Jon Lieber - Chief Financial Officer Adam Gridley - President and Chief Executive Officer Don Haut - Chief Business Officer Stephen Kennedy - Chief Technology Officer.

Josh Jennings - Cowen & Company Chad Messer - Needham & Company Sean Lee - HC Wainwright.

Good day, ladies and gentlemen and welcome to the Q2 2017 Histogenics Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Jon Lieber, Chief Financial Officer. Please go ahead..

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, Stephen Kennedy, our Chief Technology Officer; and Gloria Matthews, our Chief Medical Officer.

A press release announcing Histogenics' financial and operating results for the second 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..

Thank you, John. And thanks to our stakeholders for joining the call this morning. In the second quarter of 2017 Histogenics continued it's track record of consistent execution and achievement of our corporate objectives.

Most importantly we completed patient enrolment in the NeoCart Phase 3 clinical trial and are now focused on reporting top line one year superiority data in the third quarter of 2018. The completion of enrolment was a major achievement for Histogenics and subject to successful Phase 3 results.

We intend to file our BLA for NeoCart with the FDA in the third quarter of 2018 with a potential U.S. approval and launch as early as the middle of 2019 if approved.

The NeoCart Phase 3 clinical trial is 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 the design that's currently covered under a special protocol assessment with FDA.

Patients receiving micro-fracture the current standard of care are the target demographic for NeoCart and where we see the largest unmet need and the biggest opportunity for NeoCart if approved. Our target market is those patients with smaller lesions less than roughly four square centimeters often considering or undergoing microfracture procedures.

As a reminder there are approximately 150,000 to 200,000 micro-fractures procedures performed each year in the United States. However as we think about incidents or problems there are more than 1.2 million arthroscopic procedures related to cartilage defects that are performed each year in the U.S.

These defects if less than treated can progress to debilitating [ph] osteoarthritis and then potentially to an eventual total knee replacement.

For quite some time we've believed that a significant opportunity exists to revolutionize the cartilage repair market by offering patients, physicians and pairs of novel living tissue therapy to treat cartilage defects in the knee and our recent market research come firms our thinking.

We strongly believe that with a product such as NeoCart we can offer each of these customer groups distinct benefits as compared to the treatment alternatives either currently available or in development.

So first and foremost for patients, NeoCart has the potential to offer clinically meaningful pain relief and return to function in roughly half the time of micro-fracture and other treatments with potentially less rehabilitation and lower use of opioids.

For physicians, we're developing a robust set of clinical and non-clinical data and we're the only product with a one year superiority endpoint and established mechanism of actions and a simple 30 minute procedure that does not require special training.

We also have long term durability data in excess of five years in some cases and will continue to augment this data set with additional patients from our Phase 3 clinical trial.

For payers we believe that NeoCart may lower the overall total cost of care starting with the first debridement of microfracture surgery where NeoCart has the potential to get patients back to work and activity more quickly and with the potential for less costly rehab and lower opioid use.

Then almost a third of patients receiving micro-fracture have a second costly procedure within the first two years. In addition if treated correctly the first time that the product such as NeoCart there's the potential to delay or prevent osteoarthritis progression and eventual total knee replacements which brings down the total cost of care.

We believe that this is possible because of the unique characteristics of NeoCart and the NeoCart process. Specifically our ability to manufacture tissue ex vivo. Keep in mind that NeoCart is a living piece of highland cartilage tissue developed by mimicking the body's natural ability to grow cartilage as a juvenile.

And as a result we're only asking the body to rapidly integrate the NeoCart implant, unlike other products or procedures that try to grow new cartilage tissue over 12 to 18 months which is incredibly difficult in adults.

In addition we have a proven mechanism of action and can demonstrate at a cellular, biological and biomechanical level why our cartilage tissue implants can have such of the demonstrable early clinical impact on patients.

We believe that this provides a true differentiation against both micro-fracture and historical and current cell or cell scalp constructs that do not make cartilage tissue ex vivo. This is supported by data from our Phase 1 and 2 clinical trials as well the non-clinical data generated as part of our collaboration with Cornell University.

