Welcome to the Lisata Therapeutics Fourth Quarter and Full Year 2022 Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, this call is being recorded today, Thursday, March 30, 2023. I will now turn the call over to John Menditto, Vice President of Investor Relations and Corporate Communication at Lisata. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. Welcome to Lisata's fourth quarter and full year 2022 conference call to discuss our financial results and provide a business update. Joining me today from our management team are Dr. David Mazzo, Chief Executive Officer; Dr. Kristen Buck, Executive Vice President of Research and Development and Chief Medical Officer; and James Nisco, Vice President of Finance and Treasury. Shortly before this call, we issued a press release announcing our fourth quarter and full-year 2022 financial results, which is available under the Investors and News section of the company website along with the webcast replay of this call. If you have not received this news release or you would like to be added to the company's e-mail distribution list, please e-mail me at jmenditto@lisata.com. Before we begin, I will remind you that comments made by management during this conference call will contain forward-looking statements that involve risks and uncertainties regarding operations and future results of Lisata. I encourage you to review the company's financial -- the company's filings with the Securities and Exchange Commission, including, without limitation, its Forms 10-K, 8-K and 10-K -- sorry, 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 live broadcast, March -- sorry, Thursday, March 30, 2023. Lisata Therapeutics 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?

Thank you, John, and good afternoon, everyone. Thank you for once again joining us as we provide an overview of recent business highlights and discuss our fourth quarter and full-year 2022 financial results. 2022 was a year of exciting transformation for the company, leading to the emergence of Lisata Therapeutics, a financially stable clinical-stage pharmaceutical company, developing innovative therapies for the treatment of advanced solid tumors and other serious diseases. Our portfolio of product candidates contains treatments in development that are designed to be regenerative and/or to bring significant therapeutic improvement. LSTA1, our lead investigational product candidate from the CendR platform, is the subject of multiple planned and ongoing clinical trials being conducted globally in a variety of solid tumor types and in combination with several anticancer agents. Based on substantial preclinical and importantly, early human clinical data, we believe that LSTA1 has the potential to become an integral part of a revised standard-of-care therapy for many difficult-to-treat cancers. Our Chief Medical Officer, Dr. Kristen Buck, will provide more specifics on our clinical programs shortly, following our review of the financial results. However, before we get into that and our financial review, I do want to emphasize some of the characteristics of our company that the general market has overlooked. Those who follow the biotech, biopharma space will undoubtedly know that there are between 200 and 250 companies at any given time today with a market capitalization below their cash balance. We are, in fact, one of those companies. However, unlike most of those companies that are without sufficient cash to execute the development plans through key milestones and are facing extremely difficult and costly financings this year, if they can finance at all, we are well financed through critical milestones on our key programs. In fact, we are able…

Thanks, Dave. Good afternoon, all. I'm pleased to join you today to present a summary of our fourth quarter and full-year 2022 financial results. Starting with operating expenses. Research and development expenses for the fourth quarter of 2022 were $3.2 million, a 22% decrease compared with $4.1 million for the fourth quarter of 2021 and $13.1 million for the year ended December 31, 2022, compared to $17.6 million for the year ended December 31, 2021, representing a decrease of approximately 26%. These decreases were primarily due to a reduction in expenses associated with our XOWNA Phase IIb study, the FREEDOM trial, as a result of the suspension in enrollment, which commenced in the second quarter of 2022 and study closeout activities in the third quarter of 2022, also, a decrease in expenses associated with HONEDRA in Japan related to study closeout costs along with one-off recruiting expenses and interim Chief Medical Officer [ controlling ] expenses in the prior year, partially offset by the addition of chemistry, manufacturing and control activities, commonly referred to as CMC, related to the production of LSTA1 and enrollment activities for the Phase IIb ASCEND study for LSTA1. Spend related to the research and development in both periods was a result of expenses associated with our XOWNA Phase IIb study, the FREEDOM trial, expenses associated with our registration-eligible study for HONEDRA in critical limb ischemia in Japan as well as the corresponding regulatory discussions and support expenses and expenses associated with the addition of manufacturing activities for LSTA1, enrollment activities for the LSTA1 Phase IIb ASCEND study and preparatory activities associated with the design of a planned LSTA1 proof-of-concept basket trial in various solid tumors in combination with the corresponding standards of care. General and administrative expenses, which focused on general corporate-related activities, were $3.3…

