Lisata Therapeutics, Inc. (LSTA) Earnings Call Transcript & Summary

Welcome to the Caladrius Biosciences FREEDOM trial status update conference call. [Operator Instructions] As a reminder, this call is being recorded today, Tuesday, May 24, 2022. I will now turn the call over to John Menditto, Vice President of Investor Relations and Corporate Communications at Caladrius. Please go ahead, sir.

Thank you, operator, and good morning everyone. Welcome to Caladrius' conference call for an update on the status of the FREEDOM trial of XOWNA in coronary microvascular dysfunction. Joining me today from our management team are Dr. David Mazzo, President and Chief Executive Officer and Dr. Kristen Buck, Executive Vice President of Research and Development and Chief Medical Officer. Last evening, we issued a press release on the status update which is available under the Investors and News section of the company website, along with the webcast replay of this call. If you've not received this news release or would like to be added to the company's e-mail distribution list, please e-mail me at [email protected]. Before we begin, I'll remind you that comments made by management during this conference 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-Q, 8-K and 10-K which identify specific risk 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, Tuesday, May 24, 2022. 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, I will now turn the call over to Dr. Mazzo. Dave?

John, thank you, and good morning, everyone. As John mentioned a few moments ago, we issued a press release yesterday indicating that we had suspended the enrollment in our Phase 2b FREEDOM trial of XOWNA in coronary microvascular dysfunction. It was a difficult decision and one that was taken purely on the merits of the business case, but I think it's worthy of a few comments of specificity regarding the rationale behind this decision. The XOWNA trial, FREEDOM, in Phase 2b was started in the late 2019 and we enrolled our first patient in January of 2020. Initially enrollment was proceeding according to the projected rate. However, the COVID-19 pandemic hit at some point and really had an impact early on, on our ability to continue to enroll patients. Among the factors that were challenging for us were initially a very much restricted access to the hospitals, the operating rooms, catheter labs and the apheresis centers where our patients and subjects needed to go in order to participate in the trial since many institutions restricted all of their activities to the treatment of COVID-19 patients or those with grave illnesses during that period of time. Later on, we experienced a further challenge at the clinical sites when many sites actually had staff shortages, people resigning their positions because of exhaustion or moving on to other positions and the inability of the sites to replace those clinical coordinators and staff in a timely fashion. As time went on, we announced that one of our suppliers for the catheter used in the measurement of coronary flow reserve, a major diagnostic tool, had an inclusion criteria in the study, discontinued the availability of that catheter, and we have to scramble to then qualify and open the trial up to a variety of additional means by which coronary flow was measured. That provoked further delays and some confusion. And then more recently, supply chain issues associated with the vestiges of the pandemic and also probably due to some of the geopolitical situation, have provoked shortages or discontinuation of the catheters that are used for administration of XOWNA in the catheter lab and more recently, a severe shortage of one of the major contrast agents used in catheter labs, and it's that latter challenge that really was the straw that broke the camel's back to use a cliche. We've only enrolled about 1/3 of the patients in the 105-patient trial over the course of roughly 18 months. At this rate, if we projected forward, it would take more than 4 years for us to get to a data readout from this trial, which in the context of a capital-efficient and viable development plan is really not logical. And so we took a close look at our objectives for this study and reminded ourselves that principally FREEDOM was first and foremost to corroborate the results of the ESCaPE-CMD trial. That was the Phase 2a open-label trial that demonstrated quite positively and, in fact, statistically significantly that XOWNA improved coronary flow reserve and also improved, in this case, reduced angina symptoms in a concomitant fashion. We'll be able to do that with the dataset that we have that we will be looking at in an interim analysis that we've now scheduled for the summer with a population of approximately the same size as that which participated in ESCaPE-CMD. We also have an objective for FREEDOM to give us a better estimation of what -- the effect size was of XOWNA on a number of the endpoints that could potentially be used in the pivotal trial for the registration of the product, things like angina frequency, angina severity, exercise tolerance, et cetera. And while we won't have the larger number of patients that we had hoped to have out of FREEDOM, we still have a larger number and in a controlled population, which will also help us evaluate effect size for the drug. So understanding that and realizing that we could accomplish our goals for the trial with a much reduced population set, we've decided to suspend the enrollment and to schedule an interim analysis that will take place then sometime this summer when not less than 20 patients, which was the number of patients in the ESCaPE trial, have reached a 6-month follow-up and we'll be able to look at the control dataset. We'll make an announcement as to what those results are as soon as we've verified them and we will further evaluate then the status of the development plan for XOWNA as it relates to coronary microvascular dysfunction. That might require further discussion with FDA if the results from the FREEDOM trial actually corroborate ESCaPE-CMD or it might require a reevaluation of the viability of the program if the results from FREEDOM are ambiguous or less than positive. So with that in mind, we believe that we've charted a course that makes sense for the continued development and evaluation of the product in a rational way for the appropriate capital efficient and cash conservation approach to development that we've always maintained and for a mechanism by which we can stay scientifically rigorous. And so as I said, the schedule now is likely in the late third quarter, August, September, we'll be in a position to have the analysis of the data, and we'll be able to discuss that at that point in time. And then between then and the end of the year, depending upon online and results of potential discussions with regulatory agencies and other business evaluations, we'll be able to announce the future steps for XOWNA in CMD development. That concludes my prepared remarks. And at this point, operator, we'll open the line for questions. Thank you.

