Caladrius Biosciences Inc

LSE:0HS8

Earnings Call Transcript 2018-Q4

[Operator]

Welcome to the Caladrius Biosciences Fourth Quarter and Full Year 2018 Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, this call is being recorded today, Thursday, March 14, 2019.

I would now turn the call over to John Menditto, Vice President of Investor Relations and Corporate Communications at Caladrius. Please go ahead, sir.

[John Menditto, executive]

Good afternoon, and thank you all for participating in today's call. Joining me today from our management team are Dr. David Mazzo, President and Chief Executive Officer; and Joseph Talamo, Chief Financial Officer.

Shortly before the call, we issued a news release announcing our fourth quarter and full year results for 2018. We apologize for any delay. The wire service we were using had a technical difficulty. And if you have not received the news release or if you'd like to be added to the company's e-mail distribution list, please e-mail me at [e-mail].

Before we begin, I will remind you that comments made by management during this call will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Caladrius. I encourage you to review the company's filings with the Securities and Exchange Commission, including, without limitation, its forms 10-K, 10-Q and 8-K, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, March 14, 2019. Caladrius Biosciences undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I'll turn the call over to Dr. Mazzo. Dave?

[David Mazzo, executive]

Thank you, John. And good afternoon, everyone. And thank you for joining us for today's call.

For those of you who have been participating to our recent quarterly calls, you will note that 2018 was an eventful and productive year for Caladrius. In addition to completing the 1-year follow-up for subjects in the landmark T-Rex study of CLBS03 as a treatment for type 1 diabetes, we advanced our 3 proprietary CD34-positive cell therapy development programs, namely: CLBS12 as a treatment for critical limb ischemia; CLBS14-CMD for the treatment of coronary microvascular dysfunction; and CLBS14-NORDA, previously known as CLBS14-RfA, for the treatment of no-option refractory disabling angina, all while maintaining fiscal discipline over expenses.

During today's call, I will summarize our overall progress, provide additional insight into our ongoing and planned trials and discuss some upcoming milestones.

But before I do, I'll turn the call over to our CFO, Joe Talamo, for his review and commentary on our financial results. Joe?

[Joseph Talamo, executive]

Thanks, Dave. And good afternoon, everyone. I'm pleased to provide an update on our financial results, highlighted by focused research and development spending, lower general and administrative expenses, a strong overall cash and working capital position at year-end and an operating cash burn that has declined for the fourth consecutive quarter.

Before I provide additional details on our financial results, please note that my commentary will only focus on year-over-year results from continuing operations before income taxes compared with the prior year.

As a reminder, the operations of PCT, our former subsidiary that was sold to Hitachi Chemical in 2017, are reported as discontinued operations in the 2017 comparative financial statements. With that sale, we recorded a onetime income tax benefit in 2017 in continuing operations to directly offset the tax expense recognized in discontinued operations on the gain on the PCT sale.

As a result, I will focus my commentary on the continuing operations before income taxes performance, which will provide a better reflection of our actual financial results from continuing operations compared with the prior year period.

Now turning to our financial results. Our net loss from continuing operations before income taxes was $16.2 million for the year ended December 31, 2018, compared with $27.7 million for the year ended December 31, 2017, representing a 42% overall decline. Specifically, R&D expenses were $7.6 million for the year ended December 31, 2018, representing a 52% decrease compared with $15.8 million for the prior year period. The decrease was driven by significantly lower spending in our T-Rex study for CLBS03, which was partially offset by increased cost associated with our 3 CD34-positive programs.

The T-Rex study, which completed enrollment in December 2017, moved into the follow-up and lower-cost phase of the clinical trial in 2018. In early 2019, we reported this study's top line results, which Dave will discuss in greater detail in a moment. Future spending for the complete final follow-up activities and wind-down cost of this study are expected to be minimal.

Conversely, 2018 spending in our CD34-positive programs increased significantly for our Phase II study of CLBS12 in critical limb ischemia in Japan, the initiation of our proof-of-concept study for CLBS14-CMD in coronary microvascular dysfunction and expenses associated with the planning and preparation for initiation of our program in no-option refractory disabling angina, CLBS14-NORDA. We expect spending will continue to increase within our CD34-positive platform in 2019 as we continue to enroll patients in the ongoing CLBS12 and CLBS14-CMD studies and seek to initiate our Phase III study for CLBS14-NORDA in the fall of 2019. The total cost and time lines of the CLBS14-NORDA study will be determined pending the finalization of discussions with the FDA, which Dave will address momentarily.

