Athersys, Inc. (NASDAQ:ATHX) Q3 2022 Earnings Call Transcript November 15, 2022
Athersys, Inc. beats earnings expectations. Reported EPS is $-1.15, expectations were $-1.96.
Operator: Good morning. My name is Devon and I will be your conference operator today. At this time, I would like to welcome everyone to the Athersys Third Quarter 2022 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Corporate Communications and Investor Relations, Ellen Gurley. You may begin your conference.
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Ellen Gurley: Good morning, and welcome to Athersys third quarter 2022 financial results and business update conference call. Please note that any remarks management may make about future expectations, plans and prospects constitute forward-looking statements for purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by the forward-looking statements as a result of various factors, including those discussed in our Forms 10-Q, 10-K and other filings with the SEC. Also, this conference call contains time sensitive information that is accurate only as of the date of the live broadcast November 15, 2022. Athersys undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law.
With that, I would like to turn the call over to Dan Camardo, Chief Executive Officer of Athersys. Dan, please go ahead.
Dan Camardo: Thank you, Ellen and welcome everyone to Athersys’ third quarter 2022 earnings call. Joining me on the call today are Maia Hansen, our Chief Operating Officer; Kasey Rosado, our Interim Chief Financial Officer and Dr. Robert Willie Mays, our Executive Vice President and Head of Regenerative Medicine and Neuroscience Programs. Since our second quarter earnings call, we’ve been hard at work executing on a plan to transform Athersys and put the company on a path to success. I’d like to start out by affirming our confidence in the potential and opportunity we have in MultiStem for treating ischemic stroke, acute respiratory distress syndrome, trauma, and several other serious diseases. During the third quarter, we made good progress across several areas, including addressing our balance sheet and operating expenses, growing enrollment of patients in our masters to ischemic stroke trial, and pursuing discussions with potential business partners.
Since we held a business update call last month, I’d like to focus our call today, our financial performance and highlight expectations for the fourth quarter. Since our second quarter earnings call announcement in August, we’ve taken significant actions to improve our financial situation by reducing our operating expenses, raising capital in the near-term, and managing our liabilities. In mid-August, we raised approximately $12 million in gross proceeds, given other financing options in current market dynamics that initial agreement provided immediate liquidity under attractive terms. We also just completed a follow on equity financing raising $5.5 million dollars in gross proceeds. The equity raise we completed last week provides us with additional liquidity as we planned for the first quarter of 2023 and work towards achieving several near-term milestones.
We fully realized that additional funds are required to bring MultiStem to market and we remain focused on our primary goal of completing the MASTERS-2 trial and achieve our other value creating business and strategic objectives. Actions we’ve taken to address our operating expenses and liabilities have yielded meaningful savings and moved us toward a more managed and disciplined approach to supporting our priorities. To-date, we’ve reduced expenses from approximately $7 million a month and growing down to approximately $3 million per month in decreasing with a clear path to $2.5 million per month by the end of this year. This has been achieved by thoughtfully managing outstanding account payables in relationship with key vendors. Our largest liability remains with our CDMO and represents over 80% of our account payable balance.
We continue to actively engage with this important vendor with the goal of reaching a settlement on our outstanding obligations and preserving our relationship for the long-term. As a reminder, our contract manufacturer has completed production of investigational product necessary for us to complete MASTERS-2 under the current clinical protocol. They have also completed production of clinical product using a more efficient bioreactor process with sufficient inventory available to complete our Phase 2 trauma trial. We also have a few hundred doses of clinical bioreactor product that was approved for use in our ARDS MACOVIA trial, which we suspended. We intend to hold onto that product as we explore various business development options. Another action we’ve taken to reduce our operating expenses is the wind down of ReGenesys, which is our animal health research unit in Belgium.
We have notified staff of our intention to close this facility by the end of the year. We’re exploring potential business partners for this program which has demonstrated the benefit of MultiStem in a preclinical animal setting, targeting progressive diseases like canine osteoarthritis. As far as stabilizing our financial position, we are grateful to have received shareholder support to implement a reverse stock split to satisfy NASDAQ continued listing requirements. After discussing our options with NASDAQ on August 29, we implemented a one for 25 reverse split. Among other benefits, this action was intended to bring our share price into a more attractive range. We’ve subsequently received a notice of non-compliance from NASDAQ on October 14 that our market valuation of common stock had fallen below $35 million for 30 consecutive days and we have until April 12, 2023 to regain compliance and avoid the possibility of delisting.
