Interview with StemCells Inc. leadership on hot topics

StemCells Inc. is a top biotech company developing stem cell-based therapies. They have a deep pipeline that includes already ongoing trials for a variety of diseases. I invited company leadership to do an interview and they graciously accepted.

Below is the interview with CFO Greg Schiffman (picture at left from LinkedIn) including what I thought were some tough questions from me and very detailed answers from Shiffman. Thank you, Greg.

1. Where does the company stand today in terms of product development, capitalization, and such? What are its strengths? What are potential areas for improvement or development?

We currently have three active programs underway two clinical and one pre-clinical.  The two clinical programs are in the spine, spinal cord injury (SCI), and in the eye, dry age related macular degeneration (AMD), and the pre-clinical program is in the brain focused on Alzheimer’s disease.  Both clinical programs have completed enrollment of the Phase I/II clinical trials and we have plans to initiate controlled proof of concept Phase II studies in both indications in the second half of this year.  Both indications have large unmet medical needs.  We have released interim results for both of the Phase I/II programs.  We have not seen any safety issues associated with the cells.  In addition, we have seen preliminary signs of efficacy in both programs.  Our pre-clinical efforts are focused on filing an IND for Alzheimer’s disease in 2016 following which we could move this program into the clinic.

We just completed a $20 million gross equity financing.  If you include the proceeds from the equity financing and warrant exercises that occurred in the month of July, the company had approximately $37.8 million dollars of cash and marketable securities at the end of June.  This provides us with a strong balance sheet to move our programs forward.

We believe that we have a unique platform utilizing our proprietary HuCNS-SC® human neural stem cells that have the potential to address numerous indications affecting the CNS.  This would include white matter brain disorders such as leukodystrophies, multiple sclerosis, cerebral palsy and transverse myelitis.  Other potential indications could include Alzheimer’s, spinal cord injury, dry age-related macular degeneration and centrally mediated lysosomal storage disorders.  We have performed pre-clinical work in many of these indications and we have selected one indication, where there is a large unmet medical need, in each major organ of the CNS the brain, eye and spine to pursue clinically.  The cells have shown a very favorable safety profile and all of the pre-clinical and clinical findings have shown signs of efficacy.  This is a very exciting time for the Company as we are now rapidly generating a significant amount of clinical data which will help to provide much greater insight into the potential clinical benefit we can bring to patients.

2. What unique challenges does the stem cell/cell therapy/regenerative medicine biotech sector face overall say compared to a pharma company producing a chemical-based drug and how is StemCells, Inc. approaching those hurdles?

Anytime you are pursuing a new therapeutic paradigm you encounter additional regulatory hurdles and scientific scrutiny.  StemCells, Inc. has very methodically pursued the science.  We have published all of our work so that others can critique the findings.  It has taken a significant amount of time and resources pursuing the science to understand the potential of the platform we are building.  However, it enabled us to move forward with our clinical programs on a very strong scientific foundation.  In addition, given the nature of our cells which engraft into the host, replicate, migrate within the host and differentiate into the cell types associated with the CNS, our early clinical trials faced significant safety hurdles as this was the first time that these cells would be transplanted in humans.  The first indications had to be fatal diseases and the subjects were in the most advanced stage of the disease.  In addition, we were limited to one surgeon and a single site for patient recruitment.  We would treat a patient following which safety data was generated and submitted to the FDA for review.  After review we were able to begin looking for the next patient to be transplanted with the cells.  The clinical trials moved forward very slowly given these hurdles.  However, given the favorable safety profile we have shown in both the spine and eye, as well as the favorable safety profile demonstrated in our previous clinical work in the brain for both Batten disease and Pelizaeus-Merzbacher disease (PMD), we are now able to proceed forward at a much more rapid pace, consistent with other biologic clinical trials, with our Phase II studies.  In 2015 we plan to have between 10-15 sites enrolling patients for each of our clinical programs and expect to be able to complete the enrollment in about one year.  As we continue to move forward with the clinical efforts, and hopefully to an approved therapeutic, we expect that there will be additional hurdles to overcome including physician and patient education on this new platform of stem cells.  This is an exciting opportunity; and we are comfortable in our role as pioneers breaking new ground.

