Longeveron Inc. (NASDAQ:LGVN) Q2 2023 Earnings Call Transcript

Longeveron Inc. (NASDAQ:LGVN) Q2 2023 Earnings Call Transcript August 11, 2023

Longeveron Inc. misses on earnings expectations. Reported EPS is $-0.27 EPS, expectations were $-0.26.

Operator: Greetings, and welcome to the Longeveron’s Second Quarter 2023 Earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is recorded. It is now my pleasure to introduce host, Mike Moyer, Investor Relations. Thank you, sir. You may begin.

Mike Moyer: Thank you, operator. Good morning, everyone, and welcome to Longeveron’s Second Quarter 2023 Results Conference Call. We will provide a business update and discuss financial results for the quarter ended June 30, 2023. Earlier this morning, we issued a press release with these results, which can be found under the Investor section of our website. Joining the call today by the following members of Longeveron’s management team. Mr. Wa’el Hashad, Chief Executive Officer; Natalia Agafonova, Chief Medical Officer; and Lisa Locklear, Chief Financial Officer. Mr. Hashad will begin with a brief corporate overview. Then Dr. Natalia Agapitova will review on Longeveron’s recent progress in its clinical programs and Ms. Locklear will review financial results for the 2023 second quarter.

Following the company’s prepared remarks, we will open the call to questions from covering analysts. As a reminder, during this call, we will be making forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our press releases and risk factors discussed in our filings with the SEC, including our quarterly report on Form 10-Q and annual report on Form 10-K and cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Now I’d like to turn the call over to Mr. Wa’el Hashad, Chief Executive Officer of Longeveron.

Wa’el?

Wa’el Hashad: Thank you, Mike, and good morning, everyone. Welcome to the Longeveron Second Quarter 2023 Business Update and Financial Results Call. We are pleased to be speaking with you today and look forward to sharing our process developing regenerative medicines for unmet medical needs. Our second quarter has been productive in terms of executing on our goals at Longeveron, marked by progress in our clinical programs for our lead investigational product called Lomecel-B, enhancements to our leadership team, our Board of Directors and the initiation of our rights offering to raise capital. Before beginning our review of the quarter, I would like to introduce my new colleagues and new Board members. First, I would like to introduce Mr. Khoso Baluch, who recently joined our Board of Directors.

He has over 36 years of experience about global geographies in the biopharmaceutical industry. He has served as an independent director for multiple biopharmaceutical publicly traded companies. Mr. Baluch served as a Chief Executive Officer and a Board member for CorMedix in publicly traded pharmaceutical company in the U.S. He is very well known and recognized in our industry. Second, I would like to introduce Mr. Jeffrey Pfeffer, who recently joined our Board of Directors. He is a Thomas D. Dee II Professor of organizational behavior at the Graduate School of Business, Stanford University, where he has taught since 1979. He’s the author and co-author of 16 books. Mr. Pfeffer currently serves on the advisory and nonprofit boards for multiple organizations.

I am also joined today by our 2 new executives Dr. Nataliya Agafonova, our Chief Medical Officer. She joins us from Otsuka Pharmaceutical, where she served as the clinical development lead and the product development chair. She is experienced pharma and biotech industry clinical development leader and we are pleased to have her lead our cellular therapy development program. I’m also welcomed Lisa Locklear, our Executive Vice President and Chief Financial Officer. She joined us from Avanir Pharmaceuticals subsidiary of Otsuka, where she served as the Senior Vice President and Chief Financial Officer. Lisa is an accomplished leader with business experience and is respective finance professional throughout the biopharmaceutical industry. I’ll be turning the call over to Natalia and Lisa in a moment, but on behalf of everyone at Longeveron, let me say how pleased I am that they have made the decision to join our Longeveron team, And welcome them to our leadership team.

We look forward to their guidance as we advance Lomecel-B in critical areas of unmet need. As a reminder, Lomecel-B is a living cell product made from specialized cells isolated from the bone marrow of young healthy adult donor age 18 to 45. The specialized cells are known in the literature as medicinal signaling cells, or MSC, and are essential to our endogenous or built-in biological repair mechanism. MSCs have been shown to perform a number of complex functions in the body, including the formation of new tissues. They also have been shown to hold and respond to sites of injuries or diseases and succeed bioactive factors that are immunomodulatory and regenerative. We believe that Lomecel-B has multiple potential mechanisms of action that may lead to anti-inflammatory, provascular, regenerative responses and, therefore, may be – have a broad application of ranges of rare and aging-related diseases.

