Longeveron Inc. Q3 FY2021 Earnings Call

Greetings, and welcome to Longeveron's call today to discuss the results of the company's Third Quarter of 2021 Financial Results. All participants are currently in listen-only mode. Following the formal presentation, we will open the call up for a question-and-answer session. I'd now like to turn the call over to Brendan Payne from Stern IR. Brendan, you may proceed.

Thank you, operator. Good morning, everyone, and welcome to Longeveron's call today to provide a business update and to discuss financial results for the third quarter of 2021, which were also contained in a press release issued earlier this morning. You can access the press releases by going to the news section of our website longeveron.com. I'm joined on the call today with the following members of Longeveron's management team: Mr. Geoff Green, Chief Executive Officer; Mr. Joshua Hare, Co-Founder, Chief Science Officer and Chairman; and Mr. James Clavijo, Chief Financial Officer. We will begin with a general update and summary of recent events followed by a recap of our financial results from the third quarter of 2021, and then conclude with a question-and-answer period. As a reminder, during this call, we'll be making forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. Any such statements should be considered in conjunction with cautionary statements in our press releases and risk factors discussion in our filings with the SEC, including our last Annual Report and Form 10-K, and cautionary statements made during this call. We assume no obligation to update any of these forward-looking statements or information. Now I'd like to turn the call over to Geoff Green, Chief Executive Officer of Longeveron. Geoff?