G&A expenses were $9.4 million for the year ended December 31, 2018, representing a 20% decrease compared with $11.8 million for the prior year period. The decrease was due to lower general and administrative headcount and corporate-related activities compared with the prior year period and continues to lower year-over-year trend since -- and continued the lower year-over-year trend since 2016.

Turning now to our balance sheet and cash flow. As of December 31, 2018, Caladrius had cash, cash equivalents and marketable securities of $43.1 million and over $38 million in working capital. And our cash burn for 2018 was $20 million. We believe our existing cash, cash equivalents and marketable securities on hand as of December 31, 2018, are sufficient to fund our operations through mid-2020, including the completion of the ongoing CLBS03, CLBS12 and CLBS14-CMD studies and the initiation of a Phase III study for CLBS14-NORDA.

Earlier today, we announced that we had entered into a purchase agreement for an equity line of credit with Lincoln Park Capital, under which we will have the right to sell to them up to $26 million of common stock, subject to certain limitations and conditions, over the next 36 months. As a commitment fee for entering into the purchase agreement, we will issue to Lincoln Park 181,510 shares of common stock. Concurrent with the commencement of the purchase agreement, Lincoln Park will purchase 250,000 shares of common stock at a price of $4 per share for $1 million in gross proceeds to the company. Moving forward, we will have the right, but not the obligation, to direct Lincoln Park to purchase up to the remaining $25 million of common stock from us on a daily basis, subject to the terms and conditions in the purchase agreement.

We believe that this purchase agreement with Lincoln Park, when used strategically and in combination with our existing at-the-market facility with H.C. Wainwright, will maximize our ability to raise capital given our liquidity, stock price and baby shelf constraints and compares favorably to the cost of other potential funding vehicles. If and when, we may -- if and when appropriate, we may use one or both of these facilities or seek other financing or nondilutive options to fund our clinical programs.

We will also continue to pursue additional external opportunities that align with our initiative to supplement our current R&D platform or to identify compelling -- other compelling value-creating opportunities.

With that, let me turn the call back to Dave.

[David Mazzo, executive]

Thanks, Joe. Let me begin by providing an update on our development program based on our CD34-positive cell therapy platform. Our CD34-positive cell technology has led to the development of therapeutic product candidates designed to address diseases and conditions caused by ischemia, a condition in which the supply of oxygenated blood to healthy tissue is restricted.

Previously published animal and human studies have demonstrated that the administration of CD34-positive cells induces angiogenesis of the microvasculature or the development of new blood capillaries, thereby contributing to the prevention of tissue death by facilitating blood flow to the area of ischemic insult.

We believe that a number of conditions caused by underlying ischemic injury can be improved through the application of our CD34-positive cell technology, including, but not limited to, critical limb ischemia, coronary microvascular dysfunction and refractory angina.

Our CD34-positive cell technology has spawned the development of CLBS12, our product candidate for critical limb ischemia. CLI is a severe obstruction of the arteries that significantly reduces blood flow to the lower extremities, principally the feet and legs, and represents the end stage of peripheral arterial disease. CLI patients often experience severe rest pain or limited mobility, nonhealing skin ulcers and, if not successfully treated, eventual amputation.

No-option CLI means that pharmacotherapy is no longer working, angioplasty, stenting and bypass surgery have failed or are not possible, and that amputation of a limb or limbs may be the only remaining treatment for these patients.

CLBS12 is currently in a Phase II clinical study in Japan and has received SAKIGAKE designation from the Japan Ministry of Health, Labour and Welfare for the treatment of CLI. As a reminder, the SAKIGAKE designation system promotes research and development in Japan, driving early practical application for innovative pharmaceutical products, medical devices and regenerative medicines.

As a SAKIGAKE designated therapy, CLBS12 is expected to benefit from prioritized regulatory consultation, a dedicated review system to support the development and review process as well as reduced review time from the typical 12 months down to 6 months for the CLBS12 registration application, once filed. Additionally, CLBS12 is eligible for early conditional approval and possibly full approval based on the compelling nature of the complete data from our ongoing prospective, randomized, controlled, open-label, multicenter study in no-option CLI patients in Japan.

The ongoing study comprises 35 patients divided into 2 cohorts: a 30-subject group with traditional arterial sclerotic CLI; and a 5-subject group with Berger's disease, a type of CLI often associated with heavy smoking. Those subjects who are randomized to treatment are dosed with CLBS12 through intramuscular injection in addition to receiving standard-of-care pharmacotherapy. Subjects randomized to the control arm only received standard of care with drugs approved in Japan, including antiplatelet agents, anticoagulants and vasodilators, the choice of which is made by the investigators according to the protocol.

