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OCGN Ocugen

Participants
Jon Lieber Chief Financial Officer
Adam Gridley President and Chief Executive Officer
Stephen Kennedy Chief Technology Officer
Don Haut Chief Business Officer
Chad Messer Needham & Company
Josh Jennings Cowen & Company
Sean Lee HC Wainwright
Call transcript
Operator

Welcome to the Third Quarter 2017 Financial and Operating Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Jon Lieber, CFO of Histogenics. Please go ahead.

Jon Lieber

Thank you and good morning everyone.

Joining me today on the call is Adam Gridley, our President and CEO; Don Haut, our Chief Business Officer and Stephen Kennedy, our Chief Operating Officer; A press release announcing Histogenics' financial and operating results for the third quarter of 2017 was issued this morning.

For those of you who have not yet seen it you will find it posted in the investors section of our website at www.histogenics.com. On our call this morning, we will share with you a business update and our financial results which will be followed by a question-and-answer session.

Before we begin our prepared remarks, I would like to remind you that various statements we make during this call about the company's future results of operations and financial position, business strategy and plans and objectives for our future operations are considered forward-looking statements within the meaning of the federal securities laws.

Our forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described more fully in our SEC filings and are available on the SEC's EDGAR system and on our website. We encourage all investors to read our SEC filings. All the information we provide on this conference call is provided only as of today and we undertake no obligation to update any forward-looking statements we may make on this call on account of new information, future events or otherwise.

Finally, please be advised that today's call is being recorded and webcast. I will now turn the call over to Adam Gridley.

Adam Gridley

Thank you, John and thanks to our stakeholders who are joining the call this morning. This enrolment in the NeoCart Phase 3 clinical trial complete, we're now preparing for the top line superiority data from this trial and the anticipated filing of the Biologic License Application or BOA in the third quarter of 2018 subject to positive Phase 3 results. This timeline leads to a potential U.S. launch as early as middle of 2019 if approved. We took some several strategic initiatives and we will review those activities from the las quarter today.

First, preparing the upcoming BLA for submission to FDA, second raising awareness amongst financial and physician community for NeoCart in conjunction with our commercialization planning activities and thirdly expanding NeoCart to other regions such as Japan.

First on the BLA submission product, the NeoCart trial continued to progress towards the one year primary endpoint data read out an important milestone for Histogenics that is now less than one year away. Approximately 65% of the patients in the trial have come in for their one year primary endpoint and we continue to repeat positive anecdotal feedback from our investigators. Furthermore we concluded last week our semi-annual data safety monitoring board, or DSMB meaning whether DSMB concluded that NeoCart continue to exhibit an excellent safety profile. Upon the completion of enrolment we shifted the large majority of our employees from a departmental operating structure into teams that [indiscernible] of the potential NeoCart filing and when commercial launch is approved.

Now the BLA filing of course includes a safety and efficacy results from the NeoCart Phase 3 clinical trial, this trial is the largest prospectively designed randomized clinical trial in North America, evaluating the treatment of cartilage defects in the knee against micro-fracture. It is the only trial with a one year superiority endpoint and a special protocol assessment with FDA. Together we believe this will lead to a rapid BLA filing and when combined with a strong safety profile and these improvements will be a significant commercial advantage in the market. To that end our second strategy initiative is planning for the potential commercial launch of NeoCart. We're already investing in activities to drive awareness in the investor and clinician community that we believe will enable and drive the commercial success of NeoCart if approved. These activities include the following.

We continue to work with members of our scientific advisory board and our institutions to ask the robust portfolio of NeoCart clinical and non-clinical data.

Our [indiscernible] has generated important data to support a potential BLA filing and commercialization of NeoCart and resulted in several high quality publications. Most recently we announced that data from our work with Cornel on the biomechanical component of tissue engineered cartilage was published in the Journal of Biomechanics.

Some of the important conclusions from that publication include one, the ex-vivo production of Extracellular Matrix is Critical for the biomechanical components of the cartilage cell therapy and may enable earlier return to function after treatment, and two, the presence of extracellular matrix at the time of treatment improves biochemical components of the therapy such as NeoCart when prepared for therapy is comprised of only cells in the scalp.

In addition in the third quarter of 2017 we created a new clinical advisory board to work with the physician community to maintain engagement and identify medical affairs and commercialization strategy leading up to a potential launch of NeoCart.

