MBOT - NASDAQ

16:33: StemCells, Inc. (STEM) Q4 2013 Earnings Conference Call March 12, 2014 4:30 PM ET

Gregory T. Schiffman – Chief Financial Officer and Executive Vice President Martin M. McGlynn – President, Chief Executive Officer and Director Stephen Huhn – Vice President, Head of the CNS Program

Keay T. Nakae – Ascendiant Capital Markets LLC Stephen M. Dunn – LifeTech Capital Jason H. Kolbert – Maxim Group LLC

Good day ladies and gentleman and thank you for standing by and welcome to the Fourth Quarter 2013 StemCells, Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder today’s conference maybe recorded. It’s now my pleasure to turn the floor over to Chief Financial Officer Greg Schiffman. Sir, the floor is yours.

Thank you. Welcome everybody and thank you for joining us today. With me today are Martin McGlynn, our President and Chief Executive Officer, Dr. Stephen Huhn, our Vice President of CNS Clinical Research. Before I proceed, I would like to remind everyone that during today’s call, we will be making some forward-looking statements which reflect our current views and are based upon certain assumptions that may or may not ultimately prove valid. We assume no obligation to update these forward-looking statements anytime in the future and our actual results may differ materially from anything projected during today’s call, due to risks and uncertainties to which we are subject. These risks and uncertainties are described in our public filings with the Securities and Exchange Commission and at the end of our earning release, which you’re encouraged to consult. Now with that I will turn the call over to Martin.

