pSivida Corp.'s CEO Discusses F4Q12 Results - Earnings Call Transcript

Executives

Lori Freedman - General Counsel and VP of Corporate Affairs

Dr. Paul Ashton - President and CEO

Len Ross - VP of Finance

Analysts

pSivida Corp. (PSDV) F4Q12 Earnings Call September 25, 2013 4:30 PM ET

Operator

Good day ladies and gentlemen, and welcome to the pSivida Corporation Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll have a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today's conference, Ms. Lori Freedman, General Counsel and Vice President of Corporate Affairs. Ma'am you may begin.

Lori Freedman

Thank you, Mary. Good afternoon everyone and thank you for joining us. After the market closed today, we released our third quarter financial results for fiscal 2013. A copy of the release is available in the Investor section of our website at www.psivida.com.

On the call today with me is Dr. Paul Ashton, President and Chief Executive Officer; and Len Ross, our Vice President, Finance. Before I hand the call over to Paul, I need to remind everyone that some of our prepared remarks are and answers to your questions may be forward-looking in nature.

Forward-looking statements are inherently subject to risks and uncertainties. All statements other than statements of historical facts are forward-looking statements, and we cannot guarantee that the results and other expectations expressed, anticipated, or implied will be realized. Actual results could differ materially from those anticipated, estimated or projected in the forward-looking statements. For a more detailed discussion of the risk factors that could impact our future results and financial condition, I refer you to our filings with the SEC including our annual report on Form 10-K for the fiscal year ended June 30, 2012. We undertake no obligation to update any forward-looking statement in order to reflect events or circumstances that may arise after this conference call.

With that, I’d like to turn the call over to Paul.

Paul Ashton

Thank you, Lori, and welcome everyone as we discuss the results of fiscal 2013 and fiscal 2013 fourth quarter. This was another good quarter for us as we continue our transition to a product based Specialty Pharma company, -- the one that still capitalizes on collaborations and licenses as appropriate. Here are some of the highlights; we have started our pivotal Phase III program for our own lead development product, Medidur for posterior uveitis. Second highlight, preliminary data from the Phase I/II investigator-sponsored study of Medidur was very encouraging. Third, our partner product ILUVIEN went on sale in Germany and the UK for the treatment of chronic Diabetic Macular Edema or DME. Four, following a re-filed NDA, ILUVIEN is under review by the FDA. Five, we're continuing to make progress with our Tethadur delivery system for peptides, proteins and antibodies. And six, after the close of quarter we completed a public offering of our common stock raising gross proceeds totaling $10.8 million; so, on the call today I'll provide you with some more details on these highlights before handling over to Len, who will take us through the financials.

Before I go into the details though let's talk about the strategic direction the company is heading in. Our goal is to make the transition from a technology-for-hire company that simply licenses out all of its technology to a specialty pharma company that develops and sells its own products. So far we've done a great job in working with partners to advance our technologies, while retaining the freedom to develop our own products. Cash received from partners has greatly reduced our cash money. Over the last five years, we've received approximately $50 million from partners, in contrast over the same period we've only raised approximately 27 million from equity financings and this includes the 10.8 raised this last July. Of course we still plan to partner technologies and products -- in our best interests.

Now the ILUVIEN Medidur program, it's a great example of the combination of these strategies. We partnered our micro insert based on our Durasert technology with Alimera Sciences; they have developed and are marketing it as ILUVIEN for the treatment of chronic Diabetic Macular Edema.

To date we have received over $30 million from Alimera for milestones, license fees and other payments, and going forward we'll be entitled to receive a share of any profits on the sales in the EU countries where ILUVIEN is being sold. Approval in the US would trigger a $25 million milestone and provide us with the opportunity for net profit participation from sales in the US. So this product has already provided us with significant cash with the opportunity for yet more to come, but we also have the opportunity to develop the exact same micro-insert ourselves for the treatment of posterior uveitis. This is expected to have low expenses because of the ILUVIEN experience and we have the benefit of all the work that's being done for ILUVIEN.