The study allows for the rescue of subjects in the control arm by indicating the crossover to treatment if their CLI is deemed to be progressing. The primary objective of this study is to show that CLBS12 can prevent the serious consequences of no-option CLI by reverting the patients to a CLI-free condition through improved blood flow in the affected limb. CLI-free status is defined as 2 consecutive monthly visits in which rest pain is absent and previous nonhealing skin ulcers are completely healed, as determined by an independent adjudication committee.

The initial responses observed in the small number of subjects who have reached an endpoint in this open-label study are consistent with the positive therapeutic effect and safety profile, as reported by previously published clinical trials in Japan and in the United States. We are very encouraged by these early results and remain cautiously optimistic, recognizing, however, that the final outcome of the trial will be dependent on all data from all subjects.

As we have previously announced, we expect to report top line data from the complete study in the first half of 2020. As to cost, we project that it will require now less than $6 million of additional expense to finish the study. Since these costs are part of our current operating budget projections, this study can be considered fully funded to completion.

Regarding commercialization, our strategy remains to license CLBS12 for sale in Japan. To that end, our conversations continue with prospective partners, and we continue to seek to consummate a deal in concert with the completion of the study.

Finally, previously published work, including a study in the United States that showed an improvement in amputation-free survival, and our progress in Japan, combined with a high degree of interest and enthusiasm from U.S. and European CLI experts, has prompted us to consider the initiation of a CLBS12 development in the United States and Europe prior to the completion of the study in Japan, dependent, of course, upon the identification of the corresponding capital necessary to fund such a study.

Moving on to CLBS14-CMD, our CD34-positive cell therapy program for the treatment of coronary microvascular dysfunction. Like all of our CD34-positive cell therapy development candidates, CLBS14-CMD uses a proprietary and patented formulation of CD34-positive cells specifically designed for an injection at or near the site of ischemic insult, which, in the case of CMD, is an infusion into the coronary artery.

CLBS14-CMD is currently being studied in the ESCaPE-CMD trial, a 20-patient, proof-of-concept Phase II clinical trial evaluating CLBS14-CMD as a treatment for coronary microvascular dysfunction, a plaqueless heart disease involving damage to the inner lining of the tiny arterial blood vessels in the heart with no discernible large vessel blockages. CLBS14-CMD is designed to address the symptoms and physiology of coronary microvascular dysfunction by employing the CD34-positive cells' innate ability to increase microcirculation.

As we have previously communicated, most of the costs of this trial are covered by a grant from the NIH. And as such, this study should also be considered fully funded through completion.

The early results observed in the ESCaPE-CMD open-label study from the small number of subjects who have reached the 6-month follow-up visit support our expectations of a positive therapeutic effect and acceptable safety profile for CLBS14-CMD in this indication. And while the final outcome of the trial will be dependent on the 6-month data from all subjects, these early observations of increased coronary flow reserve with corresponding decreased angina symptoms in treated patients are encouraging. Top line data from the completed study are expected to be available by the end of 2019 or early 2020.

And now turning to our most clinically advanced CD34-positive cell therapy program, CLBS14-NORDA. CLBS14-NORDA is believed to address no-option refractory disabling angina by stimulating the growth of new microvasculature in an oxygen-deprived heart. Our enthusiasm for this program is based on a series of published Phase I, II and III study results that indicate a consistency of therapeutic effect with CD34-positive cells to increase exercise tolerance, improve heart function and decrease long-term mortality associated with the condition.

Since acquiring the rights to the data and regulatory filings for CLBS14-NORDA for the treatment of refractory angina, we have successfully reactivated the IND with the FDA with Caladrius as the sponsor and received regenerative medicine advanced therapy, that is RMAT, designation from the FDA. The RMAT designation affords us the opportunity to work with FDA to advance more rapidly and efficiently the development of this therapeutic candidate in an indication that currently has high morbidity and no effective treatment options. We are in the process with FDA of finalizing the protocol design of a single Phase III trial for the registration of CLBS14-NORDA and are targeting the initiation of that trial in the fall 2019.

Lastly, I'll simply reiterate our recent announcement regarding the top line results of our landmark Phase IIa study of CLBS03. CLBS03 has been in development for several years as a possible treatment for type 1 diabetes, and it's based upon our proprietary T regulatory cell platform technology for immunomodulation.