In contrast, in many other products and procedures the resulting tissues often high risk cartilage or scar tissue which lack the functional competence at the time of the surgery and it often breaks down over time.

In the second quarter of 2017 we also announced the completion of formal consultations with the Japan Pharmaceutical and Medical Devices agency or PMDA, regarding the full marketing approval pathway for NeoCart and continued to generate important data and high quality publications to support the NeoCart path [ph] through our collaboration with Cornell and Intrexon.

Moving on to some additional details around our accomplishments during the quarter. So we have a strong finish to enrolment in the NeoCart Phase 3 clinical trial with a total of 249 patients randomized including 30 patients in the quarter and 17 in the month of June, records for both period.

More than half of the patients in the trial are already past their one year primary endpoint and we continue to receive positive anecdotal feedback from our investigators. Furthermore NeoCart continues to exhibit a strong safety profile based on the results of the semiannual May 2017 meeting of our data safety monitoring board.

I would be remiss if I did not pause here for a moment to thank the patients, investigators and Histogenics employees who helped us complete involvement in this clinical trial.

We could not have accomplished this without the dedicated efforts of each of our clinical sites and the commitment of our clinical, manufacturing and quality teams all working together to recruit and enroll the patients into this clinical trial.

We succeeded where so many other companies have been repeatedly challenged and I believe it is a direct result of these outstanding efforts our creative strategies to bring patients into the trial and the resulting investigator enthusiasm time particularly as they saw their first NeoCart patients back in their offices.

We believe that we can apply these lessons learned and potential product advantages when we ultimately commercialize NeoCart subject of positive Phase 3 results and FDA approval. As we completed the Phase 3 clinical trial we confirmed the patient demographics were quite similar to those in our Phase 2 trial which utilize the same protocol.

In the Phase 3 trial patients for both the NeoCart and microfracture group or on average just under 40 years old, body mass index was approximately 27 and average lesion side was approximately two square centimetres. On the clinical investigators side we ended the trial with 36 active sites, four of which were in Canada.

Finally 20 of our sites enrolled more than five patients up from only three sites back in 2015 when we introduced our new strategies for increasing enrolment. With enrollment now behind us, we have pivoted to prepare for the potential BLA filing and potential commercialization of NeoCart should it be approved by the FDA.

In order to achieve our objective of a rapid turnaround from the time we anticipate reporting our top line data to the BLA filing we have shifted a large portion of our organization into sub-teams each responsible for different elements of the BLA.

We believe that this will maximize their chance of hitting our objective of a high quality BLA filing in the third quarter of 2018. Now we also sought to leverage our long history and investment in NeoCart in the United States to other regions such as Japan.

We completed successful formal consultations with the PMDA regarding the approval pathway for NeoCart in Japan, you may recall our initial goal was to seek conditional approval via the new regenerative medicine laws that allowed companies to gain early approval, then collect additional data for eventual full marketing authorization.

However in our formal clinical consult with the PMDA they had suggested that we instead seek full marketing authorization thereby skipping the conditional approval pathway. We believe this is a direct result of the robust Phase 3 clinical trial design in the U.S., the Phase 1 and 2 data and our CGMP capabilities.

This is further supported by the data we can show that demonstrates the clear mechanism of action that leads to our ability to make cartilage tissue ex vivo. As a reminder our formal feedback from PMDA includes the following elements.

Our ongoing Phase 3 clinical trial in the United States may provide sufficient evidence of safety and effectiveness of NeoCart for full approval in Japan augmented by a 30 patient one year confirmatory clinical trial in Japanese patients utilizing the same clinical protocol and demonstrating a trend only with no statistical significance required.

Confirmation that NeoCart will be regulated as a regenerative medical product in Japan and that we can manufacture and supply the confirmatory clinical trial in Japan from our facilities in the Boston area and agreement to conduct additional minor non-clinical safety studies and make a number of minor additional updates in changes to CMC procedures in testing methodology all of which are also part of our planned BLA filing in the U.S.