Thank you, Brendan. Good morning, everyone. Thank you for attending Longeveron's third quarter 2021 business update and financial results call. We've had another busy and productive quarter, and let me get started on our progress with Lomecel-B clinical research. James Clavijo, our CFO, will go through the financial performance for the quarter. Longeveron is a leading clinical-stage biotechnology company developing living cell therapies for chronic aging-related diseases and other life-threatening conditions for which there are no approved treatments. Aging is a number one risk factor for chronic disease; stem cell exhaustion; cellular senescence; and chronic inflammation, together referred to as 'inflammaging,' compromises our ability to repair and regenerate damaged tissues and organs. Inflammation is linked to the rise of progressive chronic diseases, such as Alzheimer's and aging frailty. Our focus is day one testing to develop safe and effective allogeneic cell therapy solutions for the treatment and prevention of these diseases. Longeveron's lead therapeutic investigational product called Lomecel-B is a living cell biologic made from specialized cells isolated from the bone marrow of young healthy adult donors aged 18 to 45. These specialized cells, called medicinal signaling cells or MSCs, reside within various tissues in our bodies and are considered to be the body’s endogenous repair mechanism that promotes the regeneration of damaged tissues and organs. It's our goal to increase health span and reverse or prevent chronic disease and other life-threatening conditions by harnessing the regenerative potential of MSCs. Now I'll provide an update on our Lomecel-B clinical research program, beginning with our Alzheimer's disease initiative. With Alzheimer's disease, it is believed that early and substantial inflammation in the brain leads to neurodegeneration and neuronal cell death, which is a significant contributor to the development and progression of this deadly disease. In animal models of Alzheimer's, MSCs like the ones used in Lomecel-B have been shown to cross the blood-brain barrier, decrease harmful inflammatory cytokines, and increase anti-inflammatory cytokines, which led to the generation of new neurons and improved blood vessel function. Our hypothesis is that the pro-regenerative and anti-inflammatory properties of MSCs alleviate neuroinflammation in the brain, which may in turn prevent or reverse the clinical progression of Alzheimer's. In July, we presented data from our Phase 1 Alzheimer's disease clinical trial as a poster presentation at the 2021 Annual Alzheimer's Association International Conference. This trial, funded in part by an Alzheimer's Association 'Part to Cloud' Challenge on neuroinflammation grant, used a randomized, placebo-controlled, double-blind design testing a single IV infusion of Lomecel-B: 20 million cells, which we call this the low dose, and 100 million cells, which we consider the high dose, or placebo. Key results from this trial include demonstrating tolerability in the target patient population of mild to moderate Alzheimer's disease patients and a slow reduction in the Mini-Mental State Examination score on average for the low dose Lomecel-B group compared to the placebo group, as well as positive changes in various biomarkers of interest. The program is now transitioning to Phase 2, and we anticipate the initiation of a Phase 2 study by year-end or early 2022. The Phase 2 trial is anticipated to be a randomized, placebo-controlled, double-blind design to evaluate biomarkers, cognitive function, and other disease-specific endpoints. Further details about the trial design will be provided once the protocol is finalized. An amendment to our IND has already been filed; however, the design is undergoing some final adjustments. Now transitioning to our Aging Frailty research. On August 13th, we announced the top-line results of the Phase 2b US multicenter randomized placebo-controlled Aging Frailty trial. The trial's primary objective was to evaluate whether the Lomecel-B infusion could improve walking distance in mild to moderately frail older adults with demonstrated mobility disability. Mobility disability, or the inability to walk a quarter mile, is a powerful predictor of future health and function. None of the subjects at screening could walk a quarter mile in six minutes prior to receiving Lomecel-B or placebo. Six months after infusion, subjects in the three highest Lomecel-B dose groups could, on average, walk statistically significantly further than they could at baseline, with an average increase of between 27 meters and 55 meters. By contrast, the placebo group could walk on average just 9 meters further compared to baseline. And 90 days later, at nine months, the middle Lomecel-B group and the highest Lomecel-B group were still walking statistically significantly further compared to both baseline and to placebo, suggesting a durable, sustained improvement in exercise tolerance and endurance. At this stage, we're continuing to evaluate the clinical safety and efficacy data from this trial, as well as the blood-based biomarker data in anticipation of determining the next steps in this program. Results from Longeveron’s other Aging Frailty trial, the Phase 1/2 HERA study, are anticipated in the first quarter of 2022. The primary objectives of the HERA study are to assess safety and tolerability and to explore the effect of Lomecel-B on the frail immune system and other frailty endpoints in subjects receiving the influenza vaccine. We plan to evaluate the results of the HERA study in the context of the results from the Phase 2b frailty trial as we plan the next steps in the US frailty research program. The planned Japanese Aging Frailty Phase 2 trial is currently on track to initiate by the end of the first quarter of 2022. This investigator-initiated randomized placebo-controlled double-blind single infusion trial is being led by our clinical partners at the National Center for Geriatrics and Gerontology in Nagoya and Juntendo University Hospital in Tokyo. In Japan, where nearly one-third of the population is 65 or older, frailty's adverse outcomes and increased healthcare costs and use are already a significant public health concern. Japan has placed significant importance on the prevalence of frailty and implementing programs intended to prevent functional decline and promote wellbeing. We anticipate and look forward to announcing the first subject being enrolled in this Phase 2 trial. Related to evaluating walking distance and mobility, in September, we announced our agreement with Kinesiometrics to provide a digital, data-driven solution for objective, real-time measurement of functional capacity and quality of life in Longeveron’s clinical studies. Kinesiometrics' mobile phone-based platform can collect not only years of historical data regarding a subject's activity levels via steps, distance walked, flights climbed, and energy expenditure, but also real-time response information for comparison of activity level changes pre- and post-Lomecel-B infusion. The data may be used to understand the outcomes of treatment regimens. Activity levels can be provided continuously rather than relying solely on single time points throughout the follow-up period. This could provide a rapid understanding of the effect of Lomecel-B and may have the potential to reduce the number of protocol-specific visits a research subject is asked to make to the clinic. And now transitioning to our Hypoplastic Left Heart Syndrome research program. This past third quarter, we announced the final results of our Phase 1 open-label safety study. The results from that trial showed that injection of Lomecel-B into the right ventricle during reconstructive surgery was well tolerated. Exploratory efficacy results show that, on average, the babies showed growth and development consistent with normal healthy babies, and a transplant-free survival of all 10 babies one year post-surgery. We continue to monitor the status of the children enrolled in this Phase 1 study and are very encouraged that all 10, as of September this year, remain alive and transplant-free two or more years after the surgery and administration of Lomecel-B. Enrollment in the Phase 2 HLHS trial referred to as ELPIS II continues to progress nicely. Currently, five centers are open and actively recruiting subjects. Four babies have been enrolled and randomized as of today. ELPIS II has a target enrollment of 38 infants, with one year of safety follow-up per protocol. Currently, the ELPIS II team is projecting completion of enrollment in 2023. ELPIS II is being funded in part by a grant from the National Institute of Health, National Heart Lung and Blood Institute in collaboration with Longeveron, and is led by principal investigators, Sanjay Kaushal, Division Head, Cardiovascular Thoracic Surgery at the Lurie Children's Hospital of Chicago. Now moving on to the acute respiratory distress syndrome trial due to COVID-19 infection, the Phase 1 trial continues to screen subjects at three participating centers in the US. We expect enrollment to continue into 2022. Enrollment in this trial has been slower than expected due to several factors, including a reduction in hospitalizations and increasing vaccination rates. The trial was funded in part by a Maryland Stem Cell Research TEDCO grant that runs through October 2022. As a general note, we have a demonstrated track record of successfully applying for and receiving grant awards to help fund our research. With the new data coming out of our various trials and successful execution of sub-trials, we intend to continue to apply for grants as part of our funding strategy and to further our goal of commercializing Lomecel-B. With that, I'd like to turn the call over to James Clavijo, CFO, to discuss our financial results for the third quarter of 2021. James?