Thank you, James, and good afternoon, everyone. I will be providing a high-level summary of what we are doing at Lisata and why we believe our development programs hold so much promise. Before I do that, though, I'd like to reiterate the basis of belief. Lisata's pipeline is built on a portfolio of proprietary and patented technology that is grounded in strong scientific rationale and a body of published preclinical and early clinical data. Our technologies are designed to address major impediments to successful treatment of cancers and other serious diseases in the context of increasing pharmacoeconomic pressures on the healthcare system. We appreciate the critical importance of generating meaningful clinical data to advance our platform technologies and development candidates. And I can assure you that our entire R&D team has this goal top of mind in everything we do. With that, I will now provide a summary and status update for each of Lisata's active clinical development programs, kicking off with our lead product candidate, LSTA1, which we call LSTA1 for the treatment of advanced solid tumors in combination with other anticancer agents. Despite advances in cancer therapy today, many solid tumors remain difficult to effectively treat cancers such as pancreatic cancer, gastric cancer and other solid tumors, are surrounded by a dense fibrotic tissue known as the stroma, which limits access of most pharmacotherapies to the tumor. Many tumors also exhibit a hostile tumor microenvironment, or TME, which suppresses a patient's immune system and makes it less effective in fighting the cancer. The combination of a dense stroma and a hostile TME negatively impacts the ability of many cytotoxic agents and immunotherapies to effectively treat these cancers. This, coupled with the fact that most anticancer therapies are not efficient in targeting only the cancer tissue, defines the major…

Thank you, Kristen. Having some difficulty with the technology here. As you've heard, our creative team is working hard to maximize the value potential of our development pipeline and to drive our programs to clinical success. We've designed our studies to provide clear results as fast and extensively as reasonably practicable. Nevertheless, we understand and certainly share your impatience in getting to quality data as soon as possible, and we are focused on doing everything within our control to achieve this goal. We are excited by the promise of our platform technologies and pipeline of product and partnering opportunities, and look forward to providing updates on our progress in the coming months. And with that overview, operator, we're now ready to take questions. Operator, are there any questions on the line?

Our first question comes from the line of Joseph Pantginis of H.C. Wainwright.

This is Sara on for Joe. We were just wondering if you could provide perhaps some color on how activities are currently going in Australia and what your expectations are, moving forward?

Certainly. Thanks for the question, and thanks for joining us today. We typically don't give weekly or monthly updates on the specifics of enrollment. But I can generalize by telling you that our activities in Australia are going extremely well. So you can look on our website and see a copy of the corporate presentation, which gives a listing of all the various trials, including the locations in which they're being conducted. And the largest trial, the ASCEND trial that we're currently -- that is ongoing at the moment, being conducted in Australia, is actually ahead of schedule on their projections for completing enrollment and is well along in enrollment. So I think that we'll be able to provide perhaps a little bit more specific update in the coming month or so. But it really has moved along very nicely. And a number of the other trials that are planned to start in Australia are also imminent in their initiation. So we're very pleased with the progress being made by our Australian clinical investigator colleagues.

[Operator Instructions] Our next question comes from the line of Pete Enderlin of MAZ Partners.

Just following up on that last question. Dave, can you give us an idea how many people you are shooting to enroll in that program and what the cost may be? I think there's some nice cost sharing with Australia as well. But can you give more details on that?

Sure. So the actual details of the clinical trials can be found on clinicaltrials.gov, and none of this is secret. The ASCEND trial is targeted to enroll between 125. And ultimately, I think our goal would be closer to 155 patients. And the costs there are probably about half of what they would be or even less than half of what they would be if conducted in the United States. And then on top of that, we get about half of that back as a direct cash reimbursement for R&D work being done in Australia, through the Australian government.

Okay. And just a sort of a general process question or I mean, like a technology question regarding stroma, which is the main basis for a lot of these trials and opportunities. Are there varying degrees of permeability of the stroma in different kinds of cancers? And is that one of the things that determines what makes a particular cancer very potentially susceptible to this kind of treatment?

I'm going to ask Kristen, our Chief Medical Officer, to jump in and answer that question. Kristen?

Yes. Thank you. There is differential basis of stroma for different tumor types, and that was sort of the basis of why we have chosen such advanced cancer, such as metastatic pancreatic ductal as well as cholangiocarcinoma. They do have advanced stromas. But seeing as we have a selective targeting asset that attracts -- excuse me, selectively binds to integrins as well as neuropilin, which are upregulated on the stroma, including cancer-associated fibroblasts, which are abundant in the stroma, we believe where other tumor -- where other chemotherapies and immunotherapies have failed, we are going after the more difficult to treat because we believe we can access the tumor itself more effectively through these stroma. So that is the basis of our development program.