As we presented our preclinical and clinical work during our research webinar and at industry conferences such as meeting on the Mesa, we are pursuing discussions with potential partners. Much of our preclinical research has been highlighted in various scientific publications, but was never offered or pursued from a business development perspective. Now, in addition to licensing opportunities for ischemic stroke, we’re also looking at co-commercialization opportunities and ways to advance our pipeline. We’ve made significant investments over time to understand how MultiStem cells work, why they are unique, and how they can optimally be manufactured at scale, and we intend to work with partners to build on our experience. Although, our efforts are resulting in conversations with new potential partners, it’s too early to predict outcomes.
In Japan, we continue to work with Healios as they hold meetings with PMDA and determine their next steps related to achieving commercial approval for MultiStem in both ARDS and ischemic stroke. As part of our restructuring efforts and ongoing negotiations with our CDMO, we agreed to a license and tech transfer for certain manufacturing rights to Healios for producing product in Japan. This is a lengthy process that we’ve initiated with Healios while we continue to evaluate a path forward for MultiStem approval in Japan. Turning now to our clinical work, our top priority remains achieving a successful outcome for MASTERS-2 and we are currently in a critical window of time to review potential protocol changes with FDA and EMA. We analyze results from the MASTERS-1 and TREASURE trials to generate statistical models and align insights to reevaluate the MASTERS-2 trial design with the goal of enhancing the prospect of a timely outcome focused on the most appropriate targets.
This month we will be meeting with key opinion leaders, regulatory experts and statisticians to review the data and determine what if any protocol changes should be made. Once we receive input from these experts, we will then consult with the FDA and the EMA on any potential recommendations to modify the MASTERS-2 trial design and be in a better position to communicate in an expected enrollment completion date. In the meantime, we continue to actively engage clinical trial sites and work toward growing patient enrollment. As we look ahead for the remainder of Q4, we are clear on our priorities. Number one, we continue to enroll patients in our MASTERS-2 trial. Number two, we engage with key opinion leaders and other industry experts on the totality of data, we now have available to us with the recent TREASURE trial results and evaluate our options to then discuss with regulatory agencies.
Number three is to advance our business development discussions with the intention of seeking strategic partnerships that will work with us to advance MultiStem on a regional or global level. And number four, we will continue to manage our balance sheet actively and responsibly for long-term success. Coming off our recent financing, we will continue to raise our presence with institutional investors and we look forward to participating in an Alliance Global Partner Biotech Conference at the end of this month. We’ll also be meeting with investors in-person during the JPMorgan Healthcare Conference in San Francisco in early January. I’d now like to turn the call over to Kasey Rosado to discuss the quarter’s financial results.
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Kasey Rosado: Thank you, Dan. As the final topic, I’d like to summarize our financial results for the third quarter. Revenues for the quarter were $6,500 compared to $4.8 million for the third quarter of 2021. Collaboration revenues fluctuate from period to period based on the delivery of services under the arrangements with Healios. As of September 30, 2022 and during the third quarter of 2022, the services under that arrangement are largely complete and are limited to closeout activities. Research and development expenses were $12.4 million for the third quarter of 2022 compared with $17.2 million for the comparable period in 2021. The $4.8 million decrease is due to our restructuring efforts, which have reduced salaries and benefits of $2 million, internal research supplies of $1.8 million, manufacturing costs of $200,000, outstanding services of $600,000 and decreases in other research and development costs of $400,000.
General and administrative expenses were $3.7 million for the third quarter of 2022 compared with $3.6 million for the comparable period in 2021. The slight increase is primarily related to restructuring cost. We expect our general and administrative expenses to decrease in connection with our restructuring plan. Net loss for the third quarter of 2022 was $13.7 million or $1.15 per share compared to a net loss of $16.2 million or $1.76 per share for the third quarter of 2021. Our cash balance at the end of September was $13.8 million. We have made substantial progress in reducing our operating burn rate, while working with suppliers on payables and other obligations. But as Dan mentioned, we will need additional capital to support ongoing operations.
