Longeveron Inc. Q4 FY2023 Earnings Call

Ladies and gentlemen, good afternoon, and welcome to the Longeveron Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Moyer, Managing Director of LifeSci Advisors. Please go ahead.

Thank you, operator. Good afternoon, everyone, and welcome to Longeveron's 2023 year-end results conference call. Today, we will discuss financial results from the year ended December 31, 2023, and provide a business update. After the market closed today, we issued a press release with these results, which can be found under the Investors section of the Longeveron website. I'm joined on the call today by the following members of Longeveron's management team. Mr. Wa'el Hashad, Chief Executive Officer; Dr. Nataliya Agafonova, Chief Medical Officer; and Lisa Locklear, Chief Financial Officer. Mr. Hashad will begin with a brief corporate update, then Dr. Agafonova will review Longeveron's progress in its clinical programs and Ms. Locklear will review financial results for 2023. Following the company's prepared remarks, we will open the call to questions from covering analysts. As a reminder, during this call, we will make 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 discussed in our filings with the SEC, including our quarterly reports on Form 10-Q and annual report on 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 Mr. Wa'el Hashad, Chief Executive Officer of Longeveron. Wa'el?

Thank you, Mike. Good afternoon, everyone. We are pleased to speak with you today. On this call, we will briefly recap the major highlights of our year 2023 and outline strategic priorities for 2024. Then we will be happy to answer any questions you have. 2023 was a productive year for Longeveron. During this year, we made significant progress advancing our lead assets, Lomecel-B, to important milestones, including presenting long-term survival data from our ELPIS I clinical trial in hypoplastic left heart syndrome at the American Heart Association Annual Meeting in Philadelphia and announcing clinically meaningful results from our Phase 2a CLEAR MIND trial in Alzheimer's disease. We also took steps to strengthen our balance sheet, securing $6.4 million of gross proceeds from equity financing during the fourth quarter. For 2024, our strategic priorities are focused on our lead program in hypoplastic left heart syndrome, or HLHS, with the goal of completing enrollment in our ELPIS II Phase 2 clinical trial this year. ELPIS II has exceeded its 50% enrollment threshold, and we are working with the clinical investigators to expedite enrollment. HLHS is our top priority program, and we believe it is our most important value driver in the near term. Accordingly, we made the strategic decision to discontinue our Phase 2 clinical program in aging-related frailty in Japan to focus our available resources on HLHS and ELPIS II enrollment. We are also exploring opportunities to advance our Alzheimer's disease program through potential partnerships or other sources of funding. These steps will allow us to focus our available resources on completing enrollment in our ELPIS II study in 2024. The data that we have generated in HLHS and Alzheimer's disease all support broader potential for Lomecel-B as a regenerative medical therapy for a range of unmet medical needs. Though we remain confident in the broader therapeutic potential of this asset, we believe that narrowing our focus in the near term on HLHS is in the best interest of the patients, investors and our shareholders. With that, I will turn the call to Dr. Agafonova to provide a review of the recent data on our clinical program so far. Nataliya?

