size, it's another -- and sometimes it's comorbidities as well. So the patients' stability to be able to be enrolled because, again, we need somebody who is going to be stable for 3 months in the enrollment period. Boris Peaker - Oppenheimer & Co. Inc., Research Division: I see. And lastly, in terms of going back to the enrollment criteria, the actual process of harvesting. I mean, is that something that you've seen, a concern expressed by patients or physicians? And how -- is there any way to improve that process?

Yes. Just as a reminder, our enrollment -- excuse me, our harvesting is a very small amount. It's 50 to 60 cc, it's not a lot. So we have not had a big hurdle there.

Our next question comes from the line of Megan Dow from MLV Securities. Megan McCloskey - MLV & Co LLC, Research Division: I had a quick question about, now that you're implementing the new nomenclature and you got the approval, how long do you think it's going to take to reeducate your physicians and IRBs in the clinical sites to actually see that -- those changes pan out in your enrollment in the CLI trial?

Sure, Megan. I can tell you that we've prepared materials in advance. We had good discussions with the FDA early on, knowing that we felt pretty confident that these changes were going to get approved. So although we just got approval last week, we are already -- have materials ready and are being shipped out to the sites. And we believe, based on the type of the changes that the IRBs will -- the vast majority will approve them within 1 to 2 weeks. There'll be a few, just because of policy and procedure, that might take 1 month. So we expect to do our video conferences and updates with almost every site by the end of April. And I would say, the latest implementation in May. Megan McCloskey - MLV & Co LLC, Research Division: And do you expect the increases, you said, you now have 75 -- 70 sites that are active out of the 80. Do you expect the remaining sites to be material and adding to enrollment?

Certainly. The newer sites, we tend -- we're shying away from the academic sites and we're going to the more community-based, some rural and in the south. And what's been encouraging is some of the new sites that we've gotten recently have been screening patients very quickly. So they're really too new to assess and how -- what the implications will be for enrollment. But certainly, their activity in screening is promising. Megan McCloskey - MLV & Co LLC, Research Division: Okay, great. And then the last question is relating to that 10% to 15% increase in enrollment that you're expecting, given the nomenclature changes. Where is that number coming from?

It wasn't just nomenclature, it was changes to TcP02 levels, the change to wound size and things like that. So we just took those criteria and looked back and said, "All right, of the patients that screen failed previously, what's of these pool of patients now screen in?"

Our next question comes from the line of Steve Brozak from WBB Securities.

It's actually WBB. But I'll jump right in. Considering you've got the clinicians that have been on board and have had more success, did you go back and do any kind of metadata analysis that allowed you to get a better picture of what they were looking for, and what would allow you to have quicker enrollment. And what was, let's say, their strongest feedback that allowed you to come back or go back to FDA and basically say, "We want to change the SPA this way." And I've got one follow-up in terms of on the commercial side after that.

Yes. So good question. We did interview the investigators. We also interviewed the clinical site coordinators. And that's where we got a lot of really good, tangible insight as to ways to improve the efficiency of like, cancer screening and things like that, so we've got some very good, practical advise from those clinical site organ -- clinical sites organizers or advisors. So the one piece I'll add is that the physicians who are the most aggressive were saying that no-option -- in their mind for some physicians, they felt like they've never seen, never heard of, may never in their future, see a no-option patient. And that when we talked more about -- okay, let's think about the patient who, you're about to do a procedure and you really don't have a lot of confidence in this next procedure, typically a diabetic with a lot of collaterals. And once we kind of reposition that verbiage along with some of the changes like TCP02 being a little higher, they -- it's like kind of, focused, if you will. We're bringing the patient more into focus.

Okay. So you got the clarity there. Now that brings us to the next question. Obviously, your protocol, your clinical progress. I mean, the large pharmaceutical companies, the large biotech companies that are out there still don't have anything in their cupboards. Does what you're doing now, would you say, enhance your ability to go out there and draw interest in a partnering agreement? Or in some kind of a partnering system in your opinion? I know it's not a fair question, considering how long you've been on the job. But obviously it's one of those things where, all of a sudden, now you've got greater data, now all of a sudden, they've got less. What are your thoughts there and you don't have to go into that specifics? And I'll hop back in the queue.

Yes, thanks for your question, this is Nick. Dan's been asking, obviously, a lot of -- or answering a lot of the clinical questions. I think this only helps our partnering prospects. As you mentioned, this is an innovative therapy that's of high interest to large pharmaceutical and big biotech companies. There's no doubt in my mind that this therapeutic approach is superior to other approaches that we provide. We got first mover advantage in this indication. And so I think this only helps in terms of the attractiveness of the asset.

Our next question comes from the line of Chad Messer from Needham & Company. Chad J. Messer - Needham & Company, LLC, Research Division: I know that you guys mentioned a couple of times you're aware of the need to address cash needs in 2013. But just in terms of trying to think of what those needs are, can you give us any help or guidance on what the DCM trial maybe adding in '13? And also real quick, can you just remind me what's -- what are the terms and what's left on the ATM transaction that you have?