So let's talk about our own product for uveitis, Medidur. Posterior uveitis itself is a very unpleasant disease characterized by inflammation of the uvea one of the inner layers of eye. It affects approximately a 175000 people in the US, blinding some 30000. Medidur provides a great opportunity for us. As I mentioned, it's the same micro-insert that's used in the EU approved ILUVIEN. As a result the FDA has confirmed that we can reference Alimera's NDA filing for ILUVIEN for DME in support of our own application in posterior uveitis.

Medidur delivers the same drug fluocinolone acetonide as ILUVIEN; this is the exact same drug that's in our FDA approved Retisert device marketed by Bausch and Lomb. As a result we expect to see a similar efficacy for Medidur as Retisert. However, based on the Phase III DME data and the lowered drug dose than is in Retisert, we expect side effects for Medidur in posterior uveitis to be comparable to those seen in ILUVIEN and that's far fewer than we’re seeing in Retisert. So we believe this is a relatively low risk development program. And in a moment I'll discuss a very promising interim data, consistent with this hypothesis.

Turning to the regulatory program for Medidur for posterior uveitis, we met with the FDA earlier this year with respect to our proposed development plans and incorporated their suggestions. As it currently stands we're planning on two Phase III clinical trials, each with the primary endpoints of recurrence of disease at 12 months. To put this in English, posterior uveitis is a chronic recurrent disease that tends to ebb and flow and is generally managed with systemic steroids. In our trial design, patients must have [indiscernible] at the time of enrollment, we will look at the number of recurrences that each eye experiences over a 12 month period compared to untreated or controlled eyes. This is similar to the protocol used for approval of Retisert.

In the Retisert Phase III trials approximately 50% were untreated eyes and the recurrence of uveitis within 12 months, versus less than 10% of eyes receiving Retisert, a very big difference. The first of our two planned Phase III Medidur trials is now underway. We expect it will take approximately one year to recruit with a one year follow-up before the primary end point.

Now turning to the very encouraging interim data that I promised, in a 12 patient’s investigator-sponsored study of Medidur in posterior uveitis, an analysis was performed 12 months after recruitment began with a follow-up data available ranging from 12 months to one month. Here is good news; none of the eyes receiving Medidur an experience to recurrence of uveitis and in all cases inflammation decreased. In contrast, all control eyes, non-treated eyes, eyes that had a recurrence of disease or a worsening of inflammation. Furthermore, Medidur treated eyes had an average improvement in visual acuity of over nine letters on the eye chart while untreated eyes average to slightly decrease in vision of one letter.

Medidur was well tolerated in the study and only one patient developed a significant increase in intraocular pressure. This patient had a history of elevated IOP and was on topical drugs before enrolling in the study. This early observed safety profile from Medidur is consistent with the safety profile seen in the ILUVIEN for DME studies. Now, this is preliminary interim data and from a small study. Nevertheless, these data are very in line with our expectation. In the Phase III trial for Medidur, we will see efficacy in treating posterior uveitis that’s similar to Retisert but with side affects similar ILUVIEN.

Now, let’s move on to our partner product ILUVIEN, if you follow pSivida or our partner in this program Alimera Sciences, you will know that ILUVIEN is approved for the treatment of vision loss associated with chronic DME deemed insufficiently responsive to available therapies. It is approved in six EU countries with the seventh expected. We were very pleased therefore when Alimera announced that they have begun selling the product in Germany and the U.K. And they expect to come and sell in France in the first quarter of 2014 now also actively pursuing pricing and reimbursement. In the U.K., the ILUVIEN is currently available only on a private pay and privately insured basis.

However an appraisal committee of the U.K.’s NICE has recommended amending published guidance to recommend ILUVIEN for pseudophakic chronic DME patients i.e., those who already had cataract surgery and should this recommendation be expected. U.K.’s National Health Service is expected to fund ILUVIEN for the treatments of this generally large subject of the chronic DME population. In Germany, Alimera has been permitted to launch ILUVIEN without price restriction and if we can secure agreements for reimbursement with the German statutory insurance funds allowing patients to avoid submitting individual reimbursement claims.