We have ongoing trials and hypoplastic left heart syndrome, known also as HLHS, Alzheimer’s disease, aging-related priority. Earlier today, we were pleased to announce that our ELPIS II trial and HLHS has exceeded its 50% enrollment threshold and that we expect to complete enrollment in the trial sometime in 2024. We are also on track, anticipated to report top line results from the CLEAR MIND Phase IIa trial of Lomecel-B in treatment of Alzheimer’s disease by October 2023, and aging-related frailty priority enrollment continues in our Phase II study in Japan. We are excited about the progress we’re making and about the broader potential of Lomecel-B as a regenerative medicine therapy for a range of unmet needs. And with that, I will turn over the call to Dr. Agafonova to provide you more detailed overview of our clinical programs and recent progress.

Natalia?

Nataliya Agafonova: Thank you very much, Wa’el. I’m pleased to join the Longeveron team and to provide today’s update on our clinical progress. I will begin with an update on our HLHS program. For those who may not know HLHS is a rare congenital endeavor state birth defect in which the left ventricle of the heart, which either severely underdeveloped omission. The condition affect approximately 1,000 babies per year in the United States. Babies born with this condition have severely diminished systemic blood flow, which requires children to undergo a complex, 3-stage heart construction surgery process over the course of the first 5 years of their lives. While these children now came into adulthood with the surgical intervention, only 50% to 60% of affected individuals survived to other lessons due to right ventricle failure, which is often unable to handle the increased load required to support systemic circulation.

Furthermore, even those children with successful surgical intervention are at an elevated risk of short-term mentality, late development and long-term complications, including organ failure, as such, there is an important unmet medical need to improve right ventricular function in these patients to improve both, short-term and long-term patient outcomes. Our ELPIS II trial is designed to assess the potential of Lomecel-B to improve right ventricular function and long-term outcomes. The trial is a 38 patient controlled Phase II clinical trial evaluating the safety and efficacy of Lomecel-B as an adjunct therapeutic to standard of care HLHS surgery. The primary outcome measure is the change in right ventricular ejection fraction from baseline to 12 months.

The trial is funded by a grant from a National Institute of Health, National Heart, Lung and Blood Institute. As we announced recently, our ELPIS II trial has exceeded its enrollment threshold of 50%. We also announced the activation of our 8 clinical site location, 1 more than the 7 originally planned. As I mentioned earlier, the achievement of this milestone and the activation of additional trial site put us on the track to complete enrollment in this trial around the middle of 2024. This study builds on the early ELPIS I study, a Phase I study of Lomecel-B in children with HLHS. 10 patients participated in Phase I ELPIS I trial during Lomecel-B was injected concurrently with the Stage 2 surgery also called as a Glenn procedure. All 10 patients have been monitored for at least 3.5 years after treatment.

Additional long-term follow-up data from this trial was announced earlier this year, showing that 110 who participated in ELPIS I trial survive and remain heart transplant free for up to 5 years of age. As compared with the historical clinical trial results showing the children with HLHS, who undergo the Glenn procedure typically have 15% to 20% methodology by five years of age. The preliminary ELPIS I data are highly encouraging and reinforce cell in Lomecel-B as a potential treatment to transform care for patients with HLHS. To further highlight the potential we believe Lomecel-B may have in this indication. Next 3, we will host a virtual webinar to discuss the unmet medical need and current standard of care for patients suffering from HLHS.

This event will feature Dr. Kaushal from Lurie Children’s Hospital and Dr. Ramkumar Subramanian of the University of Southern California Keck School of medicine. The event will also feature Dr. Joshua Hare, Chairman and Co-Founder of Longeveron and Founder Director of the interdisciplinary Stem Cell Institute in the University of Miami, Miller School of Medicine. This event will be an informative discussion about the potential of Lomecel-B in HLHS and the limitations of the current standard of care and we encourage all interested parties to join us next Wednesday, August 16 at 10 AM Eastern Time. Registration details available are on website. Now I’d like to move on to our Alzheimer’s Disease Program Based on growing value of preclinical and clinical data from various sources, We believe Lomecel-B may prevent slow and reversed the clinical progression of Alzheimer’s disease by reducing disease-related brain inflammation.

