Athersys, Inc.

Good day and thank you for standing by. Welcome to the ADRC Second Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to our speaker today, Karen Hannity. Please go ahead.

Thank you, Jerome, and good afternoon, everyone. I'm Karen Kennedy, Director of Corporate Communications and Investor Relations for Athersys. Thank you for joining today's call. If you do not have a copy of the press release issued at the close of market, it is available on the Athersys website at athersys.com. I'm here with BJ Lehman, our President, Chief Operating Officer and Interim CEO, and Ivor McLeod, our Chief Financial Officer. A webcast of the audio will be available three hours after the call's conclusion on our website under the events section. The access information for the replay is also in today's press release. Any remarks that we may make about future expectations, plans, and prospects constitute forward-looking statements for purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by the forward-looking statements as a result of various important factors, including those discussed in our Forms 10-Q, 10-K, and other public SEC filings. We anticipate that subsequent events and developments may cause our outlook to change. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. For the benefit of those who may be listening to the replay, this call was held and recorded on August 9th of 2021. Since then, we may have made announcements related to the topics discussed, so please reference our most recent press releases and SEC filings. With that, I would like to turn the call over to B.J. Lehman. B.J.?

Thanks, Karen. I'm B.J. Lehman, President, COO, and Interim CEO of Atherasys. In our call today, I will share an overview and some details of our recent corporate business and operational activities. Ivor McLeod, our Chief Financial Officer, will then provide an update on our company's financial position, and this will be followed by Q&A. We will turn shortly to our recent announcements regarding our partnership with Helios and the OneBridge Art Study in Japan. Before this, I would like to describe briefly how we are tracking relative to key goals and milestones for the year. First, As we will discuss in a moment, we have resolved open issues and put in place an enhanced collaboration structure with our partner Helios intended to best position us in a multi-stem cell therapy for regulatory and commercial success in Japan over the long term, which was an important objective for us in the first half of the year. On the data front, as we expected, Helios reported out top-line data from the OneBridge study, they appear to be on track with their treasure ischemic stroke study fact helios noted in their q1 financial results that at the time they were in the process of finalizing enrollment as described in our last earnings call by dr john harrington another priority for the company this year is to make substantial progress in establishing large-scale bioreactor manufacturing to support eventual commercialization efforts in anticipation of receiving regulatory approvals for the multi-stem product. We continue to make good progress and have recently initiated the process of transferring our larger scale 500 liter bioreactor process to a qualified GMP manufacturing facility. Though these efforts naturally will take some time to complete, this represents an important milestone for the company. Finally, we have made progress in our Masters II study, increasing enrollment and adding more sites during the second quarter. We are poised to further ramp up our efforts during the second half of the year. We are advancing on other fronts as well. We continue with our Macovia ARDS and the Matrix trauma studies and plan to incorporate multi-stem product manufactured in bioreactors into these studies during the second half of the year. though we have some time we are moving forward with commercial planning and preparations for the u.s and european markets on top of the support we are providing to helios for the japanese market in addition to our work to prepare for commercial manufacturing our efforts in this area are focused on developing our strategy for reimbursement in the united states and executing the first steps of this strategy and securing the best possible partner to develop the European markets with us for all multi-STEM critical care indications. As we have noted in recent calls, our current view is that we would be in the best position to find the right partner and the right deal with additional data from ischemic stroke clinical development in hand. though we will continue with current discussions. However, we would not anticipate entering into a deal until next year after top-line data from the Treasurer's study has been disclosed. In general, our ex-U.S. commercial strategy, including Japan and Europe, will be founded on partner commitment and execution with partner investment, risk sharing, and share rewards. We believe that this approach offers the company and our shareholders an attractive balance of risk and reward. Let's now turn to the top-line OneBridge Art Study results reported by Helios last Friday. We are enthusiastic about what we have seen so far from the results. We believe that the OneBridge study results, together with our prior clinical study data, may allow Helios to move forward with an application for marketing approval in Japan