Thank you, Geoff. Good morning, everyone. Most of what I'll be covering this morning will be presented in more detail in our consolidated financial statements and in our management's discussion and analysis of operations for the three months ended September 30, 2021, which will be filed today. For the third quarter ended September 30, 2021, and 2020, revenue in the third quarter of 2021 was $0.2 million compared to $1.8 million in the same period in 2020. The difference was largely due to a decrease in grant revenue as follows: clinical trial revenue derived from the company's Bahamas registry trial was $0.2 million in the third quarter of 2021 compared to less than $0.1 million in the same period in 2020, an increase of $0.2 million or 100%. COVID-19 related travel concerns continue to negatively impact clinical trial revenue generally. Third quarter 2021 grant revenue was less than $0.1 million compared to $1.8 million in the same period in 2020, a decrease of $1.7 million or 96%. The reduction in grant revenue is due to the completion of several grant-funded clinical trials and corresponding completion of the grant. Research and development expenses for the three months ended September 30, 2021, increased to $2 million from $0.6 million for the same period in 2020. The increase of $1.4 million or 250% was primarily due to an increase in research and development expenses that were not reimbursable by grants, as well as $0.9 million of equity-based compensation expense recorded for the RSUs and stock options granted during the quarter. General and administrative expenses for the three months ended September 30, 2021, increased to $3 million compared to $0.7 million for the same period in 2020. The increase of $2.3 million or 327% was primarily related to an increase for compensation, insurance, and professional expenses incurred during the current period, including $1.6 million of equity-based expense recorded during the quarter. Net loss increased approximately $4.9 million for the three months ended September 30, 2021, from a net loss of $0.9 million for the same period in 2020. The increase in net loss of $4 million or 418% was for the reasons outlined above. Cash and short-term investments as of September 30, 2021, was $19 million compared to $0.8 million as of December 31, 2020. The increase in cash period over period was a result of the completion of the company's initial public offering in February of 2021. Our cash in the nine months ended September 30, 2020, was increased by $29.1 million in funds received from our IPO. As of September 30, 2021, our cash position, which includes short-term investments, was $19 million. We believe, based on the current operating plan and financial resources, that our existing cash on hand will be sufficient to cover expenses and capital requirements through at least the fourth quarter of 2022. With that, thank you, and I will turn the call back to Geoff.

Thank you, James. I believe now we're going to open the call for questions. Operator?

We have no questions. I will now transfer back to Brendan Payne for questions submitted independently.

So for the management team, a few questions that were submitted independently online. First is with regard to Aging Frailty in the Phase 2b. Longeveron believes there was news a few months ago about a biomarker finding from its Phase 2b Aging Frailty trial that may shine some light on the mechanism of action that supports the therapeutic effect of Lomecel-B with respect to improved exercise and walking distance. Can you summarize those findings and what the significance is?