Neuron also death caused by earlier and substantial neuroinflammation is a significant contributor to the pathogenesis of Alzheimer’s disease. In preclinical model of Alzheimer’s disease, MSC’s with characteristics similar to Lomecel-B has been shown to cross the blood brain barrier, potentially with an IT inflammatory in fact, improved in the cellular function and promoting neurogenesis, the process of neuron formation in the brain. In November of 2022, we completed enrollment in our Phase IIa trial of Lomecel-B for mild Alzheimer disease. The Phase IIa trial called CLEAR MIND trial is a 48 patient, 4-arm parallel design, randomized clinical trial of Lomecel-B designed to evaluate the safety of single and multiple infusion of 2 different dose level of Lomecel-B compared to placebo in patients with mild Alzheimer’s disease disease.

Our primary endpoint is safety, as measured by occurrence of serious adverse events, given first 30 days after administration of Lomecel-B. Secondary and exploratory endpoints include measures of cognitive function and radiological biomarkers relevant to inflammation and endothelial and vascular systems. In a pre-completed Phase I study, we have demonstrated preliminary safety of Lomecel-B patients with mild Alzheimer’s disease. With the Phase IIa trial, we hope to build on those results and further demonstrate the potential of Lomecel-B as a treatment for Alzheimer’s? disease. Data analysis from this trial is ongoing, and we anticipate sharing top line results from CLEAR MIND trial around October 23. Finally, I’d like to cover updates on our aging-related frailty program.

Aging-related frailties and age associated decline across multiple physiological system leading to the inability to cope this transfers. It is characterized by mobility and payer weakness, fatigue, weight loss, slowness and low activity and puts individuals at high risk for poor clinical outcomes, such as infections, falls, fractures, hospitalization and even death. At Longeveron, we’ve been evaluating the effect of Lomecel-B may have on health and function of elderly frail patients, particularly on their physical and immune system. In early stage exploratory trial, we have been using biomarkers of inflammation and vascular and endothelial function to measure effects. Our clinical development strategy in aging-related frailty is currently focused in Japan, a country with one of the oldest population in the world.

As of 2021, Japan’s population comprised of 36.4 million individuals aged 65 or older, representing 29.1% of the country. The overall prevalence of aging-related frailty among the demographic is estimated to be 7.9%. Last quarter, we announced the dosing of the first patient in our Phase II clinical trial evaluating Lomecel-B in patients with aging-related priority in Japan. The Phase II trial is a 3-arm parallel design randomized split 1:1:1 of placebo as well as 2 different level of Lomecel-B single infusions. Enrollment is continuing, and the trial is expected to enroll 45 patients. The primary endpoint is to evaluate safety with an overarching goal of providing support for an eventual limited approval under the Japan Act of Safety of Regenerative Medicine, or ASRM, which recognizes the tremendous potential – therapeutic potential of cell therapy.

With that, I’d now like to turn the over to Lisa Locklear, our CFO, to discuss our financial results for the second quarter of 2023 and the six-month period ended June 30, 2023. Lisa?

Lisa Locklear: Thanks, Natalia, and good morning, everyone. Like Natalia, I’m excited to be a part of Longeveron to speak with all of you today. Most of what I’ll be covering this morning will be presented in more detail, in our condensed financial statements and in our management’s discussion and analysis of operations, In our quarterly report on Form 10-Q, which will be filed today. Revenues for each of the three months ended June 30, 2023 and 2022 were approximately $0.2 million and $0.5 million, respectively. Grant revenue for the three months ended June 30, 2023 and 2022 was $0 and $0.1 million, respectively. The decrease of $0.1 million was primarily due to a reduction in grant funds available due in part to the completion of the grant-funded clinical trials.

Clinical trial revenue, which is derived from the Bahamas Registry Trial for the three months ended June 30, 2023 and 2022 was $0.2 million and $0.3 million, respectively. Clinical trial revenue for the three months ended June 30, 2023, was approximately $0.1 million or 36% lower when compared to the same period in 2022 as a result of a decrease in participant demand. Related cost of revenues was approximately $0.1 million and $0.3 million for the three months ended June 30, 2023 and 2022, respectively. The decrease of $0.2 million, or 59%, was primarily related to the decrease in revenues earned from the Bahamas Registry Trial. This resulted in a gross profit of approximately $0.1 million and $0.2 million for the three months ended June 30, 2023 and 2022, respectively.

General and administrative expenses for the three months ended June 30, 2023, increased to approximately $3.4 million compared to $2.4 million for the same period in 2022. The increase of approximately $1 million, or 39%, was primarily related to an increase of $0.7 million in compensation and benefit expenses during the current year period and expenses related to professional fees. Research and development expenses for the three months ended June 30, 2023, increased to approximately $2.3 million from approximately $1.7 million for the same period in 2022. This increase of $0.6 million, or 33%, was primarily due to an increase of $0.5 million in research and development expenses that were not reimbursable by grants. Nonoperating lawsuit expense for the six months – for the three months ended June 30, 2023 and 2022 was $0 and approximately $1.4 million, respectively.