for this orphan indication, though ongoing consultations with the Japanese regulator will be definitive. With this data and our MustArgs clinical results and other research data, we also remain confident that multi-stem treatment can have a meaningful therapeutic benefit for ARDS patients. Let's start with some background information on the study design before we speak to the preliminary results. The OneBridge study is an open-label trial with two patient cohorts. The first cohort includes 30 pneumonia-induced ARTS subjects with 20 in a multi-STEM treatment group and 10 in a parallel standard treatment control group. A second cohort was added to include five COVID-induced ARTS patients who received multi-STEM administration. By comparison, our previous MUST ARDS study was a double-blind, placebo-controlled study, also with 30 subjects in the efficacy group, with 20 subjects receiving multi-stem treatment and 10 subjects getting placebo. Over 70% of the patients in the MUST ARDS efficacy cohort had ARDS resulting from pneumonia, making the two studies similar. There were no COVID-induced ARDS subjects in the MUST-ARDS trial. However, our ongoing Macovia study includes COVID-induced ARDS patients. Helios reported higher ventilator-free days over a 28-day period and lower mortality in the multi-stem treated group compared to standard therapy in cohort one. VFD of 20 days versus 11 days and 90-day mortality of 26% versus 43% respectively. This data is consistent with the results from our MustArts trial for all subjects in the efficacy group and also for the patients with pneumonia-induced ARDS. Additionally, Helios reported 25 ventilator-free days and no mortality in its COVID-induced patient cohort. which compares favorably with expectations for the severe ventilator-dependent COVID pneumonia patient population based on recent data in the field and according to Helios. Even in view of the limitations of the study, namely its size and open-label design, we view the data as very promising and supportive of our therapeutic hypothesis that multi-stem treatment can attenuate the severe inflammatory activity associated with ARDS, and can lead to greatly improved clinical outcomes. We look forward to further analysis, other exploratory data, and 180-day follow-up data from the OneBridge study. Additionally, we will work closely with Helios to support regulatory and manufacturing preparations to move the ARDS program forward in Japan. As noted earlier, our MCOVIA study is moving forward. We've made some modifications to design to allow us to include in the study patients with ARDS induced by pathogens other than COVID. We will continue to closely monitor changes in treatment practices in the patient population as COVID ebbs and flows to ensure that our trial design and objectives are optimally aligned for long-term success in this area. We are bullish on MultiSTEM's potential for treating ARTS patients and look forward to continuing development at a measured pace to take advantage of new information. Atherosys and Helios jointly announced last week new agreements to enhance and expand our collaboration in Japan as Helios moves closer to potential commercialization. The changes reflect better clarity gained over the past couple of years about Japanese regulatory manufacturing and commercial requirements, in short, the elements important to successful commercialization in Japan. The agreements are intended to align the collaboration structure to drive optimal investments and efforts in manufacturing and commercialization. In particular, we are creating the mechanisms and incentives for Helios to take on greater responsibility for manufacturing for the Japanese market and to invest robustly in the commercialization efforts in Japan. We believe that this will allow us to focus our resources on our large-scale advanced manufacturing activities and development, particularly in the United States and Europe, while giving us the opportunity for a very attractive return from Japan over the longer term. There are a number of important elements to our improved commercial partnership. First, we will provide Helios access to Atheros' manufacturing technology to use with qualified manufacturers to make the product for the Japanese market. As an important first step, this would include working directly with Nikon Cell Innovations, which is prepared under our guidance for manufacturing a multi-stem product for commercial use in Japan. This would also allow Helios to invest directly in commercial manufacturing preparations and product supply, and for AFRIS to employ capital that would otherwise be dedicated for this purpose for advanced manufacturing and other development activities. We will help shoulder the burden of this investment by Helios through deferrals and other adjustments to near-term financial elements of the license agreement, including milestones and royalties, which would now be realized over time and with manufacturing and commercial success in Japan. As our larger-scale bioreactor-based manufacturing comes online and is approved for commercial use in Japan, we would plan to supply multi-stem product to Helios under a commercial supply agreement. Athercys and Helios have clarified Athercys' role in providing support services necessary for regulatory approvals, manufacturing readiness, and commercial launch in Japan. Importantly, we have put in place a