Okay. And another core technology question. Broadly, is there an industry trend toward more combination therapies? I think there is, but I don't really have any sense of how widespread that is becoming at this point. And most of the [ these ], of course, would be combinations.

All will be combinations, to be clear. And I don't know if there is an increasing trend, but it's been pretty much the standard practice for at least 5 to 10 years, if not longer, in oncology to use cocktails of therapies to maximize the response rates for patients. And so I think that you'll see that many of the newly emerging technologies like immunotherapies are being studied as monotherapies and then also in combination with existing chemotherapies and other modalities. So I think cocktail approach is something that's going to remain popular until such time as a single agent can do the job better.

Okay. Dave, can you give us any kind of sense of the milestones that you're looking to get from [indiscernible] in terms of the $225 million total, but how many different milestones are in that? And are there any specific that you can qualify or describe sort of generally as to what they represent? Is it approval or Phase II, III?

Sure. So Pete, I'm going to ask our Chief Business Officer, David Slack, to jump on and address that. And while he's getting off mute and getting ready to speak, I'll just mention that we can't disclose all the specifics of that contract because of the confidentiality arrangement. But David can tell you what's in the public domain.

Okay.

Yes, that's correct. There are development and regulatory-based milestones as well as some commercial-based milestones. The development milestones [ hinged ] by advancement into more late-stage clinical trials as well as regulatory milestones such as filing and approval. As Dave mentioned, I think the exact magnitude of those has not been publicly disclosed, so we'll refrain from going deeper.

Can you say at all how many different milestones are involved in that $225 million?

6.

Okay. This -- the fact that the company's main focus at this point versus where you were a year ago is really completely different. And even though we just spent a lot of time talking about CD34, the real potential for the company, going forward, seems to lie much more in the Cend technology. So does that, in any sense do you think, cast a question on the credibility of the previous efforts of the company?

Not at all, I don't think. This is drug development, Pete. Things work, things don't work, things work but then aren't recognized by -- or not being willing to be paid for. There are all sorts of factors that come into play, and it's a dynamic environment. I think that we actually did a very good job of conducting efficient and effective development programs for autologous cell therapies. But the market never recognized the potential and never rewarded the company for that potential. And it was in an area of cardiovascular disease, where further development was becoming increasingly expensive because of the size and the duration of the studies required. So I think actually, the company's credibility should be enhanced by the smart business decisions taken to move to something where we can generate data in a reasonable period of time at a reasonable cost and where the market should recognize it eventually.

Our next question comes from the line of Steve Brozak of WBB.

Getting back to what you were just describing as far as the model and Lisata's corporate model, earlier on, you had mentioned between 200 and 250 companies that were trading at below cash. But isn't -- I want to understand this better. The new biotech model, obviously, is something that we haven't seen before, where a company uses all of its assets to maximize the return and to go out there and to be able to do things that normally you couldn't do by leveraging external partners. Can you tell us what the difference is and what you're seeing as far as potential partnering arrangements and potential collaborations going forward? And I've got one more question after that, please.

Sure. Thank you, Steve. Yes, I think there are a number of external factors that have influenced significantly our internal strategy and some new developments that have actually then reinforced our decisions. I mean, I think most people on the phone are familiar with the Inflation Reduction Act, which I'm not going to give a [ treaties ] on it, but which generally is designed to allow the government to negotiate or even mandate prices on drugs a certain number of years after their launch to reduce cost of the overall healthcare system, but in so doing, we [ choose ] returns to the folks who invested in those drugs. And so the anticipation is that as a result of the financial gaps that losing products sooner than might have been originally anticipated when they were launched several years ago, in big pharma especially, that big pharma is going to become more acquisitive, and they're going to be looking to pick up additional products. And then on top of that, I think there's a general consensus that the specialty pharma model, where companies accumulate small to midsize in terms of sales revenue products to generate a lucrative business, I think we're going to see a resurgence of that, which also leads to product acquisition. And I think that's -- plays right into what we're doing with LSTA1, where we're looking to exploit the full breadth of its applicability in terms of indications and in terms of combinations with other companies, making many, many companies, I think, potential partners. And we've seen that over the last 3 to 6 months where we are talking to not only the big players, but regional players and players who may not historically have been major factors in the oncology world. We're thinking about now getting into oncology as a place where the impact of the IRA and some of the banking missteps would be minimized. So I think this plays exactly to our strategy, and I expect over time that we're going to see increased interest. And of course, as I mentioned in my prepared remarks, we're doing exactly the kind of studies and generating exactly the kind of information that these organizations would seek in order to take positive partnering decisions.