We believe that the feedback from PMDA along with the Japanese market research we conducted with 80 physicians in Japan will be instrumental in advancing our ongoing discussions with Japanese pharmaceutical companies while we continue to seek a potential commercial partnership.

It's important to remember that there's generally a greater acceptance and desire for personalized regenerative medicine therapies in Japan , established reimbursement and the belief that many patients with untreated cartilage defect progressed osteoarthritis.

Some of the specific findings from our market research in Japan include approximately 60% of patients with knee cartilage defects receive either no treatment or treatments that are simply designed to relieve the pain with approximately 2/3rds of these patients likely developing osteoarthritis.

More than 85% Orthopaedic Surgeons are not satisfied with the currently available treatment options and over half of the surgeons feel they would utilize NeoCart based on data already published.

While hard to predict with any certainty our goal is to secure a partnership by the end of 2017 which may provide expertise, commercial capabilities and potentially additional non-dilutive funding to support this program and eventual commercialization.

We believe the market is approximately 1/3rd of the size of the United States with similar robust reimbursement. Given our success of taking our data and clinical protocols to the Japanese regulatory authorities we will also explore doing the same in other territories such as Europe or China in the future as well.

Now we also conducted market research in the United States and the results were remarkably consistent with what we saw in Japan and indicate a product like NeoCart if approved could have a meaningful impact in the market. In total we received feedback from almost 2000 orthopaedic surgeons across both markets.

Some of the specific findings from our U.S. market research include 60% to 80% of patients with symptomatic knee cartilage defects are not treated at all with a large gap between diagnosed incident and actual treatment, of those patients that are treated most received agreement or micro-fracture.

Only 25% of physicians are satisfied with current treatments with 75% either dissatisfied or open a new treatment alternatives.

The most important factors for surgeons in choosing a course of treatment for patients are first, longevity and clinical outcomes, rapid patient recovery and a quick or easy procedure and lastly almost 90% of surgeons would be extremely likely or likely to use NeoCart mediocre if approved based on our target product profile which includes our published data.

In the second quarter we also enhanced our executive team with the addition of Don Haut as Chief Business Officer. Don is focused on our commercial licensing discussions in Japan and other regions outside of the U.S., our commercial and product development strategies as well our other business development activities.

He has extensive experience in these areas and we're pleased to have him on the team. I strongly believe that our ability to assemble the strong team we have in place today is a direct result of the strength of the NeoCart product opportunity and technology platform.

With NeoCart moving towards a potential BLA filing we plan to continue to bolster our large library of data and leverage our capabilities to be in the process of developing additional products and indication.

To that end we have continued to generate valuable data through our research collaborations including those with Cornell University and Intrexon.

Our collaboration with Cornell has been very productive having already resulted in several high quality publications and generating important data to support the NeoCart development program and potential BLA filing and potential commercialization, most recently we announced the data from our work with Cornell on collagen and [indiscernible] 3D bioprinting was published in the Journal of Biofabrication.

We believe these data are important and that they add to our knowledge of the property the collagen and may lead to more efficient production of the next generation of NeoCart implants.

We are now also preparing our first submission of data for publication from our collaboration with Intrexon to develop next generation halogen products to treat cartilage defects.

The initial focus as much of the work completed to-date was to use Intrexon's induced pluripotent stem cell technology to potentially isolate and reprogram chondrocytes for use as a master cell line in future application [indiscernible].

We have already manufactured second generation NeoCart implants using the IPSC derived chondrocytes supplied by Intrexon that exhibited similar critical biomarkers of cartilage production and biomechanical data of native cartilage in the current generation NeoCart implants.

We're excited to share some of these data in an upcoming presentation or peer reviewed publication. So at this point I'll turn the call over to Jon Lieber to discuss our financials..

Thanks, Adam. For the quarter ended June 30, 2017 Histogenics reported a loss from operations of $6.4 million compared to $8.0 million for the quarter ended June 30, 2016.