We also enhanced our executive team of the promotion of Steve Kennedy to Chief Operating Officer. Consistent with his focus on the manufacturing scale of NeoCart supply to the U.S. market upon potential approval, potential commercialization in Japan and to further develop the platform opportunity underlying the NeoCart therapy.

Our objective remains clear, we intend to revolutionize cartilage repair market by offering patients, physicians and pair a novel restored cell therapy to treat cartilage defects in the knee. We believe that NeoCart is approved may result in a faster recovery from pain and returned activity for the patients with a procedure that is relatively quick and easy for the physician and had at a potential lower overall cost to care for the pair. We believe that unlike other products or procedures NeoCart is uniquely able to address all of three of these important groups.

Now as a reminder our target market consists of those patients with smaller lesions , four centimeters or less, who are currently receiving or considering micro-fracture bereavement [ph]. There are talking 150,000 to 200,000 micro-fracture procedures performed each year in the U.S. but prevalent to significantly greater with more than 1.2 million arthroscopic procedures related to cartilage defects. These defects if left than treated can progress to debilitating osteoarthritis and then potentially lead to an eventual total knee replacement So these patients are seeking restorative cell therapies that help them lead a more active and healthy life and if approved we believe that the patients will seek these innovative therapies such as NeoCart that are supported by a robust set of clinical and non-clinical data.

In fact we believe that NeoCart is one of the most rigorously studied restorative study for cartilage repair.

Our third strategic initiative is to expand NeoCart globally and our primary objective over coming months is to complete development and commercialization agreement for NeoCart covering Japan or the broader Asia market. We believe that a strong commercialization partner can provide both the development expertise and commercial capabilities to maximize the opportunities for NeoCart in Asia and potentially provide non-dilutive funding to Histogenics. The markets in Asia are large and we believe our need of a better alternative that provides patients with rapid pain relief and a significantly delay or present the progression to osteoarthritis to sensitive cartilage defects.

For example we believe the market in Japan alone is approximately a 1/3rd the size of United States and also has robust reimbursement in place.

In addition there is a greater receptivity, personalized regenerative and restorative therapy such as NeoCart both from a patient perspective and a regulatory perspective. In our recent rapid development pathway clarity with PMDA, the Japanese regulatory authority has generated significant press in Japan and interest from potential partners. Depending on the speed of a potential partner we could see commercialization in Japan in one to two years behind the U.S. launch if approved and assuming we're able to complete a collaboration in Japan or Asia we intend to then focus on other territories such as Europe and we look toward to updating you on our progress on these efforts in the future.

As we know predicting the timing of the collaboration is incredibly difficult but we've continued to make progress in this effort and are in discussions with a number of leading pain companies and large pharmaceutical organizations in Japan and the broader Asia region. At this point I'll turn the call over to Jon Lieber to discuss our financials.

Jon Lieber

Thanks, Adam.

For the quarter ended September 30, 2017 Histogenics reported a loss from operations of $5.7 million compared to $6.6 million for the quarter ended September 30, 2016. The decrease in overall operating expenses was attributable to a reduction in research and development expenses that was offset by a smaller increase in general and administrative expenses.

We continue to focus our efforts on adapting the NeoCart development program while minimizing our burn rate. To that end we expect lower total operating expenses over the next three quarters as we wrap up our clinical activities related to the NeoCart Phase 3 clinical trial and before we begin to prepare for the commercialization of NeoCart if approved.

Moving on to some specifics for the quarter, the decline in research and development expenses in the third quarter of 2017 as compared to the third quarter of 2016 was due to reductions in collaboration, consulting and temporary labor costs, a decrease in expenses related to the NeoCart NeoCart General and administrative expenses were increased to $2.2 million in the third quarter of 2017 as compared to $1.8 million in the third quarter of 2016 due to an increase in salaries, consulting and facility repairs and maintenance expenses. These increases were largely driven by activities to support potential BLA submission and commercialization of NeoCart if approved. Net loss attributable to common stockholders was $5.1 million in the third quarter of 2017 or $0.23 per share compared to $9.2 million or $0.70 per share in the third quarter of 2016. The decrease in net loss attributable to common stock was primarily due to the lower operating expenses just discussed, 3.1 million and expenses related to the private placement we completed in the third quarter of 2016 and an increase in weighted average shares outstanding also resulting from the 2016 private placement.