Thank you, Wa'el, and good afternoon, everyone. Today, I will provide a brief overview of our HLHS program, discuss the extended survival data we presented from our ELPIS I trial results at the AHA Scientific session, and update our progress in enrollment for our ELPIS II study. Then I will review the additional results we announced from our CLEAR MIND study in Alzheimer's disease. HLHS, for those who might not know, is a rare congenital and devastating birth defect in which the left ventricle of the heart is either severely underdeveloped or missing. The condition affects approximately 1,000 babies per year in the United States. Babies born with this condition have severely diminished systemic blood flow, which requires children to undergo a complex three-stage heart reconstruction surgery process over the first five years of their life. While these children can now live into adulthood with surgical intervention, only 50% to 60% of affected individuals survive to adolescence due to right ventricle failure, which is often unable to handle the increased load required to support systemic circulation. Furthermore, even those children who have had successful surgical intervention are at elevated risks of short-term mortality, delayed development, and long-term complications, including organ failure. As such, there is an important unmet medical need to improve right ventricular function in these patients to improve both short-term and long-term patient outcomes. As Wa'el mentioned, the latest long-term survival data from our ELPIS I study, Phase 1 of Lomecel-B in children with HLHS, were presented as a poster at the scientific sessions of the American Heart Association. Ten patients participated in the ELPIS I trial, during which Lomecel-B was injected into the right ventricle concurrent with the Stage 2 surgery, also known as the Glenn procedure. In the presented data, 10 patients were monitored for up to five years after treatment. The data showed that 100% of the 10 patients who participated in the ELPIS I trial survived and remain heart transplant-free for up to five years of age after receiving Lomecel-B during their Stage 2 surgery. The extended follow-up data on all patients enrolled in this study now includes monitoring for up to five years following treatment with Lomecel-B. The average age at the time of the last follow-up visit was 4.5 years, with two patients being five years of age. Additional long-term follow-up is ongoing with the ELPIS I participants. Historical results from outside studies have shown that children with HLHS have approximately a 20% mortality rate by five years. The ELPIS I data were highly encouraging and reinforce our enthusiasm for Lomecel-B as a potential treatment to transform care for patients with HLHS. Our ELPIS II trial is designed to assess the potential of Lomecel-B to improve right ventricular function and long-term outcomes. The trial is a 38 patient controlled Phase 2 clinical trial, evaluating the safety and efficacy of Lomecel-B as an adjunct therapeutic to standard of care for HLHS. The primary outcome measure is the change in right ventricular ejection fraction from baseline to 12 months. The trial is funded by a grant from the National Institutes of Health, National Heart, Lung, and Blood Institute. Our ELPIS II trial is more than 50% enrolled, and we are working with clinical investigators and trial sites to expedite enrollment. Completion of ELPIS II is our priority, and our current plan is to complete enrollment in this trial in 2024. I will turn now to our Phase 2a trial of Lomecel-B for mild Alzheimer’s disease, which we call the CLEAR MIND trial, a 48 patients four-arm parallel design, randomized clinical trial of Lomecel-B designed to evaluate the safety of single and multiple infusions of two different dose levels of Lomecel-B compared to placebo in patients with mild Alzheimer's disease. We announced top-line results from this trial in October 2023, and additional positive clinical data and MRI results last December. To recap these results, the study met the primary safety endpoint, and no patients experienced Alzheimer-related imaging abnormalities. The study also met its secondary endpoint, a prespecified composite Alzheimer’s disease endpoint with a prespecified p-value of less than 0.1. The additional clinical data and MRI results we announced in December showed improvement in clinical and MRI endpoints for patients receiving Lomecel-B compared to placebo. Specifically, cognitive function improved as measured by the Montreal Cognitive Assessment score, with a p-value of 0.05. Daily life activity increased as assessed by the caregiver and measured by Alzheimer’s Disease Cooperative Study Activities of Daily Living with a p-value of 0.05. Brain MRI demonstrated slowed whole brain volume loss, accompanied by significant preservation of left hippocampal volume, both with a p-value of 0.5. Brain neuroinflammation, as measured by diffuse tensor imaging, DTI, also diminished with a p-value of 0.01. We believe these results support the therapeutic potential of Lomecel-B in the treatment of mild Alzheimer’s disease and provide evidence-based support for further clinical development. We intend to present CLEAR MIND results at major medical meetings in 2024. As Wa'el mentioned, we are seeking appropriate partnerships and sources of non-dilutive funding to support further development of Lomecel-B in Alzheimer's disease. With that, I'd now like to turn the call over to Lisa Locklear, our CFO, to discuss our financial results for 2023. Lisa?