The decrease in overall operating expenses was attributable to a reduction in research and development expenses and is reflective of our efforts to aggressively manage our burn-rate while continuing to advance the NeoCart development program.

To that end we expect lower total operating expenses over the next 12 months 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 second quarter of 2017 as compared to the second quarter of 2016 was due to a reductions in collaboration, consulting and temporary labor costs, headcount related expenses and patient recruiting expenses related to the NeoCart Phase 3 clinical trial.

These decreases was partially offset by a small increase in research and development expenses related to our sponsored research agreements. General and administrative expenses were essentially flat in the second quarter of 2017 as compared to the second quarter of 2016.

Net loss attributable to common stockholders was $5.5 million in the second quarter of 2017 or $0.25 per share compared to 8.0 million or $0.61 per share in the second quarter of 2016.

The decrease in net loss attributable to common stockholders is primarily due to the lower operating expenses just discussed and the allocation of a portion of the net loss to the Series A preferred stock that was issued to investors in connection with a private placement we completed in the third quarter of 2016.

As a reference point we currently have approximately 22.5 million primary shares outstanding and 42.6 million fully diluted shares outstanding. As a reminder the 42.6 million fully diluted shares outstanding 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 will receive approximately 30 million in proceeds. At June 30, 2017 Histogenics had cash, cash equivalents and marketable securities of 18.5 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..

Thanks, Tom. Completing enrollment of our trial in June was a milestone for the industry and the culmination of many years of perseverance by our teams. The second quarter had several other milestones with an excellent outcome from our work with the Japanese regulatory authorities, several publications in the recent market research conducted.

We've accomplished a tremendous amount in the capital efficient manner by aggressively managing our operating expenses. We have now fully pivoted to focus on the top line data readout to middle of 2018 and the preparation of our BLA application for NeoCart.

We continue to believe that micro-fracture is an inadequate standard of care and a quick recovery, faster surgeries and less reliance on difficult rehab protocols in conjunction with a strong safety and a one year efficacy end point will make NeoCart a success in the marketplace subject to positive Phase 3 results and a subsequent approval by FDA.

This is supported by the results of our market research indicating a large majority of physicians are either dissatisfied with current alternatives, are open to new treatment options with the characteristics of NeoCart.

This is particularly important for patients with smaller lesions where this portion of the overall cartilage repair market remains under developed and large part due to limitations of and poor satisfaction with current treatment alternatives.

Based on the data generated to-date and the feedback we've received from our investigators and collaborators we believe NeoCart will provide an early and robust clinical response from pain and function and eliminate unnecessary and costly additional surgeries. Thank you for joining today's call.

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

[Operator Instructions]. Our next question comes from Josh Jennings of Cowen & Company. Your line is now open..

Congratulations on the completion of enrolment for the Phase 3 trial as you said in the press a significant milestone.

I wanted to start with just asking you about the timelines that you've laid out a 3Q '18 BLA submission filed by mid-19 commercialization, I was hoping you can just outline and just remind us of the steps post submission of the what would the I guess optimal time line could be post submission to approval and any risks for that or hurdles that could be in front of you that could push that timeline now?.

So as we think about the completion of enrolments in June we would expect that that could lead to top line data in Summer or mid of 2018 and we're doing a lot of work to prepare to turn that top line data into the BLA itself and as you know there are several milestones first on the clinical side and then on the manufacturing and preclinical.

So the entire organization is working on that actively as we speak. Gloria and her team have been working closely with the investigative site, database and making sure that we can take that data and then quickly translate that into a robust BLA submission.

So our target is third quarter of 2018 for that submission and then if you look at the PDUFA date that was granted for one of the competitors we think that there is probably from there about a two month period where the FDA would look to package assuming that it's acceptable for following they would let us know and then traditionally we've seen about a 10 month PDUFA review.

So in total after the BLA submission we think that you could see if everything were to go well approval about one year after that submission or potentially earlier if things were to go very well.