Well, thanks Greg. And thanks to everybody for joining us today. So I want to start off by reviewing our accomplishments over the last year, after which Dr. Stephen Huhn, will provide an overview of our clinical plans for 2014. Greg will then review our financial results and I will close with some final thoughts. Following these prepared remarks, we will then open up the call for Q&A. So when I look back over 2013, and the start of 2014, I am proud of the continued progress we have made towards our goal of bringing a truly disruptive therapeutic to the clinic for a broad array of diseases and conditions affecting the CNS. StemCells has been the industry leader in neural stem cell research and development, starting with our innovative discovery of a purified, expandable population of human neural stem cells in the year 2000. We have established a strong base of intellectual property surrounding human neural stem cells, and in 2013, we further strengthened a patent portfolio with the outright acquisition of previously licensed patents from NeuroSpheres Holdings. In addition to the acquisition of a number of patents from NsGene, which complement our portfolio. The patent portfolio from NeuroSpheres, which was based upon the groundbreaking research by Samuel Weiss and Brent Reynolds at the University of Calgary, has repeatedly been recognized as the seminal intellectual property pertaining to purified populations of human neural stem cells. So today, we have the broadest and the deepest IP portfolio of any company in the neural stem cells space. So turning now to 2013 milestones, we have achieved many. So let me just start by discussing our work in spinal cord injury. We expanded the Phase I/II study in thoracic spinal cord injury from Switzerland into Canada and then into the United States, and have transplanted a 11 of the 12 patients planned for this study. We anticipate enrolling the last patient this month consistent with our prior guidance. We have already reported 12 months data on the first three patients who have completed the study. There were no safety issues associated with cells, the procedure, all the immunosuppression regimen. Multi-segment with gains observed in sensory function in two of the three patients at six months endured to the end of the study period of 12 months for those patients. Unexpectedly, between the six to 12-month measurement timeframes, one of the patients improved from a complete injury classified as AIS A to an incomplete injury classified as AIS B. In late 2013, we received FDA authorization of an IND for spinal cord injury, which not only allows us to enroll patients into the ongoing Phase I/II study, but creates the vehicle through which we will file the protocol to conduct the planned Phase II controlled efficacy study later this year. That protocol will include enrollment of patients with cervical spinal cord injury, which represents approximately 60% of all traumatic spinal cord injury with an estimated prevalence in the United States of approximately 1.3 million people. We are very excited about the planned Phase II study and Stephen will give you more details on our clinical plans later in the call. If authorized this study will be the first time that StemCells have ever been clinically tested in cervical spinal cord injury, once again demonstrating StemCells’ leadership in the field. So I’d like to turn now to our program in dry age-related macular degeneration. We released new preclinical findings demonstrating that HuCNS-SC not only preserve photoreceptors in numbers, but when examine closely the photoreceptors and other cells in the retina have retained normal critical characteristics. In addition, the study confirmed that the neural stem cells phagocytose the cellular debris that has been continuously shared by the photoreceptor outer segments. And this is a function that’s typically attributed to retinal pigment epithelium cells. These are potentially very important preclinical observations. As they may provide additional insight and how the cells preserve visual acuity and disorders of retinal degeneration. In the clinic, we transplanted the first cohort of patients with dry AMD, consisting of four low-dose patients, each receiving 200,000 cells and four high-dose patients each receiving one million cells. The patients in the next cohort that have better visual acuity from those in the first cohort and all will receive the higher dose of one million cells. We now have four sites actively recruiting patients and shortly added fifth. It should enable us to complete enrollment in this 16-patient trial later this year consistent with prior guidance. It is estimated that about 10 million people in the United States either have AMD are at substantial risk for receiving the diagnosis. Turning now to the third clinical program in our portfolio, Pelizaeus–Merzbacher disease or PMD, a rare fatal myelination disorder of the central nervous system. In 2012, we published the results of a very successful four patient Phase I trial conducted at UCSF. All four patients are now more than three years out from the transplant, and we plan to release the three-year clinical data from all patients in Q2 of this year. The data will include both clinical and MRI outcomes that were obtained as part of the full-year long-term observational study collected on all four patients. One of the many challenges associated with rare diseases is the lack of natural history studies that document clinical features of the disease and its rate of progression. It is therefore very challenging to design controlled clinical trials, which ideally should be informed by meaningful clinical endpoints for the patients in order to meet criteria needed for marketing approval. Since completion of the Phase I study, we invested considerable effort soliciting the advice of scientists and clinicians around the world with expertise in the clinical and radiological aspects of white matter disorders. We then met with the FDA this past December to share what we had learned and to solicit their input on a registration pathway or PMD. We had a very productive meeting and we now have a reasonable understanding of what the FDA would like to see in future trial design. The challenge we now have is to determine how and when we might be able to conduct a third proof-of-concept trial in addition to the spinal cord injury and dry AMD trials that are already on the drawing board. So to conclude the update on our translational efforts, I would like to add that last year we began the preclinical activities associated with filing of IND for Alzheimer's disease. These activities are been founded in part by the California Institute for Regenerative Medicine to a $19.3 million forgivable loan. We have committed to serve that we will file an IND with in four years, but assuming that we don’t hit a scientific or regulatory roadblock, we are working to file one-year earlier that is in 2016. Finally, a few words about sales supply for our clinical trials. I am sure you would all agree that reliable supply of sales, manufactured importance with cGMP guideline is extremely important. Here therefore, we have relied on a third-parties infrastructure for the manufacture of our clinical supplies. But we made the decision in 2013 to design, build and commission our own state-of-the-art cGMP manufacturing facility. I am pleased to report that we are now fully self-sufficient in that regard and have already stem cells processed in our new facility to clinical science. And last, by no means least we have expanded our clinical operations and development teams with very talented and experienced people. And we are adding additional expertise and manufacturing to QA/QC and process engineering. Thereby greatly enhancing our ability to execute on the larger clinical trails we are planning to initiate later this year. As proud as I am successors of 2013 and even more excited about the plans we have lined on for this year. The plan to complete enrollment in two ongoing Phase I/II trials, one in spinal cord injury and the other in Dry Age Related Macular Degeneration, which will be followed by the initiation of controlled Phase II clinical trials in each indication, which will focus on proof-of-concept and measurement of efficacy. So with that, let me now turn the call over to Stephen Huhn, who will provide additional information about these two translations of programs and our ongoing clinical activities. Stephen?

Thank you, Martin. As we have indicated, we expect to complete enrollment in our current Phase I/II trial and thoracic spinal cord injury this month. We have previously reported 12-month results in the first three patients in the study, with further enrollment and subsequent follow-up now available, the consumer investigator from