3. How important has CIRM funding been for StemCells Inc.?

StemCells, Inc. has spent over a quarter of a billion dollars pursuing our science.  This includes pre-clinical and clinical work as well as building out our manufacturing capabilities.  We have completed two Phase I/II clinical trials in fatal childhood brain disorders, PMD and Batten’s disease, have two active Phase I/II clinical trials ongoing in SCI and AMD, and are about to initiate two Phase II controlled studies in each of those indications.  All of this has been funded by the Company.  We are also working to file an IND in Alzheimer’s disease.  This would enable the company to begin clinical trials in this indication.  CIRM is funding half of the expected costs for filing the IND in Alzheimer’s in the form of a forgivable loan.  The total funding from CIRM for this effort is up to $19.3 million dollars.  This investment was important for the Company to be able to pursue this activity in parallel with the other clinical programs we have underway.  As a small biotech we need to prioritize investments and without this funding this program would be on hold while we pursued our other clinical programs in spinal cord injury and dry age related macular degeneration.  CIRM’s decision to fund half of the costs of the IND is allowing us to pursue this activity today.  This accelerates the timeline for a potential therapy for this disease that affects so many people.  Should the program be successful, CIRM will see a significant financial return on the investment.  However, if you look at the investment that has been made in our platform technology and the ongoing clinical investments we are making, the $19.3 million from CIRM, which is to be disbursed over the next four years, to help fund half of the costs of filing the IND in Alzheimer’s disease is very important to the timing of our Alzheimer’s disease clinical program but not to the overall clinical agenda StemCells is pursuing.

4. Which of your products/programs are closest in the pipeline to getting to patients? What excites you the most?

Our two most advanced programs are the SCI and AMD programs.  We are very excited about both of these programs and the potential they may bring to dramatically affect patients afflicted by each indication.  We believe that the AMD program is probably the program that will move forward the fastest given the number of people affected by the disease and the nature of the treatment.  The interim results we presented at the International Society for Stem Cell Research (ISSCR) showed very promising early signs of clinical benefit.  We showed a 70% reduction in the rate of geographic atrophy.  Geographic atrophy is the progressive loss of two important retinal tissue layers, the photoreceptors and the retinal pigmented epithelium.  Degeneration of the macula is the cause of vision loss in dry AMD.  We also saw an improvement in visual acuity in 4 of the 7 patients as evidenced by their ability to detect differences in light and dark referred to as ‘contrast sensitivity.’ These results exceeded our expectations.  We will have final results from this study next year and, based upon the strength of both the safety and efficacy findings, we are initiating a Phase II controlled study in AMD later this year.

We are also encouraged by or SCI program.  We have seen clinical benefit in our Phase I/II trail where patients are seeing multi-segmental gains and a return of function in the cord in half of the patients. This indicates that something that was not working in the spinal cord, now appears to be working following transplantation. This is even more significant because of the time that has elapsed from the date of injury, which ranges from 4 months to 24 months across the subjects with sensory gains.  Our next study in SCI will occur in the cervical or neck region.  This is the section of the cord that controls motor function of the upper extremities.  The cervical cord directly controls motor function of the upper extremities.  Thus, these patients may represent a population in which regaining, or enhancing, upper extremity motor function may be more readily anticipated.  Even a gain of one to two motor segments in the cervical spinal cord could allow for additional function in the upper extremities. No one has been able to run a study using stem cells in this patient population previously.  Given the safety profile of our cells in the previous SCI study where we recruited patients with thoracic injuries, the FDA is now permitting StemCells to enroll patients with cervical spinal cord injuries.  This has the potential to significantly improve the quality of life for victims of SCI and at the same time reduce the overall cost to the healthcare system.

5. Besides HuCNS-SC, do you have other cell products in the works? Does the company have interest in reprogramming and iPS cells? ES cells? Adult stem cells such as MSCs?

All of our current clinical efforts are leveraging our HuCNS-SC human neural stem cells platform.  We have performed pre-clinical work using a proprietary platform of human liver stem cells, however, in order to focus our efforts we are not actively pursuing this technology at this point in time.  We think our HuCNS-SC cellular platform has tremendous potential and we want to move or AMD and SCI clinical programs forward as rapidly as possible.  Nevertheless, we are constantly evaluating new technologies that we think have potential as this remains a constantly evolving field.

6. There has been quite a bit of discussion in the media and on social media about former CIRM President Alan Trounson joining the board of StemCells, Inc. shortly after departing from CIRM. Can you comment on this situation and perhaps clarify the realities of this situation as there has been a fair amount of speculation about this?

We are not prepared to provide any additional information beyond the public comments the Company has already made, except to say Dr. Trounson is a very accomplished leader in the stem cell field and we are delighted to have him join us as a director.

7. A former employee of StemCells, Inc. has filed suit against the company and made certain allegations. I am not going to ask you about that suit specifically (unless it is something you want to discuss), but I wanted to give you an opportunity to talk about the  steps the company takes for handling its cells and products, quality assurance, GMP practices, and such. Can you please tell us some of the ways by which the company maintains standards for its products? How confident are you in your products?

We are very focused on the processes we use to manufacture our products.  You should know, the elements of manufacturing practices that concerned Mr. Williams were immediately and carefully reviewed by the Company.  The Company’s primary concern has always been, and will continue to be, the safety and tolerability of stem cell transplantation in its clinical trials. Over the years, we have consulted with multiple experts in the field and we believe our processes, procedures and controls, as fully described in our regulatory filings, are appropriate for a company at our early stage of clinical development and comport with applicable guidelines and regulations.