Chad, this is Brian. So in terms of the DCM trial, the total cost of that is going to be around $7 million, which will be incurred in 2013 and in 2014. So it'll be a little bit of an incremental amount in 2013, but I think that will be offset by some of the startup costs that we already incurred in 2012. So comparing it, 2012 to 2013, I don't think it will have the big impact. In terms of the ATM, we have about $18 million remaining under that. We've raised about $3 million in total to date under that facility. And the terms are pretty straightforward; there's really no limitations other than the dollar amount of $18 million. Chad J. Messer - Needham & Company, LLC, Research Division: Okay. And just one follow-up, if I may, on CLI. I know you guys have some new -- some protocol amendments that you've implemented and, obviously, you're hoping to report back when you're able that what the impact might if those have been on enrollment. But we did get previously that in May, there were 10, and in November, 36 patients enrolled. Can you share with us where we're at now?

We had shared 26, back in -- so now we're at 40.

Our next question comes from the line of Jason Butler from JMP Securities.

I understand why you can't give a lot of details here. Can you talk about the kind of partnerships that you're considering? Is this a regional or global type of approach? Are you thinking about all indications giving the -- given the breadth of the potential uses of this therapy?

Yes. I'm happy to answer that. This is Nick. Obviously, we -- again, our financing and partnering strategies go hand-in-hand. With, we believe, we have an extremely valuable asset here, and we're only going to partner the asset if we think it's going to meaningfully advance the program and be in the best interest of the company and its shareholders. So I don't think we are putting ourselves in a box in terms of it has to be certain geographies or whatever. Obviously, most potential partners that approach us would like worldwide rights to the product. And so I think we're open to considering that. It's more likely a larger company would be better positioned to commercialize outside the U.S. than we would be. But in terms of indications, I think this therapy lends itself to being able to potentially partner around the individual indications, which obviously increases the value to the company. So I don't think we're going into it with any kind of preconceived notions. And again, the guiding principal will be, "Are we going to advance the program, enhance the chances of success and does it make financial sense for the company?"

Okay, great. Just a question on the CLI trial. We know that historically in CLI, there's been geographic variability, both -- or apparently in response to these kinds of therapies. Can you talk about, what data you have in the U.S. and within different parts of the U.S. that give you confidence that you won't see significant variability?

So at this point, I don't know that we have enough evidence to suggest that there is regional variability. Certainly, the diabetes trends lend a bit to that because diabetes is the #1 cause for this. So if you look at the ADA website of where the prevalence of diabetes is, then, of course, CLI is going to follow. However, we found that the recruitment, the physician recruitment, doesn't always track with that. It's more about the physicians willingness to say, "The next likely procedure here is not going to be successful and I'm going to go ahead and enroll that patient." So I don't know that we have enough evidence of that yet. And I think that a lot of what I've read on the differences regionally have been -- and some of the implications on studies have been x U.S. versus U.S. But with more data, we will -- might be able to answer that.

Our next question comes from the line of Jason Napodano from Zacks.

Can you give us a sense of the competition that you're seeing for enrollment at sites? Are you seeing any competition? And does increasing the number of sites and potentially moving away from academic centers potentially provide you more favorable position in terms of finding patients away from competition?

Certainly -- so I assume you're referring to the CLI trial?

Yes, sorry, sorry, yes.

The competition tends to be more the physicians practice of the way the approach that next vascular procedure. We haven't run into a lot of competition issues at this point. And certainly going away from academic centers, that will do so many different trials at the same time helps us a great deal. And we -- one of our other successful groups have been the VAs. They've been helping quite a bit lately.

Got you. Does increasing the number of sites -- it potentially had changed the statistical powering assumptions that you guys used at all? It seems like you may have -- gunning up to potentially 120 sites, it seems like you may have a lot of sites that are going to have a small number of patients?

Yes. That's a reasonable question. But we don't believe it will have an impact on the stats. And if 120 is our upper limit, the likelihood is probably -- we're looking for viable sites. And unfortunately, put a lot of effort in some sites that we've had to remove from the trial as well. But likelihood is probably just north of 100.

Okay. And anything in terms of changing the lexicon around the enrollment criteria? Things like tissue size and TPC02 (sic) [TcP02], like you said? Does that change any of your statistical powering around what you would expect for the control? I believe you guys were expecting event rate around 35%.

Right. We were really careful not to mess with that. We did a lot of homework on that. We had good discussion with consultants from the outside, statistical, as well as physicians and experts in the field. We're very careful not to mess with what we believe, is a single study that will lead to a conclusive result and applying for approval. So we did not shift specifics, if you will.

Okay. And then just a final question. In terms of CKD patients or patients with end-stage renal disease, do you think it makes sense to maybe do a study in those patient subsets, either potentially after this trial or post-approval? Or prior to filing for approval?

That's exactly where we landed. And again, we went out to experts and got their opinion. And in the end, that makes a lot of sense, small trial on its own evaluating what is a risky population to start with.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

Okay. Well, thank you, Jonathan. I want to again thank our callers for your questions and continued interest in Aastrom. We appreciate your support, and we look forward to updating you on our next call. So thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.