And following up on that with looking at the CD34 platform and the breadth of experience, not just here in the United States, but globally, how would you assess the potential interest, the partnering possibilities and everything along those lines, given the fact that you've got as much broad-based experience and we're starting to see changes in terms of regulatory and obviously, the clinical and pharmaceutical industry needs. What would you say there?

Well, I wouldn't give up hope on the ability for us to partner CD34. The partnering may come from surprising places. So I think we're seeing more interest in markets that would traditionally have been thought to be immune to such an innovative or potentially expensive therapy, but we've had a number of conversations in that regard. And as Kristen pointed out, our regulatory process in Japan, while it moves at, if I may say this, Japan speed, which is generally slower than U.S. speed, it's moving forward. And as we get closer and closer to a positive decision from the PMDA about our ability and our eligibility to file a Japanese new drug application, I think we'll see the folks who have been focused on that particular decision then make positive overtures towards us to acquire that product in Japan.

[Operator Instructions] Our next question comes from the line of Kemp Dolliver of Brookline Capital Markets.

I'm Shubhendu for Kemp. I was wondering when can we expect more updates for the Tecentriq trial with Roche?

Okay. Well, as we just -- as Kristen said in her prepared remarks, I mean, the simple answer is we don't know. We were informed recently that they, Roche, are reviewing their internal strategy relative to development and investment in Tecentriq. And as a result, they've asked us to -- they told us that they're postponing the initiation of the LSTA1 arm of Morpheus until some later date. And they've also asked us for some additional dosing information, which -- some of which we've already provided from available information, but some of which may come from the ASCEND trial. So I'm sorry, but at this point, it's probably a question better asked of Roche, but I -- we just really don't know. The good news, however, is that we have at least one program and likely two that we can substitute for that, which will not cost us anything, whereas the Roche costs were going to be several million dollars a year and will provide us identical information with -- in terms of the ability of LSTA1 to positively influence the immunotherapies and to do so in a faster time frame. So we'll keep you posted on those developments because we will have some control over that.

[Operator Instructions] Our next question comes from the line of Pete Enderlin of MAZ Partners.

Pete, you there?

Yes, it cut off when she said my name. So I didn't know if she said it or not. But anyway, yes, getting back to the partnering idea on CD34, do you have any active engagements i.e., discussions going on right now regarding LSTA16?

16, no. Well, no, the purely semantic correct answer is no

Okay. Well, fair enough. I mean, I'm glad you're being candid about that. And second, the Cend technology, to me, is very complicated because I'm basically not very well educated in that area. But what key intellectual property do you have? And how much of it is patent protected as opposed to being in the general domain? Because you've had like 200 studies or articles that were published. So some of that must be public knowledge at this point. How does that shake out?

They -- well, all of the publications are either supportive of the patent applications or are after the patents have been announced or applied for. So we have strong intellectual property without going into a long [ treaties ] on IP, which -- and by the way, there was information on the website in that regard. The -- we have composition-of-matter and mode-of-operation patents that cover the Cend technology and the platform technology well into the next decade.

Okay. And is there any sort of handy reference on the total number of those patents domestically and internationally?

Again, I'll refer you to the website so I don't misquote the number, but there's a bunch.

Okay. And then just one last little point. Is it possible that the company will, after the dust has settled from the merger, speed up the quarterly and yearly reporting cycles?

Well, quarterly and yearly are not under our control. So quarterly only comes every 3 months, and yearly only comes every 12 months. So I don't know how we can speed that up.

But what I mean is here it is the last day of the quarter, and you're reporting for 2022. That's pretty late, really. You're not...

Actually, it's not. Look at the reporting of almost all other public companies. To complete a full-year audit, we're at the mercy of our external auditors. And everybody who's working on a calendar year as their fiscal year is trying to do this at the same time, often with all the same external auditors. So we try to go as fast as we can, but we're at the mercy of the external sources.

[Operator Instructions] I'm showing no further questions at this time. This does conclude the question-and-answer session. I will now turn the call over to Dr. Mazzo for closing remarks.

Again, thank you all for participating on today's call. Appreciate all the questions that were asked, and I hope the responses were clarifying. We look forward to speaking with you again during our next quarterly conference call and to continue to provide updates on our achievements and progress. We remain grateful for your continued interest and support, and we wish you a good evening. Stay well, and goodbye.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.