8. Can you tell us some about the IP portfolio of the company? Are there elements that you are particularly excited about? What is the situation with Neuralstem in a nutshell on the IP front?

We have established a strong base of intellectual property surrounding human neural stem cells.  In addition, in 2013 we further strengthened our patent portfolio with the outright acquisition of previously licensed patents from Neurospheres Holdings in addition to the acquisition of a number of patents from NsGene which complement our portfolio.  The patent portfolio from Neurospheres, which was based upon the groundbreaking research by Samuel Weiss and Brent Reynolds at the University of Calgary, has repeatedly been recognized as the seminal intellectual property pertaining to purified populations of human neural stem cells.  Today, we believe we have the broadest and deepest IP portfolio of any company in the neural stem cell space.

StemCells has been engaged in a long-standing patent infringement suit against Neuralstem, Richard Garr and Karl Johe.  Our suit alleges infringement of six patents, owned by StemCells, claiming populations of human neural stem cells, their proliferation and their use, inventions arising from the groundbreaking work of Drs. Samuel Weiss and Brent Reynolds while at the University of Calgary.

We are pleased that recently the judge in the case denied Neuralstem’s motion for summary judgment and moved us one step closer to a final resolution in the case by scheduling the first part of the trial to begin this December.  It is certainly welcome news that our case will finally have its “day in court.”  In light of the judge’s rulings, we can anticipate trial on the merits next year and, I sincerely hope, a speedy and final resolution of our various patent and business tort claims against Neuralstem.

It is important to understand why we filed this lawsuit in the first place.  Over the years, StemCells has made a considerable investment in its patent portfolio, which now consists of dozens of issued patents worldwide.  Both the Company’s Reynolds and Weiss patents and its other patents, whether owned or exclusively licensed by StemCells, have been licensed out, on a non-exclusive basis, to several companies for sizeable licensing revenues in return for freedom to operate.  Our SEC filings describe these patents and our licensing activities in detail.  The Company’s proprietary cells, the HuCNS-SC cells, are protected by multiple patent families held by the Company. This lawsuit is not about StemCells’ freedom to operate, there are no claims of infringement against STEM; but it is challenging Neuralstem’s freedom to operate and we seek injunctive relief and substantial damages from them.  We contend that Neuralstem has willfully infringed our intellectual property and we owe it to our shareholders to do everything in our power to protect the investments we have made, on their behalf, in this groundbreaking neural stem cell technology.  We look forward to the prospect of presenting our evidence and our arguments to the judge and jury.

9. The stock has had a bit of tough month in terms of PPS. What would you say to the average shareholder out there?

There is always a lot of noise when you are pioneering breakthrough new technologies.  We think that there are areas investors should look at carefully to help guide their investment decisions. First, StemCells has attracted a world-class team of professionals, with the experience and expertise needed to drive success.  Second, our clinical trials have attracted partnerships with world-leading researchers, hospitals and institutions.  Third, StemCells holds a wealth of valid patents that protect our technology.  Fourth, we are rapidly accruing clinical data that validates the findings of our preclinical models. Two of our clinical programs addressing major medical conditions (SCI and AMD) are rapidly advancing towards controlled Phase II trials. Risk decreases with each regulatory milestone reached.  Fifth, StemCells has a sound balance sheet and a strong cash position.  Sixth, our diversified clinical program addresses multiple major medical conditions affecting large populations, two of which (AMD and Alzheimer’s), target aging populations that are rapidly increasing around the world.  There is short term volatility in micro-cap stocks, often associated with noise unrelated to clinical progress and clinical outcomes.  We believe that we are well positioned and have a very exciting platform technology that has the potential to address many conditions of the CNS that have not been able to be addressed by traditional approaches.  Should we be successful in moving one or more of these programs forward, we believe that there is significant value creation potential for our shareholders.

10. What’s your outlook on the future for the company? Are you optimistic? Where do you see StemCells, Inc. in say 5 and 10 years?

I am very optimistic about the potential for StemCells, Inc.  We have spent over 15 years pursuing the science and early stage clinical trials.  This has been done very methodically, which was important to establish a strong foundation for our late stage clinical work.  We are now at a stage where we will quickly generate significant amounts of clinical data providing much greater insight into the potential of our platform technology.  Over the next five years we would expect to have final results from our ongoing Phase I/II studies in SCI and AMD as well as final results from the Phase II studies we plan to initiate later this year.  In addition, if we continue to see results consistent with our interim clinical findings,  we should be well underway with our pivotal Phase III registration studies.  This is truly an exciting and transformative period for the Company.  If the technology is successful in the Phase III studies, in 10 years we could have multiple approved clinical products on the market.  The Company would actively be pursuing additional clinical programs, using our HuCNS-SC platform, to address other unmet medical needs in the CNS.  It would also be pursuing some of the other exciting technologies that we are investigating today.