We have heard from the other competitor that there would be no advisory panel so there is no reason to think that we would have one either given the clinical protocols covered under the special protocol assessment and of course we've been in active dialogue with the agency over the last couple of years regarding our C&C [ph] processes and submission so generally I think we feel pretty comfortable about the upcoming package.

I think the risks are always going to be around sort of data and the robust nature of the manufacturing process but I don't expect that there are any surprises given the long history that we've have this program..

Excellent. And you know it's exciting to be able to ask this next question and it's still really but just wanted to ask about commercialization strategy, understanding that it may evolve over the next 12 to 18 months but in terms of the U.S.

commercialization any early thoughts just in terms of the thrust there for sales force build out etcetera?.

Sure.

So we're doing some work on that as we speak combination of Don going last couple of months, the activities of course that Gloria has been leading over the last couple of years working very closely with our investigators but we continue to believe that the unique benefits of NeoCart first and foremost a very quick and easy surgery with training and many of the learnings that we've been able to glean from the clinical trial set us up what was probably a very focused high touch commercial launch where we are really targeting those orthopaedic surgeons that are focused on the microfracture market.

They're doing a lot of procedures every day.

We saw this in our recent market research and in some cases 10 to 20 patients a month that may have these feedbacks, albeit with a much smaller percentage that they actually treat and so we think that that sort of high touch, high science easy procedure focus will allow us to build out probably a small and very scalable infrastructure initially and that will then link to broader growth out to the let's say larger surgeon population in that process but we continue to think that NeoCart properties allows to do things a bit differently and that's we're going a lot of work to understand how we best launch this..

And just an update on the competitive landscape, is it your view that your NeoCart will be the number two player to the regenerative cartilage repair market?.

From a timing perspective, yes, we believe that we would be the second product in the market followed or coming right after the [indiscernible] program that was launched about six months ago. We believe that we will be focused very much on a different part of the market so as you all know that's very large.

The prevalence is quite enormous and I think there's a big gap between what patients and physicians are looking for in those that are available on the market and so we believe that NeoCart should have a very leading position in that process as we launch with our one year endpoint and of course really trying to replace micro-fracture not the larger lesions that some of the other products are focused on..

Okay, my last question is just on the potential for licensing and partnership in Japan, you know plus understand how the process has gone thus far whether you're close to finalizing an agreement and then also are there any other markets on your radar where you've done market research and that you're interested in moving on as we good to next 12 to 18 months.

Thanks for taking all the questions..

So I will go ahead and cover the first part of the question then turn to Don Haut, our new Chief Business Officer to get into a little bit more detail.

So as everyone know in May of 2017 we did announce the results of our discussions with PMDA and that was really the first of kicking up those partner discussion, many of our discussions and targets have been with more pharmaceutically oriented partners, regenerative medicine is something that is very interesting for many partners in Japan but there haven't been a lot of regulatory successes.

So we chose to engage with the PMDA to take any diligent questions on the regulatory timeline off the table that was announced in May. We had a number of occasions, several interviews in Japan, a lot of excitement going into late spring and that led into us formally kicking off those commercialization discussions.

Don I will turn it to you if you want to add a little bit of color on where we're at Japan and then some of the other markets that we're thinking about..

Sure. Thanks, Adam.

So like Adam said the feedback from PMDA and the publications and the recent completion of enrollment and our trial has driven a lot of interest, I think we're in - I can safe to say we're in active conversations with a number of different parties primarily what we characterize as pharmaceutical companies and we hope to have some clarity on what relationship could look like with them over the next six months or so.

With respect to other markets as you can imagine there are some very interesting markets outside of the out that United States particularly in Asia and we're actively exploring those so far, we're not in any kinds of conversation with anybody yet..

Our next question comes from Chad Messer of Needham & Company. Your line is now open..

Well-deserved congratulations on completing the trial and you've made a lot of headway in Japan too. I've a feeling you're kind of setting yourself up for a nice partnership there.