Thanks, Nataliya, and good afternoon, everyone. Most of what I'll be covering this afternoon is presented in more detail in our condensed financial statements and in our management's discussion and analysis of operations in our annual report on Form 10-K, which we filed today. Revenues for the years ended December 31, 2023 and 2022 were $0.7 million and $1.2 million, respectively. 2023 revenues decreased by $0.5 million or 42% when compared to 2022 as a result of decreased grant revenue and lower participant demand for our Bahamas Registry Trial. Grant revenue for the years ended December 31, 2023, and 2022 was less than $0.1 million and $0.3 million, respectively. The decrease of $0.2 million when compared to 2022 was primarily due to a reduction in grant funds available, due in part to the completion of the grant-funded clinical trials. Clinical trial revenue, which is derived from the Bahamas Registry Trial for the years ended December 31, 2023, and 2022 was $0.7 million and $0.9 million, respectively. Clinical trial revenue for the year ended December 31, 2023, decreased by $0.2 million when compared to 2022, as a result of decreased participant demand. Related cost of revenues was $0.5 million and $0.7 million for the years ended December 31, 2023, and 2022, respectively. The decrease of $0.2 million was primarily due to the decrease in revenues earned from the Bahamas Registry Trial and reduced direct costs associated with our Grants program. This resulted in a gross profit of approximately $0.2 million for the year ended December 31, 2023, a decrease of $0.3 million when compared with a gross profit of $0.5 million for 2022. General and administrative expenses for the year ended December 31, 2023, increased to approximately $11.4 million compared to $8.1 million for the same period in 2022. The increase of approximately $3.3 million was primarily related to an increase of $1.6 million for compensation and benefit expenses, which included $0.4 million of separation costs, as well as $1 million in higher legal, professional, and consulting fees, $0.4 million of public company expenses, and $0.2 million higher equity-based compensation costs allocated to general administrative expenses and $0.1 million for higher Board fees. Research and development expenses for the year ended December 31, 2023, decreased to approximately $9.1 million from approximately $9.4 million for the same period in 2022. The decrease of $0.3 million was primarily due to decreases of $0.5 million in equity-based compensation allocated to research and development expenses and $0.3 million in compensation and benefits, offset by increases of $0.4 million in supplies and costs to manufacture Lomecel-B and $0.2 million in research and development expenses that were not reimbursable by grants. Selling and marketing expenses for the year ended December 31, 2023, and 2022 were $0.8 million and $1.1 million, respectively. The decrease of $0.3 million was primarily due to decreases in investor relations and international development expenses. Other expenses for the years ended December 31, 2023, and 2022 were $0.4 million and $0.8 million, respectively. Other expenses for 2023 decreased mainly as a result of non-operating lawsuit expenses of $1.4 million in 2022 compared to less than $0.1 million in 2023. This decrease was partially offset by realized losses on sales of marketable securities of $0.3 million, write-off of intangible assets of $0.3 million, and reduced benefit of tax credits of $0.3 million. So recorded in other income in 2022 was approximately $27,000 for a gain resulting from foreign currency changes and $27,000 of sublease rental income. Net loss increased to approximately $21.4 million for the year ended December 31, 2023, from a net loss of $18.8 million for the same period in 2022. The increase in the net loss of $2.6 million was for the reasons I explained previously. As of December 31, 2023, we had $5.4 million in cash, cash equivalents, and marketable securities. We believe that our existing cash, cash equivalents, and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024. We are actively seeking financing opportunities to extend our cash runway while taking measures to reduce our cash expenditures as we focus our resources on our primary strategic program in HLHS. These cost-saving measures include the discontinuation of our aging-related frailty clinical trial in Japan, related staff reductions, and continued prudent management of our discretionary spending. I would also like to share a key subsequent event. On February 21, 2024, the company's stockholders approved an amendment to the company's Certificate of Incorporation to effect a reverse stock split of its outstanding shares of Class A common stock and Class B common stock at a ratio ranging from one for five to one for 15, with the exact ratio to be set within that range at the discretion of its Board of Directors without further approval or authorization from its stockholders. The date of our reverse stock split and the ratio have not yet been determined. The reverse stock split is intended to address the current stock price, which has been trading below the NASDAQ minimum requirement of $1 per share for nearly a month. With that, I thank you, and I will turn the call over to Wa'el.