Thank you, Steven. First, I want to say how excited I am to be a part of this management team. As Martin and Steven had indicated, 2013 was a very successful year for StemCells. In 2013, we’ve made substantial progress in our clinical development efforts, as well as completing the build-out and validation of our manufacturing facility, all while keeping tight control of our cash burn and strengthening our balance sheet. I’m going to speak mainly to the full-year results and if there are specific questions you have about Q4 and we can cover those in the Q&A session. In 2013, total revenue was down slightly year-over-year, a total of approximately $165,000. Licensing revenue was down year-over-year, primarily due to a one-time fee from a license agreement with genOway, which was booked in 2012. Our SC Proven sales increased 17% in 2013 to approximately $1 million. We see opportunities for the SC Proven business and expected to see continued growth in the revenues. Operating expenses were up year-over-year by approximately 25%, about $5.8 million. This increase reflects increased enrollment in the ongoing Phase I/II trials and preparation to initiate the Phase II efficacy proof-of-concept studies, Steven discussed earlier. Similarly, loss from operations increased by approximately 27% or approximately $6.1 million driven by the $5.8 million growth in operating expenses. For the full-year 2013, we reported approximately $2.2 million in net other income below the operating lines. This has comprised of approximately $3.3 million of income associated with the change in the fair value of our warrant liability. This is a non-cash income item driven by change in the value of our stock price. Just a reminder, under warrant liability accounting an increase in share price leads to an increase in the warrant liability, while the decrease in share price leads to a decrease in warrant liability. Changes in warrant liability or pass through the statement of operations as income or expanses. In addition to warrant liability, we are approximately $1.2 million of interest expense. We reported a net loss of $0.61 per share in 2013 or an aggregate net loss of $26.4 million. In 2012, we reported a net loss of $0.99 per share or $28.5 million. The net loss increase year-over-year was primarily due to the change in the fair value of our warrant liability. Our cash usage was approximately $28 million for 2013; this included approximately $4.7 million of capital investment. Our year-end cash and cash equivalent were up by approximately 37% to approximately $30.6 million given us a strong balance sheet to continue to move our clinical operations forward. : The growth in clinical activities also includes activities to associate with filing our IND in Alzheimer's Disease, which is partially funded by CIRM. Cash models, we expect to receive served proceeds of approximately $5.8 million in 2014 and approximately $4.3 million of cash usage associated with serving our outstanding loan with Silicon Valley Bank. Let me now turn the call back to Martin for some final closing comments.

Thank you, Greg. Well hopefully I convey to you what I believe will be a transformational year for StemCells, Inc. or completing our Phase I/II studies and embarking on much larger clinical trials with hard clinical endpoints that are focused on efficacy. This is the culmination of 13 years of painstaking methodical research. We have continuously been pioneers in the field of human neuro stem cell science and that leadership continues this year with our plans to be the first company to treat the cervical spinal cord injury patient with StemCells. We’re the only company with a pipeline of products that encompass the entire CNS system including the brain, eye and spin. We will release more data on new patients this year and we have since we begun our clinical programs in 2006. We plan to treat as many patients this year as we have since we began our clinical trials back in that same timeframe in 2006. Next year, we will see the patient volumes increase substantially again. For the investors on this call, that should translate into much better insight into the capabilities of this technology in the near-term and within the next 2 to 2.5 years final results from two Phase II controlled proof-of-concept efficacy studies. And on top of this we’re looking to file an IND for Alzheimer's disease in 2016. So hopefully you can see why I’m so excited about our prospects going forward. In conclusion, before we start the Q&A, I want to let you know that we’re not planning to announce additional details of either trials protocol design after we received an FDA green light to proceed. We can say that the patients enrolled will be representative of the patients that we intent to treat. The trials will have hard clinical endpoints, that will be statistically powered to demonstrate clinical benefit and they will be blinded trials. So with that, I would now like to open the call for questions.

Thank you. Thanks Keay.

Thank you.

Thank you, Steven.

Sure. And thank you very much for leaving there Jason. When I look at the COGS I mean that’s an area where I just started having activities with the team. We clearly, this is one that you have an awful a lot of infrastructure that you do have an ability to leverage there is a lot of activities that are important for us as we move this forward. So clinically you could imagine the volumes certainly far or less than what we looking for – as when we move forward commercially and from that standpoint the process engineering that I think Martin talked about that we are making – looking to make investments in, some activities with automation that will definitely yield some fairly substantial decrease and a lot of leverage in the infrastructure that we have. I think it’s early for us to give a specific estimate in terms of where we think COGS are going to end up but that being said, this is a process that, it’s an off-the-shelf type of a product, its once that we believe is very scalable and we have a lot of activities underway to ensure that we can scale this very cost effectively, Martin I don’t know if you have anything else, you want to add.

Thank you.

Thank you. (Operator Instructions) And presenters at this time I’m currently showing no additional phone questions in the queue. I would like to turn the program back over to Martin, for any additional or closing remarks.

Thank you, again, and thanks to everybody for joining us today for our quarterly call, and I look forward to updating you on our clinical progress as the year proceeds. Thank you all.