It sounds like from the previous question you kind of went through a lot of what I would ask timelines here going forward on the filing and towards approval and commercialization. I guess thinking even more proximal we're looking for publications actually very excited to see publication on the work you've been doing with Intrexon.

It sounds like that's in the works.

Maybe take us through next steps in that collaboration, is there any more we would be hearing in the next year to two?.

Thanks Chad for joining and we're similarly excited with all the progress we've made both on enrolment but then also on some of our future program.

So yes we're in the process of developing a number of publications, posters, presentation for the Intrexon program and that really comes out of a lot of the work that we've done both with them but also with Cornell University on the biomechanical testing.

At a top level we're continuing to determine where do we go from a regulatory strategy perspective. It's also possible that we may explore going to Japan first for example given the grades I think are focused in appreciation for some of the regenerative therapies and then also for stem cell technology.

So we will be working through those activities over the next probably quarter or two but there's quite a bit happening on the R&D and publications front.

Steve do you want to comment on that maybe broadly on Cornell and then how this translated in some of the work we did with Intrexon?.

I think the key here is the work with Cornell and obviously we've been talking about this notion [Technical Difficulty] convince ourselves that we're making tissue.

We don't feel that we didn't feel we had complete to proof concept with the Intrexon sales and now that we have been able to actually show that compressibility, the frictional forces, the way that this material acts under sheer forces we can demonstrate that it is equivalent to what we're doing with native chondrocytes sites, we feel very excited about the technology and we feel that we have that much more data to take forward into a regulatory processes as Adam described.

So that's really going to be the subject and it will be the focus of our publication strategy is the fact that we make tissue with these cells and tissues is very similar to what we're making with chondrocytes.

So with that background now we're able to thinking about the - jump into the commercial strategies and the regulatory strategies that will go alongside the proven technical data package that we have..

And so tag along with the commitment that we've made to a number of customers including the folk that Gloria is talking to daily, we see such great clinical results them often physicians will sort of question well is this real and then the second question when they see their patients back a second time they will say well it appears to be real how this is possible and that goes to a lot of the work that we've been doing both with our biomarkers but then also the biomechanical data, so it has become a real interesting platform and it provides, I think a strong mechanism of action that we can then communicate to our customers and then the regulatory agencies, some more to come there..

Yes I look forward to that.

Just to be clear when you talk about regulatory strategies for the work with Intrexon, are we talking about working out what preclinical and animal type studies would need to be run, is that how should I think about the discussions you're having?.

I think that's one element of it. I think the other is with all good regulatory strategies you're thinking about how do you go to first in human.

As a reminder because this NeoCart manufacturing process is ex vivo or outside of the body we've got a unique opportunity to characterize these implants before they ever go in to a preclinical model or a clinical model.

Alternately in its simplest form a future allogeneic next generation NeoCart product would utilize the exact same process, the only change would be may have a master cell bank rather than having a biopsy from the patient. So we're thinking that this could be at a more rapid development program than most nobel programs, we're starting from scratch.

We're really trying to leverage most of the activity that's in our CGMP package. So when we think about regulatory of course first we need to establish safety but then how do we also bridge into human clinical testing pretty quickly. We know NeoCart works, we'll have the data from that from our U.S.

study in a year, how do you then take that into future application as well? So it's probably much more holistic and how do we really advance this program into the clinic..

Yes, I would imagine the saying that agencies most concerned about is how you how you show safety with the new starting material. All right, well thanks again and once again congratulations..

[Operator Instructions]. Our next question comes from Sean Lee of HC Wainwright. Your line is now open..

Just a couple quick questions, first is on the manufacturing incorporation for launch do you have to scale up manufacturing further or is the current facility enough?.

So we do have capacity for initial launch here at our facility in [indiscernible] Massachusetts where we have been making clinical material now for several years and that's the facility that will launch out of, we have got roughly I would say launch capacity to do the first I would say $20 million in revenue here and then we've got another facility in Lexington where we have the capability of expanding up to about $100 million of capacity.