[Operator instructions] Your first question comes from the line of Joseph Pantginis from H.C. Wainwright.

David, it's just completely dizzying the amount of external factors that have impacted your company that have been out of your control. And I'm sorry about that. It's truly dizzying. So with regard to the upcoming analysis for XOWNA, can you describe sort of the type of data that you would look to present? Obviously you talked about the impacts, but what impact in the interim that these 20 or so patients might have seen from additional interventions since they were enrolled since they've been on for quite some time and how that might impact the data?.

Thank you, Joe. And I appreciate your comments. I agree with you. It seems like we've had one bullet after another that we needed to dodge for this particular program. But as it relates to the analysis, first of all, under the protocol inclusion criteria, patients who receive the -- who participate in the trial, they don't -- it's double blinded, so they don't know and the physicians don't know whether they're receiving treatment or placebo. So subjects who participate are actually prevented from receiving any other interventions during that period of time, unless there's a grave medical emergency. So we expect that the data will be directly comparable to the dataset that was generated in the ESCaPE-CMD trial. We tried to define a similar population of people, demographically and from severity of disease. We tried to define a population at least initially, that was diagnosed in the same way with the same criteria. That has had to evolve as I mentioned and we'll be looking at endpoints in a similar fashion, CFR, angina frequency, exercise tolerance and a number of other things that can give us a good comparison on how XOWNA treated patients progressed during the 6 months of follow-up initially in comparison to those who only receive placebo treatment. And then in comparison to those who received treatment in the ESCaPE-CMD trial. So it should be a direct comparison. The datasets should be similar between the 2 studies and we believe that it will be sufficient for us to make a decision as to the corroboration or not of the ESCaPE data in a controlled environment.

And then I guess when you consider all the working parts at the company that are in your control, how much did the Lisata transaction factor into this decision as well because obviously you have a lot of focus on that recently.

Yes. I mean, obviously, it factored in from a business perspective only because we are being very careful about the management of our cash and trying to conserve everything that we can for application to those development plan -- those development programs that have the highest probability of success in the combined pipeline. But frankly, with or without the Lisata transactions, I believe we would have been -- with the same circumstances presented, we would have taken the same decision.

Your next question comes from the line of Kumara Raja from Brookline Capital.

So the 20 patients that you will have 6-month data, do you know how long the other patients would be followed up by that time?

Good morning, Kumar, and thanks for your participation this morning. So the date of an analysis this summer is actually driven by the 6-month follow-up of the roughly 20th or 21st patients. So a number of other patients will -- in fact, every other patient will have had a longer follow-up. And whether or not they've actually reached the next scheduled follow-up and presented data will be dependent simply on the timing. But for the most part, more patients will have more than 6 months data than less. And so we'll have a chance to at least get some anecdotal evidence potentially of the duration of the effect beyond 6 months, but probably not with the same rigor that we'll be able to analyze the 6-month data. And I'll remind you that ESCaPE only had a 6-month endpoint, FREEDOM actually has a prescribed 6-month and 12-month endpoints. So we may have 12 months data on a number of patients.

And in terms of the cash, when you announced the merger, you had said like about $80 million or $85 million once the merger goes through. How does this change the cash projection and how should we think about spending until you have this interim analysis?