As a reference point we currently have approximately 24.1 million primary shares outstanding and 42.5 million fully diluted shares outstanding.

As a reminder the 42.6 million fully diluted shares include 13.4 million warrants issued in connection with the 2016 private placement that do not have a cashless exercise provision.

So should the holders exercise those warrants prior to their expiration we would receive approximately 30 million in proceeds. At September 30, 2017 Histogenics had cash, cash equivalents and marketable securities of 12.6 million compared to 31.9 million at December 31, 2016. Based on current operating plans and the expected timing of product development programs we believe our current cash position will fund our operations into the middle of 2018. I will now turn the call back to Adam for concluding remarks before we go to Q&A

Adam Gridley

Thanks, John.

We continue to believe that patients, physicians and pairs are looking for better alternatives to the current treatment options. Based on the data generated to-date and the anecdotal feedback we received from our investigators and collaborators, we believe NeoCart rebuilds the patient's knee cartilage and as a result provides rapid onset pain release and restores function. By treating the problem at source, NeoCart may reduce the use of opioids and unnecessary and costly addition surgeries. Clinicians believe in the literature demonstrates that if left untreated these defects often lead osteoarthritis and potentially total knee replacement. With enrolments in the NeoCart Phase 3 complete we're now focused on the top line data read out in the middle of 2018 and the preparation of our BLA application for NeoCart in the third quarter of 2018.

We have a strong team and advisory board in place which we believe is due to the strength of NeoCart and Histogenics underlying technology platform and we're planning for a commercial launch of NeoCart in the second half of 2019 if approved. Thank you for joining today's call.

We will now open up the line for any questions. Operator please open up the line.

Operator

[Operator Instructions].

Our first question comes from the line of Chad Messer with Needham & Company.

Your line is open.

Chad Messer

I know you guys are working hard to try to get something done over in Japan or Asia and you kind of talked broadly about that market being a third the size of U.S. Can you walk us through in a little bit more detail what you've learned about it, the Japanese for example get micro-fracture at about the same rate and then what you know about reimbursement and pricing in Japan as you might expect compared to the U.S.

Adam Gridley

Thanks for the question Chad and happy to jump in, we're learning quite a bit as we're spending regular amount of time in Japan talking with a number of partners and then of course doing a considerable amount of market research.

So first I think what we would reflect upon is that the market in Japan is strikingly similar to the United States where there is a large satisfaction gap between the available therapies whether it be micro-fracture or other procedures and what physicians are looking for.

So there's a host of themes that exist here that are also very prevalent in Japan.

I think there is also a large belief that if you don't treat these cartilage defects that is one of the leading causes of osteoarthritis and as we know OA is a big issue Japan both due to the demographic and then due some of the lack of paying treatments that are available.

So I think there's a large unmet need there and the belief that there is a need for micro-fracture I think is an overwhelming response that we hear from surgeons. It's a no-key [ph] procedure, it's quick but it doesn't provide the rapid pain relief and it doesn't provide the true regenerative outcome that we think NeoCart is going to and that has led to I think some robust reimbursement that is probably similar to what we've seen here in the United States so there is a product that had some I think some challenges both from a label and from a usage perspective but it's still reimbursed north of about ¥2.1 million which is about $20,000.

So I think what you're seeing there is a number of parallels between the market and certainly as we talk to our surgeons some of whom have trained actually here in the United States they're all looking for better therapies.

Operator

Our next question comes from the line of Josh Jennings with Cowen.

Your line is open.

Josh Jennings

I was hoping to just start off asking about you know the recent biomechanical results that were published were strong in collaboration with Cornel, you're building a portfolio of data that we haven’t seen historically, I don't believe from a competitors either. I'm just wondering how this data is resonating in terms of demonstrating unique mechanism of action for NeoCart with clinicians, with some of the principal investigators and I would like to start there that would be great if any color on that.

Adam Gridley

Thanks, Josh for the question.

I think it's really a good one, it's one that we're actually getting quite a bit of interest from both our investigators, from the regulators and potential partners as well and part of this comes from I think the really robust clinical response that investigators are getting first and foremost where they often have their reaction, their patient seemed to be doing better earlier now of course the data are blinded and this is all anecdotal evidence but they really get that sort of wow effect when the patient comes back in three and six months and the first response is that this is great outcomes and then they tell why [ph], why are we getting those types of responses and getting feedback pretty consistently and that’s where we have been doing a lot of work to generate this biomechanical data to really explain why we're seeing such early return to function potentially rapid pain relief and that goes to I think a unique nature of the exvivo manufacturing process but now we're able to demonstrate from a clear mechanism of action perspective why a good part of this tissue creates these great clinical assays.