The way we think about it is as I think we talked a while ago, our manufacturing capacity as a modular strategy very similar to the way we've been working with FDA on our prior submissions and it's sort of building out production suite area and so for roughly $10 million of capital, it takes about a year to do it to get it validated and build up assuming there's a facility there as we do in Lexington that we can do that and so the idea would be subject to successful Phase 3 data, we would then pull the trigger on that next set of capacity so that we're exiting the first year of commercialization with that type of manufacturing capacity and revenue run-rate..

Great. It's nice to hear that you only need about a year of lead up to scale.

My second question is on Japan, could you give a little bit more color on your strategy there like the kind of partner you're looking for and also because you only need a 30 patients study for pool, would the company consider doing this independently or after you have secured a partner?.

So I will answer the second part of that first and then have Don talk a little bit more about the types of partners that we're seeking.

So we have considered given the small number of patients and our expertise and running these clinical trials, Gloria and our team have done a tremendous job, have great relationships with the surgeons and because it's such an easy procedure it's literally just a continuation of what we're doing in the United States albeit in a different territory.

We have two surgeons that actually have been trained here in the United States from Japan, they came and met with Gloria and sat with a number of our investigators. They were at the PMDA meeting with us and they are queued up and ready to participate in rolling those patients.

We probably find another 4 or 5, maybe 6 investigators to augment them and at this point what we have determined to do is really find a partner to help us do that.

There are certain logistical elements that will be required PMDA has indicated that we can ship from our Boston facility given the robust nature of our process, so that's great news and we don't have to transfer anything. But what's probably most important is helping a commercial partner understand the market and prepare for commercial launch.

So I think a lot of value in that clinical trial would be some of the training, the learnings from this clinical activities and that's where we probably want to do that more in conjunction with the partner. We're obviously watching cash carefully.

We think it would actually be a tremendous investment made lead to additional value but we don't want to lose sight of the partner to potentially participate and learn in that process..

Sure, on the types of partners that we're looking for ideally we'd like to find a partner who can have the product from cradle to grave meaning they can develop, manufacture, market and sell the product. I think as I said earlier we're talking with a number of different parties and they kind of run across the spectrum there.

Some would do everything, some would be more commercial partners and in that case we would find it different way to handle the manufacturing..

The final point that I would that what surprised me a little bit is the fact that there is very little opioid used in Japan other than oncology indication so what many of the pharmaceutical companies are looking for are pain therapies and at its core this is in many cases a pain product given the early nature of response, the fact that you're treating the defect itself which may prevent pain in those cases and so we are surprised by the response from some of the company said this is really regenerative pain therapy with a clear mechanism of action and there's a huge unmet need in Japan.

So talking to really a wide variety of partners that have different commercial interest but pain is a big deal for [indiscernible] in this market..

My final question is on the 3D bioprinting study that was published, I noticed that the largest improvement was on the credibility of the reduced error of the printer sizes for example with the new material they were able to reduce the error down to less than 5% compared to 60% previously.

How important is that to - for the manufacturer and especially for the healing of the cartilage?.

I think the key on this study is more of the biomaterials then the printing itself, I think the printing itself is different type of technology and it's well proven that the actual biomaterial needs to be able to hold an edge, it needs to be able to create these parameters that would result in us being able to print an accurate implant for some of our future thought.

So I think a critical point of that setting is to be able to control in our case the use of collagen and [indiscernible] so that it can be printed most precisely with the equipment that they use in the back of the lab at Cornell so that's really where the - it's kind of basis for the collaboration..

Thank you. And I'm showing no further questions at this time. I would like to turn the conference back over to Adam Gridley for any closing remarks..

Thank you, Operator and thank you to our shareholders for participating on the call today. We do appreciate your support. We look forward to reporting on our progress for the upcoming BLA filing subject to successful Phase 3 results of course and that's all by a potential commercial launch in the U.S. and other territories if approved.

So we appreciate your support. Have a great day..

Ladies and gentlemen thank you for participating in today's conference. This concludes today's program and you may all disconnect. Everyone have a great day..