So the rest of our projections remain completely accurate. So just to be precise, the $85.5 million was our cash on-hand at the end of the first quarter. That did not account for the $10 million investment that we subsequently made in Cend as a precursor to the proposed merger as well as continued operations that have gone on now through what's more than half of the second quarter. I think the way that you should look at our projections is that all of our spending should remain as originally projected, except, of course, for the next month or 2, the total spend on FREEDOM will be reduced because the per patient cost will not be incurred. We had projected, I don't recall, so I'm not going to quote a number in front of me. I don't have the budget in front of me, but probably a significant spend over the course of the next several months associated with our originally projected enrollment. We probably would have come in under that because enrollment was never reaching the projected levels and now will come in much less than that. But in terms of the future spend, I would not take XOWNA out of the models just yet because we need to see the data and then determine next steps in development before we know the fate of the program and if things are going forward, in what manner and with what timing.

And in terms of the merger, can you provide us an update how it is going and when the next big announcements are going to be with regard to the merger?

Certainly, Kumar. And there, we have, I think, very positive news to announce. The merger activities have been going very smoothly. And so I'll divide those into 2 categories. Those actually associated with the administration or the transaction itself and then those associated with the integration and collaboration on the clinical and preclinical development plan. So on the former, we are very close to completing the final version of the proposed S-4, which has to be submitted. This is the document that's submitted to the SEC, describing the rationale, the history, the risks, everything associated with the merger that the SEC must review and ultimately approve so that then we can distribute that to shareholders and call the annual meeting and ask for shareholder approval on the transaction. I hope that pending or should I say, barring any additional delays from the Cend side because they need to contribute information to that. We should have that document ready for SEC submission in the coming weeks, and we remain on our broad schedule of trying to get to a closing of the transaction by the end of the third quarter of this year. So that's all going quite smoothly and we haven't really run into any major hiccups. But of course, the first test of that will be the first review by SEC after we make this initial submission. On the collaboration front, we've established a joint steering committee between the 2 companies looking over those programs on which we are collaborating. We have advanced already the production of the next batches of drug substance and drug product to support proposed as well as future planned studies. We are advancing our discussions at our first meetings with Qilu, which is the existing partner in China, for further studies and collaborations there. And we also had our first meeting with a potential big pharma partner that is likely to include us in one of their ongoing trials coming up during the second half of this year, and we hope that we'll be in a position to make some announcements around these things. So I would expect over the course of the next month or 2, you should see announcements indicating initiation of additional trials around the world using STEND-1 in pancreatic cancer. You'll see an announcement. I hope that confirms the transaction or confirmation of the collaboration agreement between us and us when I say us, I mean the Cend, Caladrius collaboration, ultimately Lisata in a big pharma trial in pancreatic cancer and then later this year, the first patient into that trial. And there are another -- a number of other potential announcements related to the Cend pipeline, either business development and/or clinical announcements and also some additional announcements associated with the Caladrius pipeline. We hope that we will have a date scheduled very shortly for the pre-consultation meetings for HONEDRA in Japan, and we'll be able to announce something about that post that meeting. And we also are proceeding very nicely with the projected enrollment in CLBS201 in diabetic kidney disease. And hopefully, we'll have some updates on that in the near future as well.

Your next question comes from the line of Peter Enderlin from MAZ Partners.

So as you said, the path forward for XOWNA depends obviously very heavily on the interim analysis. But can you just sort of give us an overall perspective of what may be the possible outcome? I mean is it likely or feasible that you could end up agreeing with the FDA on a smaller Phase III trial with the updated protocols as opposed to having to do something larger than you had initially anticipated?

Well, so thanks for your question, Pete. I think it provides a good perspective. So there's a simple decision tree, I think, that outlines the possibilities based upon the analysis of the FREEDOM data. One possibility is that the data clearly corroborates with the same level of statistical significance and rigor what we saw as treatment effect and safety profile from ESCaPE-CMD. If that's the case, then it's likely that we would take that dataset to FDA, and there are several courses of action that could occur. One is that dataset would likely be eligible for us to file an RMAT application because you need controlled data to do that. And that special designation may provide a benefit for future development of XOWNA if we are able to pursue that. The second would be simply a discussion with the FDA about the path to registration and what they would require. I don't know that in fact, I would say this more clearly, I don't believe it is reasonable at this point in time to assume that the next trial in the development of XOWNA in the United States would be a Phase III pivotal trial. We may have to do additional Phase II work, depending upon the reaction of FDA to the dataset and the evolving guidances around cardiovascular and regenerative medicine and some changes in management at FDA. So I think positive results would lead to a discussion with FDA, the outcome of which would determine what would be necessary for registration and then we would make that evaluation in the context of time, cost and money and decide whether we can go ahead alone or would need to go ahead with a partner. Let me give you the other end of the spectrum. The other end of the spectrum is that the data clearly don't corroborate ESCaPE-CMD. There's no treatment effect and after a closer look at what we did as long as we don't define a flaw in the design of the study or the evolution of the study because of the challenges we've had to accommodate, then the program would likely be terminated because there'd be no point in going forward. And then there's the middle ground, which would probably not be enough data to take to FDA for a discussion but would require a lot of examination and business evaluation internally. So that's the kind of analysis that would occur and that's why it's not as simple as we see the data in August and then we go forward. We have to see the data, and then there are a number of other factors.