CLBS03 was granted fast track and orphan drug designations from the FDA for this proposed indication and was granted advanced therapeutic medicinal product classification from the European Medicines Agency.

This program is based on the use of T regulatory cells, or Tregs, to treat diseases caused by imbalances in an individual immune system. This novel approach seeks to restore immune balance by enhancing Treg number and function, and when Tregs function properly, only harmful foreign materials are attacked by effector T cells. In autoimmune disease, however, it is thought that deficient Treg activity and numbers permit the effector T cells to attack the body's own beneficial cells. And in the case of type 1 diabetes, the beta cells in the pancreas are attacked, thereby reducing or eliminating over time the patient's ability to produce insulin.

In 2016, we commenced patient enrollment in the first of 2 cohorts in the Sanford project T-Rex study, a Phase IIa, prospective, randomized, placebo-controlled, double-blind clinical trial to evaluate the safety and efficacy of CLBS03 in adolescents with recent-onset type 1 diabetes. That is the T-Rex study.

On February 13, 2019, we announced top line results indicating that the therapy was well tolerated but that the study's primary endpoint of preservation of C-peptide at the group level had not yet been achieved. We anticipate that over time, a comprehensive analysis of all data from the trial, including individual patient-level data, will be conducted, culminating with the results of the 2-year follow-up data for all subjects. Any decisions regarding the next steps in development of CLBS03 are naturally dependent on those results. As we await the completion of the comprehensive analysis of study data, we again express our sincere gratitude to the patients, families and investigators involved in the T-Rex study for their participation and commitment.

So in closing, we are very pleased with the corporate and development achievements we made throughout 2018. We believe these accomplishments form the foundation from which we expect to attain a number of key milestones in 2019 and beyond. These milestones include the initiation of a Phase III clinical trial for CLBS14-NORDA in the United States upon finalization of a protocol design with the FDA, completion of enrollment of our Phase II clinical trial of CLBS12 for CLI in Japan and announcement of top line data results, and completion of enrollment in the ESCaPE-CMD Phase II clinical study of CLBS14-CMD in the United States and announcement of top line data results.

Caladrius entered 2019 on strong operational and financial footing, and we expect to build on the momentum throughout the balance of the year. Our experienced, dedicated and passionate team remains committed to the efficient and effective advancement of our programs as we work to bring innovative treatment options to patients in need and restore human health.

And with that overview, operator, we're ready to take questions.

[Operator]

[Operator Instructions] Your first question comes from Pete Enderlin with MAZ Partners.

[Peter Enderlin, analyst]

Starting with, I guess, maybe the most pertinent near-term question, when do you think you're going to be able to finalize the protocol for NORDA? I think there was a comment that you hope to do that by the end of quarter, which is less than 2 weeks.

[David Mazzo, executive]

That remains our target. We've been working very closely with FDA to iron out all the details. Remember that our objective here is to find a protocol that will be acceptable to FDA as a single Phase III trial for registration, and so there's some other conditions and considerations that FDA has asked us to consider. We expect that by the end of the month, we'll have that sorted out and we'll be in a position to define that protocol to the public. But part of the reason why we're not there yet is the fact that we did have a government shutdown that lasted more than a month that did impact FDA's overall ability to keep up, not only with us but with the myriad of other things that they have to do. So we're working closely with them, and we hope to be in a position to make those announcements in the near term.

[Peter Enderlin, analyst]

Okay. If I can just sneak in another one, and this sort of an arithmetic question. The operating spending has been put at $5 million per quarter, excluding NORDA. And you did say you had $43 million of cash at the beginning of the year equal to 18 months of spending, including NORDA. And so if you do the arithmetic of $20 million per year or...

[David Mazzo, executive]

Pete, could I interrupt you and maybe give you the rest of the explanation?

[Peter Enderlin, analyst]

Okay.

[David Mazzo, executive]

The $20 million a year or $5 million a quarter is an average, right? And as the first part of this year, that is 2019, kicks off, we have little to no CLBS03 expenses, which we did have during the last half of last year. We have winding-down CLBS14 enrollment cost because enrollment is expected to be completed in the second quarter, and we have not yet initiated the NORDA trial and, of course, the CLI cost that remain somewhat constant. So when you add that all together, you see certain things going down and then NORDA coming up, and they'll still kind of all average out. So in the long run, the average projection brings us to a roughly mid-2020 use of available cash. And maybe, Joe, if you would like to add anything?