framework for defining the services to be provided, expectations, and timing related to the services, in terms of reimbursement where it is appropriate. We believe that this will allow Helios and us to work together much more efficiently and effectively. Third, our license with Helios is being expanded to include potentially two additional indications to be selected over the next several years under certain conditions. This would enable Helios to leverage further its investment in developing and commercializing the multi-STEM product. It would also provide to Atheris additional revenues from this important market. Fourth, to increase alignment between the companies and create further incentives for accelerated execution and investment, we have added new financial elements to the arrangement. Atheris will have the potential to receive $8 million in new milestone payments from Helios tied to commercial manufacturing preparations for Japan and the establishment of large-scale manufacturing relevant to Japan. and Atheris's will issue to Helios warrants to purchase up to 10 million shares of Atheris's common stock, exercisable for 60 days following regulatory approval for ARDS and ischemic stroke, respectively. The 3 million share ARDS warrant would be exercisable at between $1.80 and $2.18 per share, depending on the timing of exercise, And the $7 million share stroke warrant would be exercisable at between $2.40 and $2.64 per share, again, depending on timing of exercise. Finally, outstanding claims and disputes between the parties have been released or resolved. On balance, we believe that this new arrangement puts Helios and Atheris on a much better footing to successfully develop the Japanese market bringing important new therapies to patients and creating significant value for both companies. We look very much forward to positive progress in Japan on the ARDS regulatory path and with TREASURE and the ischemic stroke program. With the top-line OneBridge ARDS data in hand, we should begin to set our expectations for the upcoming results from the important TREASURE study. evaluating multi-stem administration to Japanese stroke patients. This study is expected to have data from over 200 stroke patients randomized on a one-to-one basis to treatment with multi-stem cell therapy or placebo within 36 hours of the stroke. This compares to the 126 patients from the double-blind placebo-controlled MASTERS I study completed by us in the United States and the United Kingdom of which about half of the patients were treated within the optimal 36-hour post-stroke treatment window for multi-stem. As such, the TREASURE study will provide us with substantially greater power to evaluate the impact of multi-stem treatment in ischemic stroke patients. What is more, the TREASURE study, like its master's two cousin running in parallel in the U.S. and other countries, reflects in its design other key improvements from the MASTERS I study, such as noted above, earlier administration from 18 to 36 hours post-stroke, and better patient screening. Both the TREASURE study and the larger MASTERS II study with 300 patients are similar in design and underlying assumptions. Based on differences in regulator preference, the two studies have different primary endpoints. excellent outcome in Japan versus modified Rankin scale shift analysis in the United States. But overall, they each collect, track, and analyze essentially the same data. Based on these factors, we expect the TREASURE study to be an important indicator for the ischemic stroke program. However, we might expect some differences between the TREASURE and the MASTERS II studies. For example, in general, the stroke population in Japan is on average older than the stroke population in the United States and Europe. And there are some differences in post-stroke treatment, such as in the utilization of PPA and mechanical thrombectomy. We take comfort, though, in our data from the MASTERS I study demonstrating meaningful benefit for multi-stem treatment in older patients and patients with or without reperfusion therapy. We look forward to the Treasurer top-line results, which we hope to see potentially before the end of the year, and we look forward to Helios' upcoming disclosure about their plans for analyzing and reporting such data. Thus far, our corporate update has been focused on our priorities for the year, our critical care programs, and the announcements from last week, all very important topics to cover today. However, it's important to keep in mind that we have ahead of us opportunities beyond what we have touched on today. We have technologies which we believe can be developed and applied to many diseases and conditions. In other words, we believe we have a platform of opportunities. We have prioritized our multi-STEM critical care programs. We have conducted promising research in many other areas, publishing many aspects of this work, and we have developed other enabling technologies with applicability to cell-based therapies more generally. We believe these technologies and applications could help many people and create significant value for our shareholders over the long term. We remain focused on the task immediately in front of us, but we will continue to cultivate the broader opportunities that would create value over the longer term. I will now turn it over to Ivor for an update on our financial results.