We also have our Chief Science Officer on the call, so I’ll ask him to weigh in on the answer. But yes, we were quite interested to see that a biomarker linked to healthy blood vessel function showed a positive change in subjects treated with Lomecel-B. The biomarker we refer to as TIE-2 is a self-surface receptor that's present on cells that line blood vessels and protects against vascular leakage and inflammation. So increased levels of TIE-2 in the bloodstream may be indicative of poor vascular health and dysfunction. Since poor vascular health and endothelial dysfunction are associated with the onset and development of frailty in older adults, the finding that Lomecel-B may potentially be associated with a reduction in that biomarker suggests improving vascular and endothelial function may be a potential mechanism of action of this product. This is the first time that we're aware of that a cell therapy has been associated with a reduction in this TIE-2 in the bloodstream. So it's a biomarker we plan to look at in our other frailty trial, the data that we're waiting in the HERA, and then potentially to explore that further in future research. Dr. Hare, did you want to add anything to that?

Yes, the soluble TIE-2 receptor has been extensively studied in other diseases but not in frailty and has been shown to be a rather important marker of endothelial function. We think that this is potentially meaningful with regard to frailty. Frailty is driven by sarcopenia in some patients, which is the loss of skeletal muscle. We think the linkage between the poor regulation of blood flow to skeletal muscle might be able to be indexed by our measurements of soluble TIE-2. So we will be pursuing this in future research and in future trials, and this could potentially become a valuable tool for us to monitor how patients are responding to the infusion of Lomecel-B.

The next question submitted, again, is related to Aging Frailty. What is the estimated prevalence of frailty in the US and Japan, and how big is the market opportunity?

The answer is, in part, dependent on the definition used. But the general prevalence of frailty in individuals over the age of 65 in the US is about 15%. In the US, this translates to roughly 8 million people, which is larger than Alzheimer's disease; it’s larger than heart failure. It's a big unmet medical need. There's actually another 20 million or so people that are considered pre-frail and at risk for becoming frail. In Japan, the general prevalence has been reported to be as high as 11% of the population, and that translates to about 3.5 to 4 million people who are 65 and older in that country. So I would consider both of these very large market opportunities.

The next question we received transitions into the HLHS program. What is the prevalence of hypoplastic left heart syndrome in the US, and what's the standard of care currently?

It is considered a rare disease. For every 10,000 births, there are two to three babies born with HLHS, which works out roughly to about a thousand babies each year. The standard of care, we have our cardiologists on the line, but I'll just say the standard of care at present is to perform three palliative reconstructive surgeries, two of which occur typically early, in the first year of their life and then the third as the child is a little older, but before the age of five, I believe. Dr. Hare, do you want to comment at all about the standard of care with HLHS?

The standard of care is quite dramatic. The first surgery has to be performed at two weeks of life; it's called the Norwood procedure and the second surgery is at four months. So you're absolutely correct, the first two surgeries occur in the first year of life. I think what's important to understand is that, even with the three surgeries required for the child to survive, there's still a high incidence of the development of heart failure and a need for heart transplantation during childhood. So that is the standard of care, the three surgeries, and then possibly a fourth surgery of a heart transplant in some of the babies.

And the final question that we received that was submitted was with regards to the Alzheimer's program. You noted that you expect to initiate enrollment in a Phase 2 with Lomecel-B in Alzheimer's by the first quarter of next year, 2022. What's the design of that trial, and what endpoints will you be looking at?

So this is correct. We have filed a new protocol as an amendment to our existing IND, and we're preparing for enrollment to begin in Q1 next year. We’ve modified the design from what was originally contemplated to include multi-dosing. Our Phase 1 trial was a safe trial; the single administration of Lomecel-B was intended to evaluate safety and explore efficacy. In our next trial, we would like to administer Lomecel-B multiple times at several dose levels over a course of three to six months, and evaluate the safety of that as well as explore the efficacy. We anticipate that it will be a randomized placebo-controlled double-blind multi-arm trial, and we intend to measure a handful of endpoints focused on cognitive function, activities of daily living, disease-specific biomarkers, cytokines, and brain biometry. So once that trial design is locked down, we will provide another update for investors for the precise design.

So that concludes the questions that we received and the Q&A session for the call. I'd just like to now turn the call back to Geoff to close out with remarks.

Sure. Thanks, Brendan, and thank you, everyone. On behalf of the company, we’d like to thank everyone for their continued interest and support, and we look forward to updating you again when we discuss year-end 2021 results.

This concludes today's call. You may now disconnect your lines, and we thank you for joining.