Net loss was approximately $5.6 million for the three-month period ended June 30, 2023 and 2022. For the six-month period, June 30, 2023 and 2022, results were as follows: revenues for each of the six months ended June 30, 2023 and 2022 were approximately $0.5 million and $0.8 million, respectively. Revenues for this period were approximately $0.3 million, or 41% lower when compared to the same period in 2022. Grant revenue for the six months ended June 30, 2023 and 2022, was less than $0.1 million and $0.2 million, respectively. Grant revenue for this period was approximately $0.1 million or 78% lower when compared to the same period in 2022, primarily due to a reduction in grant funds available due in part to the completion of the grant-funded clinical trial.

Clinical trial revenue, which is derived from the Bahamas Registry Trial, for the six months ended June 30, 2023 and 2022, was $0.5 million and $0.6 million, respectively. Clinical trial revenue for this period was approximately $0.1 million, or 30% lower when compared to the same period in 2022. During the six months ended June 30, 2023, clinical trial revenue decreased as a result of a decrease in participant demand. Related cost of revenues was approximately $0.3 million and $0.4 million for the six months ended June 30, 2023, and 2022, respectively. Cost of revenue period was $0.1 million or 13% less with comparing period in 2022, primarily due to the corresponding decrease in the revenues earned from the Bahamas Registry Trial. This resulted in a gross profit of approximately $0.2 million and $0.5 million for the six months ended June 30, 2023 and 2022, respectively.

General and administrative expenses for the six months ended June 30, 2023, increased to approximately $5.2 million compared to $4.4 million for the same period in 2022. The increase of approximately $0.8 million or 19% was primarily related to an increase of $0.8 million in compensation and benefit expenses. Research and development expenses for the six months ended June 30, 2023, increased to approximately $5.1 million from approximately $3.1 million for the same period in 2022. The increase of $1.9 million, or 61%, was primarily due to an increase of $1.4 million in research and development expenses that were not reimbursable by grants, an increase of $0.3 million in supplies to manufacture Lomecel-B and an increase in equity-based compensation allocated to research and development expenses of $0.2 million.

Nonoperating lawsuit expense for the six months ended June 30, 2023 and 2022 was $0 and approximately $1.4 million, respectively. Our net loss increased to approximately $10.3 million for the six months ended June 30, 2023, from a net loss of $9.1 million for the same period in 2022. As of June 30, 2023, the company had cash and cash equivalents of $2.7 million, marketable securities of $5.9 million and working capital of approximately $6.2 million. As of December 31, 2022, cash and cash equivalents were $10.5 million, marketable securities were $9.2 million and working capital was approximately $15.4 million. Based on the company’s current operating plan and financial resources, we believe that our existing cash and short-term investments will be sufficient to cover expenses and capital requirements into the first quarter of 2024.

Before turning over to Wa’el, I’ll remind everyone that on June 27, 2023, the company filed a registration statement with the SEC to conduct a tradable subscription rights offering for up to $30 million of shares of Class A common stock to shareholders and holders of warrants to purchase common stock as a future record date to be determined. The company expects to undertake and close the offering as outlined in the registration statement. We believe the rights offering allows us to balance the need to raise capital while remaining cognizant not to dilute existing shares. We believe this is an opportunity to participate for all shareholders and to raise needed capital. With that, thank you, and I will turn the call over to Wa’el.

Wa’el Hashad: Thank you, Lisa. As you have heard today, we’re making steady progress in advancing Lomecel-B across 3 indications. We are looking forward to highlighting Lomecel-B assets. In the HLHS, and our key opinion leader webinar next week. As Natalia has mentioned, it’s August 16, Wednesday. I would like to open the call now for questions. Operator, please open the line for our covering analysts.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Michael Okunewitch with Maxim Group. Please proceed with your question.

Michael Okunewitch: Hey, guys, thank you for taking my question here. So I guess, first off, I’d like to just get your take on the FDA’s decision for Mesoblast BLA. Obviously, this was a disappointment for the space, but given that you’re both in rare pediatric disease, does this do anything to inform your future development for Lomecel-B in HLHS? And does it give you additional confidence in the design of ELPIS II as a placebo-controlled study?