[Joseph Talamo, executive]

Yes, that's exactly right. And Pete, that's the trailing 4 quarters, it's 5 quarter -- $5 million a quarter. The initiation of a NORDA program, it's a Phase III program, is going to draw resources, and that's built into our expectation, with an expectation that cash flow will increase as we support that significant study. So it's -- that's where we get to the 18 months. And your math is correct. If you run that out, it's going to start increasing above the $5 million a quarter that we experienced in 2018.

[Peter Enderlin, analyst]

Okay. Then just, Joe, quickly, that purchase agreement with Lincoln, is that going to be based on a 10-day VWAP?

[Joseph Talamo, executive]

Yes. And you can look at the purchase agreement. It's filed. And it's the standard 10-day VWAP, their regular purchase notices. So this is a typical equity line of credit. And again, the important thing is there's an initial purchase of $1 million on the commencement of this transaction, and we have the right, but not the obligation, to use this. So we'll continue to use the same discipline we have with the ATM with H.C. Wainwright, which had been in place for just about a year now with very little of that been -- has been used to date. So this is an equity line for purposes of access to capital, and we're always going to look to raise capital at the most effective cost of capital, given our financing needs.

[Operator]

[Operator Instructions] We do have another question from Pete Enderlin with MAZ Partners.

[Peter Enderlin, analyst]

Okay. Well, I guess, now I'm not constrained to one question per call. So let me try a few others here. Is it possible that you guys will rearrange the staging schedule for the major programs that you have? I mean, the way it is now, you're hoping to start the Phase III on NORDA at, let's say, the beginning of the fourth quarter, but you have the possibility of starting the U.S. trial for CLI. And I don't know if one would be more likely to take priority over the other at this point.

[David Mazzo, executive]

Right now, the -- based upon the situation as it exists, with its RMAT designation and the possibility of entering directly into Phase III, the NORDA program is more advanced clinically than a U.S. CLI program is expected to be. But of course, we haven't completed the discussions with the FDA, in fact, we haven't even initiated them, on a U.S. CLI program. And so if we were in a position that, that could be jumping directly into Phase III as well, then depending upon our financial situation at the time, we could consider a change in prioritization. But that's unlikely. I mean, given the timing and the fact that the NORDA program is ready to likely move forward directly into Phase III, that would remain the priority in the United States.

[Peter Enderlin, analyst]

Okay. And Dave, can you talk a little bit about the approach that you're going to take to a full analysis of the Phase IIa data for T1D?

[David Mazzo, executive]

Yes. I think sort of at a top level, Pete, we had conducted a study in a typical type 1 diabetes recent-onset adolescent population. That means that that's a highly heterogeneous population. The kids ranged from as young as 6 to as old as 17. The severity of their disease upon diagnosis varies, as it does for all type 1 diabetics. The rate at which each of those individual patients progress in their disease is different and is dependent upon a myriad of factors, including how close they are to puberty, their diet, exercise and other comorbidities. And the level at which their type 1 diabetes, let's call it, stabilizes, for them, also different. It's different from person to person. So it's a highly heterogeneous population of a highly heterogeneous disease. And so when you look at group level, that is high-dose, low-dose and placebo group-level statistics, when you're looking at the results of those groups combined and then compared to each other as groups, if you hit a grand slam, then you might be able to see a distinction in those groups. But it's not completely a surprise that you don't see an ability to distinguish between those groups given the heterogeneity of the situation. So now we have to look at all of the individual data points, each individual patient in comparison to the placebo groups; the placebo group as a whole in comparison to historical placebo groups, to see if they behave the way placebo groups typically do; and a large number of potential biomarker information that we have access to. And there are literally hundreds of thousands of data points that have to be evaluated and cross-compared, et cetera. And so that's all going to be done, and it's going to be done with the involvement of Sanford, our research partner, as well as a number of the key opinion leaders, the diabetes experts, who have been advisers to us from the outset of this program. And that -- as we've said many times before, that's going to take many months. Add that to the fact that there is a 2-year follow-up for the study, and the last patient out on that 2-year follow-up will not be until January of 2020. And so that has to also be included into the overall analysis. So we're a ways away from being able to make final plans on next steps in development based upon the results of this study.

[Operator]

This concludes the question-and-answer portion of the presentation. And now I'll turn the call back to Dr. Mazzo for closing remarks.

[David Mazzo, executive]

Again, I'd like to thank you all for participating on today's call. We look forward to speaking with you again on our first quarter conference call in a few months and to continuing to bring you news of our achievements and progress. We remain grateful for your continued interest in and support of Caladrius Biosciences, and we wish you a good evening. Thank you, and goodbye.

[Operator]

This concludes today's call. You may now disconnect.