Thank you, Lisa. So to conclude, our focus in 2024 is on advancing our clinical program in HLHS and completing ELPIS II enrollment. We also are leveraging the data from our CLEAR MIND study with the goal of securing an appropriate partnership for the continued advancement of Lomecel-B in the Alzheimer's disease indication. We are taking appropriate measures to support our efforts within currently available resources, managing our cash spending, and seeking additional financing opportunities to help realize Lomecel-B's full potential. Supported by data obtained from ELPIS I and CLEAR MIND, we are confident that Lomecel-B represents an important potential breakthrough for patients and an attractive value proposition for our investors. Now I would like to open the call for questions. Operator, please open the line to our covering analysts.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. Our first question is from the line of Boobalan Pachaiyappan with H.C. Wainwright. Please go ahead.

Hi, this is Dipesh on behalf of Boobalan, H.C. Wainwright. I had several questions. The first is with respect to the HLHS study. Can you give us additional granularity on the timing of the enrollment completion? So are you looking at maybe the third quarter of 2024 or the fourth quarter of 2024?

Fourth quarter of 2024…

Sorry, what was that, the third quarter, you said?

Fourth quarter of 2024.

Okay, thank you. And then second question, you recently presented ELPIS I trial survival data at the American Heart Society presentation. Can you give us a general sense of the response that you received, mainly from the physicians who are treating HLHS patients?

Nataliya, do you want to take that question since you attended the meeting?

Sure. Thank you so much. Thank you for the question. I had an opportunity to be in front of the poster and reply to questions from some physicians and surgeons who came to the poster. Overall, it's excitement in the area. As you know, HLHS, even if it's addressed by the surgery, has limitations due to the three stages of surgery. Surgeons and everyone caring for these patients are looking for opportunities to improve the lives of these patients and, mostly, to improve long-term survival and delay or even avoid heart transplantation. So there is overall excitement. There is an option for this patient population, and the feedback was overwhelmingly positive.

Great. Thank you for that additional clarity. And I've got one last question. Can you characterize the ex-U.S. interest in Lomecel-B’s potential in HLHS treatment? Do you believe you could out-license the asset for ex-U.S. commercialization? Any information you can share around the ex-U.S. partnership interest would be appreciated. Thank you.

Sure. I'll take that question. First and foremost, I would say that we are open to any partnership opportunity that may come, both in the U.S. and outside of the U.S. We remain confident that we can launch the product in the U.S. and outside the U.S. for HLHS. For larger indications, we will need broader support. As for the opportunity for HLHS outside of the United States, the prevalence of the disease is fairly similar, which represents a total opportunity of accessible patients of more than 5,000 outside the United States. There are many in Europe, but there is also a considerable number of HLHS cases in Japan and other countries as well that represents a very good opportunity for the international market. I believe our trial, once completed, could serve as a submission trial for filing the same application outside the United States, including Europe. One nice thing is that the treating community for HLHS is a very small community, which represents a good commercial opportunity and a much easier path for commercial addition. With that, I would say, we have a small community.

Thank you. I appreciate the details. Wa'el and Nataliya, thanks for the update.

Thank you. Our next question is from Michael Okunewitch with Maxim Group. Please go ahead.

Thank you for taking my questions tonight. I guess, first off, I would like to see if you could help quantify what kind of impact on your expense profile we could see from the termination of the frailty program in Japan.

Michael, I will tell you that, as you know, the trial wasn't significant from a number of patients, and there are still some closing costs that we need to cover before we close the trial. Definitely, we had a lot of expenses as well in 2025, and some may even lead into 2026. I can tell you that all the 2025 and 2026 expenses will be saved, in addition to a significant saving in 2024. How much exactly? We have not finalized yet, as we haven't closed all the costs, but it would be rounded to about $1 million potentially from Japan.

All right, thank you for that. And then at the top of the call, you did mention that you're taking some steps to expedite enrollment in ELPIS II. Could you help provide some color on what steps you are taking?

Yes, I can have Nataliya take the first stab at this one, and I'm happy to add any further details.

Thank you so much. So there are a few measures we've taken to expedite enrollment to help complete it in 2024. One of the steps we are currently in the middle of is activating four new sites, and they are very prominent sites with the potential to enroll many patients in the trial. We also have other measures for investigator meetings and internal communications, etc. But the most important is to engage other investigators by enrolling new sites. Currently, we have seven sites activated, and with these four additional ones, we are confident that the enrollment will be completed in 2024.