So Steve if you want a comment a little bit more on some of the findings and what you're hearing from our partners and as we're working with Cornel what are some of the observations that they're providing as well.

Stephen Kennedy

Yes, I think the -- most recent paper that really shows here is what happens when you put some of those scaffold and put it under stress what happens when you wait until that extracellular matrix has been produced by itself and put the construct under stress and it definitely shows the difference it shows how early on scaffold is predominantly defining the biomechanics as opposed to once you go through a tissue generation then the actual extracellular matrix is defining the mechanical properties and that really does demonstrate the difference between -- it demonstrate the benefit of our tissue engineering process and I think that kind of reiterates to what Adam said. The one angle that I'm most concerned about and this is really important to me is we look forward how do we use these data to work with FDA in our type of product profile, on our -- how does it impact our BLA, how do we utilize this information to quote our overall process validation and process improvement studies.

I think in terms of [indiscernible] resonating with clinicians I think it's -- in the clinic again its able to support the [indiscernible] with respect to the mechanism of action with product.

Adam Gridley

And further to that this was a critical component Josh to our discussions with the PMDA where there are a lot of cell therapies that are been introduced or at trying to be introduced into the clinic and some of these are just cells, some of them are cell and biomaterial construct but we're able to show that we're making tissue and as the PMDA reviewed that package that biomechanical data was surprisingly more important than we had anticipated.

So we want to have a clinical trial, its shows that you got a very strong mechanism of action.

You're not just putting yourself or materials in your putting a functional piece of tissue.

So were actually surprised at how well that met with by the agencies who are seeing a lot other data out that does not include the biomechanical data.

Josh Jennings

That's helpful and I just wanted to follow up on I mean how differentiated is this data? Our impression is that it's highly proprietary but in terms of some of those competitive products that are either in the U.S. or working in U.S. but also out there internationally. Is the biomechanical data or mechanism of action evidenced robust or are you guys way ahead in leading the pack? A - allogeneic hematopoietic cell transplantation I think we're way ahead in leading the pack in a couple of different areas but one is that biomechanical data and we did this as part of an FDA requirement many years ago and other companies have also been asked the questions which is if you put cells in and you're trying to make claims that you're eventually making tissue the question often is when, how, what's the quality of the tissue, what's the nature of the clinical response and many of these cells or even cell scaffold construct you don't know because you're not making tissue until being in the body for anywhere from 6 to 12 months and cartilage because it sort of mean privileged that [indiscernible] is notoriously to generate in the body.

So when we generate it outside of the body with all the biomarkers and the biomechanical data the regulators are starting to get it done that, we're seeing almost functioning tissue prior to implantation whereas most of these other products that takes 12 months or longer to be able to demonstrate that. The manufacturing process is highly proprietary and of course then deploying [ph] them to what we think is the only one year primary endpoint industry because most products can't show a difference against micro-fractures until two years.

So I think sort of holistically comes together in a pretty robust story and I think it gives a sort of the long tail as we come into the market with some of that best data but also some of the best evidence to show why we get the best clinical data. Steve anything you would add?

Stephen Kennedy

Yes the only thing I want to answer that is I know [indiscernible] at Cornel University he has done his work and first of all laid an IND -- a key leading research laboratory, he is doing his best work from his literature search and been able to they know that we're the only company that has -- this is the only study where the compressive this and a characteristics of these kind of constructs have been evaluating this way.

So I think that does support Adam's point that we were -- we quite a bit ahead than anyone else in terms of doing this sort of work and I think it gives us a unique advantage and those differentiates the product.

Adam Gridley

The final point that I would mention is getting right back to the physician is when we present this data they very much get it, they have been presented with a lot of products, theories, self-learning, that we're all going to create this outcome and in some cases its really obvious if you don’t have the clinical response but then the concern may have is why, what's the mechanism of action, they are scientist at heart and when we see this data they get pretty excited because then they also feel it in their hand when they take NeoCart end points into the patient its easy to use, its actually very competent and it's easier to cut and that leads to what we think is going to be huge competitive advantage which is a 20, 30 minute procedure and no special handling.