Wa’el Hashad: So Michael, I will take the first step on answering that question. And then I will have Natalia add any additional comments or also I have Josh, who can also add any additional comments. But I would say that from the beginning, we are trying to conduct our HLHS program as a pivotal trial. We are doing everything to make sure that this trial met the FDA requirements and hopefully provide the necessary balance between benefit-risk ratio to accept it for filing. Having said that, there is definitely no guarantee that this is going to happen. As you know, it’s always a matter of review. And the FDA typically weigh in the significant unmet medical need of the disease itself as well as the body of evidence of data, not just in the study that was conducted for that disease, but the overall body of evidence.

So while we were really hoping that Mesoblast get their approval on their products, I cannot draw 100% parallel to the HLHS due to: one, we are conducting our trial maybe in a different way. And second, it’s a different disease state. So with that, I will let Natalia and/or Josh to add any further comments to my comments.

Nataliya Agafonova: Thank you very much. Okay – sorry, Josh.

Joshua Hare: Yes. I wanted to make a comment and then I’ll turn it over to you, Natalia. Thank you. I think one of the critical aspects that need to be recognized about our ongoing HLHS trial is that it is a controlled trial so that there is an active and best conventional care arm, which is conducted in a rigorous blinded fashion. And I think that’s one of the critical aspects that the FDA has commented on that is crucial for this field. So we are – I do want to emphasize that the ELPIS II trial has that key control group. Thank you. And Natalia, please take it from here.

Nataliya Agafonova: Thank you so much, Josh. And it’s always good practice to use precedents. And definitely, as Wa’el indicated that’s a completely different indication, but they are learning from communication between FDA and Mesoblast. Thank you.

Michael Okunewitch: All right. Thank you very much for the additional clarity. And then I’d just like to see if you have any additional insights here on what kind of a result you would need to demonstrate for ELPIS II to serve as a pivotal study?

Wa’el Hashad: So Michael, our primary endpoint is the right ventricular ejection fraction. Again, we believe, as a small as 5% improvement, remember, at the end of the day, it’s all about benefit-risk ratio. So it’s not really one specific measure if we hit the it’s a home run, but I think it’s an overall body. Survival rate could be also an added benefit, which we were encouraged on the results that we have seen from the follow-up on this one. So both the right ventricular ejection fraction and survival rate, in addition, of course, to the safety profile of the product will be important consideration for the agency to weigh in on that indication. But again, I’ll leave it up to Natalia to add any comments.

Nataliya Agafonova: Thank you, Wa’el, no comments.

Joshua Hare: Wa’el, may I make a quick comment?

Wa’el Hashad: Sure, Josh, go ahead.

Joshua Hare: Yes. One of the key things to understand about hypoplastic left heart that’s unique from adult forms of heart failure disease is that there’s a very, very clear association between right ventricular function and clinical outcome, been well shown in studies over – going back 25 years now. So the decline in ejection fraction after the Stage II surgery is very closely correlated with a clinical outcome and, therefore, poses a very valuable surrogates. Our trial is designed to look to see whether Lomecel-B increases ejection fraction relative to placebo – and not placebo per se, but that’s conventional therapy, both patient groups or surgery and so we think that the finding could be of great clinical value in interpreting the efficacy of Lomecel-B in this condition.

Michael Okunewitch: All right. One more for me, and I’ll hop back into the queue. I’d just like to see it for ELPIS II, if you could remind us of the expected time lines between completion of enrollment and data as we’re approaching that enrollment completion sometime in 2024.

Wa’el Hashad: Michael – is that Michael?

Michael Okunewitch: Yes.

Wa’el Hashad: Yes. Michael, we – as we announced it, we expected to finish the enrollment. We’re targeting hopefully mid next year. Of course, with the thought of a new site there is a lot of plans to try to guide our enrollment in the program. But as you know, with rare diseases it’s hard to predict exactly when. Once we finish the enrollment, it will take 1 year after that to measure the endpoints and then close the trial and provide better results from it. This should happen within couple of months after the trial finish enrollment – 1 year after the trial finish enrollment.

Michael Okunewitch: All right. And I’m looking forward to that KOL event.

Wa’el Hashad: Thank you.

Operator: There are no further questions at this time. I would now like to turn the floor back over to Wa’el for closing comments.

Wa’el Hashad: All right. Thank you. All right. Well, thanks, everyone, for attending our today’s call. On behalf of the company and the Longeveron team, I would like to thank you for all your continued interest and support and wish you a good day today. Ladies and gentlemen, thank you so much.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.