Michael, let me add a couple of things to what Nataliya has briefly mentioned. One is the investigator meeting. We're planning on conducting an investigator meeting, which we believe is an important step. We are adding four new sites, and to accelerate this, we believe that one of the best mechanisms is to share some best practices from the sites that have been there. Understandably, this trial has been going on for over 1.5 years, and sometimes sites get fatigue. So we believe that the investigator meeting will reinvigorate the sites and the excitement around the study and enable us to complete it. The last point is that the team, including Nataliya's, is working with advocacy groups to increase awareness among patients. I remind you that this is still a very small population, which has challenges of rare diseases, but we are committed to driving awareness about our trial and the work we're doing.

All right, thank you. And then just one last one for me, and then I'll hop back into the queue. Over the last couple of months, we have seen some activity from Mesoblast in HLHS, specifically some FDA designations in a publication back in December. Could you just give us an idea of how the drugs stack up beyond Lomecel-B, obviously being in a more advanced stage? Specifically, if there are any key differences in the signaling profiles that might provide a competitive advantage? And then further, given that you are in a potentially pivotal trial, does this provide some additional validation for stem cells as a modality in HLHS overall?

Nataliya, do you want to take the first stab at this one? I'm happy to elaborate from a competitive standpoint.

Sure. The Mesoblast study conducted at Boston Children Hospital, which was just published, even though it involves HLHS, does so in a different degree of severity. They inject stem cells into the left ventricle, trying to regenerate that left ventricle. So the severity of those cases is slightly different. Even though it is a competitor and it involves the same disease, it differs in mechanism and outcomes. Our mechanism aims for long-term survival and transplant-free survival by injecting into the right heart to increase the right ventricular function, which is a surrogate endpoint for long-term favorable outcomes. So again, it's the same disease, but the safety and severity factors vary slightly. I hope I addressed that part of your question. Wa'el, perhaps you can continue.

Yes, I believe their approach is very different from ours. We aim as an adjunct therapy to the current standard of care, and we are at a more advanced stage clinically. I also believe that the data we have presented could generate more excitement in our approach. In summary, we are ahead of them regarding clinical development and validating our mechanisms.

Yes. Thank you. That's certainly extremely helpful.

Thank you. Our next question is from the line of Brad Sorensen with Zacks Research. Please go ahead.

Yes, thank you. Good to talk to you guys, and good presentation. I just wondered if I could get a little more color on the progress of the Alzheimer's research. It seems like there have been some pretty positive results from that. I just wondered if you were – you said you were looking for additional partners and funding. Is that on the back burner until you get that funding? Or are you going to continue the research concurrently while looking for that funding? Just a little more color on that would be appreciated.

I'll take that question. So Brad, we realize the significance of advancing our work. First, I want to say that we are extremely excited and happy with the results that we have seen from the CLEAR MIND trial. This Phase 2a trial has shown signals that are encouraging. We have reviewed this with thought leaders in the scientific community, and everyone agrees that further development of this program for Alzheimer’s is warranted. We want to be pragmatic and practical. We are pursuing partnership opportunities and evaluating available public and private funding to support the development of medicines for Alzheimer's disease. It's one of the biggest public health crises we have faced recently, attracting attention to funding sources. We are pursuing both paths in parallel and doing extensive analysis of our data to formulate a potential design for the next trial. So we are not slowing down; rather, we are pursuing financial responsibility while focusing our resources on areas that promise the fastest and most lucrative return on investment. I have no doubt that we will continue developing our program for Alzheimer's disease and perform the necessary groundwork, while vigorously seeking partnerships and other forms of funding, such as non-dilutive options.

Okay, thank you. Yes, the positive results, as you said, are promising, and finding partners is crucial. So I want to ensure we continue the progress we're seeing on that front. Thank you.

Yes, indeed. We are vigorously seeking partners.

Thank you. As there are no further questions, I would now hand the conference over to Wa'el Hashad for his closing comments.

Thank you, everyone, for attending today's call. On behalf of Longeveron, I would like to thank you for your continued interest and support, and wish you a good day today. Thank you.

Thank you. The conference of Longeveron has now concluded. Thank you for your participation. You may now disconnect your lines.