Okay. That's very helpful. And then if I could just take a little historical perspective. Going back over the last few years, you had the trial for type 1 diabetes, and then you had the trial for NORDA. And at one point, you started to work on a treatment for COVID, and now you've suspended, but certainly not given up on CLBS16 for microvascular deficiency. So you could look at that in a way as sort of a rolling retrenchment of where you've been over the last few years, cutting things back more than adding new programs and your stock is selling at about 1/3 of cash. So this somewhat pointed question is in your strategic planning going into this merger, did you give consideration to liquidating the company because of its large cash position?

Yes, we did. In fact, the Board evaluated very carefully all the strategic options open to us. First and foremost, we are a development company, and our job is to take the capital that's been invested in us and to do our best to use that capital to advance programs to generate value and ultimately produce products for the market. When we looked at what it would take to close out the company, and those -- at that point in time, we were still assuming that we would project forward the full spend on XOWNA. We looked at what's going on with HONEDRA, we're looking at 201 and we're looking at our other opportunities in addition to our obligations and liability, manufacturing, contracts and commitments, leases and so on, it turns out that the amount of money that we would have returned to shareholders at the end of the day would have been much less than most people would calculate. You simply take our available expect that, that's what you're going to get out. It's a much smaller number once all the liabilities are covered. And so we felt the better opportunity would be to see if we could define an asset or assets either in the form of stand-alone products for a company that would diversify our pipeline in terms of risk mitigation as well as more importantly, providing multiple shots on goal in a different modality in a different therapeutic area that could provide those value-creating events and also generate appropriate shareholder interest going forward. And so when all was then done, the Cend opportunity fit that bill, and as I've discussed in some previous calls, we decided very carefully that, that was the best use of available capital going forward and gave shareholders the best opportunity to ultimately see a return. You mentioned that we've been selling at a lower rate than cash for quite some time. Drug development is a risky business and so anyone who invests in a biotechnology or biopharmaceutical company is assuming a fair amount of risk, but it's a high-risk, high-reward type of business. And the best way you get to those high rewards is by taking the difficult decisions to pull back on programs when they're not either generating data that's positive enough. In other words, don't drink your own Kool-Aid or when the business case no longer remains potentially profitable and to move on to other things. And so that's really what we have done. And the CD34 platform has never seemed to generate enough interest in the broader market despite all the positive data that we've generated in the past in the clinic. So we think that having a hedge, if you will, another set of technologies in a completely different area will hopefully provide the opportunity for our shareholders to see a return on investment commensurate with the time and the support and the faith that they've put into the company.

I really appreciate those comments. And by the way, you mentioned that the S-4 might be available in a matter of weeks. You're still shooting for some time in early June possibly or are we talking further out than that?

Yes. No, no, no. I mean we're looking at it. But remember, the S-4 availability doesn't mean that that's when it goes to shareholders. That's when it gets submitted to SEC. We can't send anything out until the SEC review is complete. And our schedule has predicted the possibility of at least 2 rounds of SEC discussions, which could take 6 to 8 weeks. We don't know that that will be the case, but we're being conservative. That's why the shareholder meeting is projected out at the end of the third quarter.

There are no further questions at this time. I would like to turn the call over back to Dr. David Mazzo.

Well, again, thank you for all of you who took time out of your busy morning at the start of the day here to listen to this. I hope we provided some additional color and clarity on the decision that we've taken. And we encourage you to continue to follow the progress not only as we do our best to develop a CD34 platform, but as we go through the metamorphosis of Caladrius through the merger with Cend and become Lisata, which I hope will be a company that will provide in the future much more positive feedback for shareholders in the term of increased share value. Thank you again, and have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.