So they feel the tissue, they understand why it has the confidence and then that correlates with the clinical data.

Josh Jennings

And I just want to know we've talked about this topic before but I just want to hear any updated thoughts you know you're moving forward, get the data, submit the BLA and then plans for commercialization, sure there is still formalizing but any updated thoughts in terms of sales force built out as you get into that mid-19 with the potential approval, I'm assuming approval obviously. Any help there would be great.

Adam Gridley

Sure I will start with the quick response and then hand it over to Don Haut our Chief Business Officer who joined back in and doing a lot of work with Jon and Steve on how we think about commercialization. Most of our thoughts really come from the learnings in the clinical trial, this is not going to be your typical orthopaedic call point, it's not a surgical cell, this is really about bringing satisfied patients into the practice with an easy to conduct procedure and so what we've done in the clinical trial and where we are successful that we had good medical support, we had excellent clinical data of course based on the Phase 2 and then it's an easier to perform procedure and if we are able to then drive patients into the offices we think that many of those micro-fracture surgeons who aren’t doing the other procedures, move on to better therapy will start to offer and treat those patients who are currently unsatisfied. Don do you want to comment further about our thoughts on how we start to build out that infrastructure?

Don Haut

Sure.

I think because of what we talk about really over the past five minutes the advantages of the product we think especially over micro-fracture we think that this is going to be a highly technical sale, very focused on spreading the good word about -- and showing people the data so they will be highly NSL [ph] driven and we don’t believe we will need a significant sales force, I mean we don’t think we are going to need to go out and hire 50, 60 kind of the traditional spec pharma type sales force. We can start a lot smaller.

Operator

[Operator Instructions].

Our next question comes from the line of Sean Lee with HC Wainwright.

Your line is open.

Sean Lee

With the Phase 3 study now in full swing, are there any manufacturing or C&C validation or optimization processes so you would have to conduct between now and what time to call the BLA?

Adam Gridley

Absolutely we're doing a lot of across all of the elements of the organization from the clinical data follow-up to the C&C preparatory activities.

So 90% plus of our organization after completing the last NeoCart production lot and finishing the trial have turned to preparation for the BLA and there are a variety of activities that are taking place to prepare for the C&C section. Steve do you want comment further on just the type of activities both from a facilities, from a process and [indiscernible] manufacturing prospective?

Stephen Kennedy

Sure. Well Sean, to put things right on it, I mean we're deeply engaged in validating the processes for finding materials at our Lexington facility as well as the NeoCart process that are 830, Winter Street facility.

So we're deeply involved in that, the whole organization is completely geared and focused on that right now and we're right on track in anticipating the schedule for that market is completely consistent with our BLA filing data at this point.

Sean Lee

And looking a little bit further ahead, what are some of management's on potential indication expansions or follow-on profits?

Adam Gridley

Sure. Sean, I think you also highlighted an important point where NeoCart in the knee is really just the first step well there is probably indications, this is a platform opportunity.

So if you can fix cartilage in the knee which is clearly the biggest opportunity because we control all the biomaterials and namely the scaffold which we can then make to different sizes, depth and other opportunities for expansion we would likely take this into a numbers indication fairly quickly.

On the first would probably be the ankle, that’s probably the next biggest unmet need and that’s a pretty sizeable market and we think the advantage of this platform is that because you may have some of the same manufacturing processes maybe just a slightly different size capital you're not starting for a renewable development program, this is really a Phase 3 second indication type of trial that we would think about in the future.

So ankle is probably the next biggest priority. We then look at hip and shoulder, part of that goes to our allogeneic strategy where eventually we'd like to create for the Master Cell Bank and be able to then have off the shelf implants as well and that’s the beauty of the exvivo manufacturing platform is that not only can you control the biomaterials, you can then also control the sales source [ph] but it's still the same underlying safety and efficacy package that allows was to rapidly take this new indication but then also in the new market.

Operator

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back to Adam Gridley for concluding remarks.

Adam Gridley

Thank you, operator and thanks to our stakeholders for participating on the call today. We appreciate your support and look forward to reporting on our progress for the upcoming BLA filing subject to successful Phase 3 results and that’s all by a potential commercial launch in the U.S. and other territories if approved. Have a good day everyone.

Operator

Ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you may all disconnect.