Dan Camardo: Thank you, Kasey. So with that overview, I’d like to thank everyone for their attention and I’d like to answer a few questions we received in advance before opening lines for additional questions. One of the first questions we received is, can management address the risk of stock fee listing from the NASDAQ Exchange? And our answer as you recall, we had received a notice from NASDAQ of non-compliance back on March 18 for a share price trading below $1 for 30 consecutive days. We had a deadline of September 14 with the $1 share price requirement. And after getting shareholder support for conducting reverse split and discussing our options with NASDAQ, we decided to implement a one for 25 reverse split at the end of August, particularly since we were not eligible for any extension because our shareholder equity was below $4 million.
After trading for 10 consecutive days above $1, we then received a notice from NASDAQ that we had regained compliance on September 13. Unfortunately then on October 14, we received a notice of non-compliance from NASDAQ for failing to maintain a minimum market value of $35 million in traded securities over 30 consecutive days. We now have until April 12 of 2023 to regain compliance and maintain a minimum market value of $35 million for 10 consecutive trading days. And our intention is to achieve this objective in order to avoid the potential de-listing from NASDAQ. A second question we received was that it’ll be almost six months since the TREASURE trial was completed and Healios has not made any progress with PMDA in filing for approval. Can you please provide details if there is still a working relationship with the two companies?
Yes. As mentioned previously, we continue to work with Healios and support their efforts as they engage Japanese regulators to determine the next steps with both ARDS and stroke. And this has been an ongoing and time consuming process for both companies and we expect that as Healios has determined a final path forward, they will communicate their plans. Since we announced our restructuring plans a few months ago, our conversations with Healios have centered around manufacturing. In August, we granted Healios a license to manufacture MultiStem for commercial use in Japan, and we’ve been working closely with them on the tech transfer process. We continue to engage with Healios regularly and had an opportunity to meet in-person at the recent meetings on the MESA.
In our recent filings with the SEC, including our Form 10-Q filed last night, we disclosed that Healios had alleged that we were in material breach of our comprehensive framework agreement for commercial manufacturing and support for among other things our supply obligations. We continue we strongly disagree with Healios’ allegations and we’ll continue to work with Healios to try and resolve this dispute. A third question that we received is, can you provide more details on the decision to conduct a recent financing and an update on business development talks? As we discussed today and communicated previously, one of our priorities is to work on identifying potential co-development and co-commercialization partners to advance MultiStem on both a regional and global level for ischemic stroke and other potential indications.
This process takes time. As we advance conversations, we need to balance this effort and our expectations with the need to raise additional capital and support operations. We decided it was our best in our best interest to conduct a small financing before the end of 2022 to raise additional cash to support operations through Q1 of 2023. Given our financing activities over the past few months, we structured this recent financing as a confidentially marketed public offering or CMPO so that it would qualify as a public offering under NASDAQ rules. We felt that compared to other options like debt, the CMPO structure was the most attractive on terms by providing us future flexibility and also giving us the opportunity to bring in new large investors.
However, we were limited to the amount available to raise based on the availability under our registration statement. And while I recognize that equity finances are not well received by current investors, it is our best mechanism to raise capital while we execute on our business development plans. A fourth question that we received in advance is can you provide an update on MASTERS-2 and timing to complete enrollment of the trial? As I mentioned, we continue to focus on increasing patient enrollment and clinical trial site engagement with close to 40 active sites in the U.S., Europe, and other parts of the world. In fact, since the release of top line TREASURE data back in May, Dr. Mays has been actively presenting at grand rounds at clinical trial sites across the country and the totality of data with MASTERS-1 and TREASURE is being well received.
We’ve observed growth in patient enrollment rates since this effort began back in May. And during our second quarter earnings call, we communicated that our trial enrollment target was no longer the first quarter of 2023 and we have not communicated a new trial enrollment target date just yet. I’m waiting until we’ve had a chance to meet with key opinion leaders and industry experts on the data analysis we conducted. Now that we have the full TREASURE data set and determine if any changes to our MASTERS-2 trial design should be discussed with regulatory agencies. Once we’ve discussed the analysis with our expert panel and discussed our options with the FDA and EMA officials, I’ll be able to communicate a more accurate enrollment target. And we expect to be able to communicate that target and new enrollment date sometime in the first quarter of 2023.
So now I’d like to turn it over to the operator to see if we have any additional questions at this time.
Operator: There are no further questions at this time. With that said, this concludes today’s conference. Thank you for attending today’s presentation. You may now disconnect.
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