In France, ILUVIEN for DME received a favorable opinion for the reimbursement and hospital listing by and 100% of the cost will be reimbursed under a program for severe chronic disease, such as diabetes. Although we don’t what this will mean for us in terms of our country by country net profits, as defined. Alimera has reported expect sales in Europe to increase overtime. In the U.S., Alimera submit of the NDA for ILUVIEN and received PDUFA date of October 17, 2013 and approval would entitle us to a $25 million milestone payment from Alimera. We also had been entitled to 20% of net profits, as defined, from the Alimera sales in the U.S. And this the same profit split that we have in Europe.

Now, in addition to our Durasert technology as you know we have our Tethadur technology platform for the sustained delivery of peptides, proteins and antibodies. Preclinical testing of this technology is continuing to show promising results. We have a funded technology assessment agreement with the global biopharmaceutical company evaluating seven applications of Tethadur. We believe, there is a huge and growing unmet need for a sustained delivery system with peptides and proteins. For example in ophthalmology, the two biggest drugs of proteins that need to be injected directly into the eye typically every four to eight weeks.

If these injections could be administered less frequently for example every six months, it would potentially be a big clinical advance and also a big competitive advantage. Looking at the potential opportunities for Tethadur beyond ophthalmology, the biotechnology revolution is now 30 plus years old and has been very successful. The base of scientific discovery on genetic and molecular biology space has continued to accelerate and a large number of the top selling drugs are not biologics. However, there has been relatively little innovation in the delivery of these new therapeutics, most of which is still injected. There is also an emerging patent cliff which is creating a Biosimilars market place. Biosimilars are in effect genetic versions of biologics.

Patent covering biologics with over $50 billion in annual sales on expanding over the next 5 to 10 years. Our Tethadur system, which we believe can control the release of biologics over time, offers a potential to develop new formulations of existing biologics with better efficacy or greater patient compliance from the original drugs. Our Tethadur technology might also be used either to develop life cycle management products top order by similar competition or by similar manufacturers to develop buyback.

Now turning to our results, we ended the year with $10.3 million in cash with no debt and after the close of the year we raised an additional 10.8 million in gross proceeds from a public offering in common stock.

I’ll turn the call over to Len to take you through the financials. Len?

Len Ross

Thank you, Paul and good afternoon everyone. I will briefly review our fourth quarter and fiscal year 2013 results, reported earlier today starting with our financial position. As Paul mentioned in June 30, 2013 we had cash, cash equivalents in marketable securities of 10.3 million, and net decrease of 4.3 million compared to 14.6 million at June 30, 2012.

In July 2013, we added to those capital resources with a $10.8 million public offering of our common stock. We anticipate that the combination of these capital resources, expected Royalty income from Retisert, and other expected cash inflows under existing collaboration and valuation agreements will enable us to fund our current and planned operations through calendar year 2014.

This includes expected cost through that year of Phase III clinical trials of the Medidur for posterior uveitis product. The first of which commenced in 2013 that excludes any potential milestone or net profit recites under the Alimera collaboration agreement.

Funding of our operations beyond calendar 2014 will depend on the amount and timing of payments we may receive under our collaboration agreement with Alimera as well as other existing and any future collaboration or valuation or other agreements and or any financing transactions in which we may engage.

Although Alimera has commenced sales of ILUVIEN for DME in Germany and the UK and announced its plan launch timing for France, we don’t know if or when Alimera will achieve net profits in any of these countries or the resulting amounts we might receive.

Turning out to our full year fiscal 2013 results; revenues decreased by 1.4 million to approximately 2.1 million for the year ended June 2013 compared to 3.5 million for the same period last year. Collaborative research and development revenue accounted for all the decrease which consisted primarily of 1.1 million recognized in the prior year period from the termination of a license for nutraceutical and food science applications of BioSilicon.

Royalty income from Bausch & Lomb was approximately 1.4 million for each of the years ended June 2013 and 2012. Increased Retisert royalty income in fiscal 2013 was offset by the discontinuation of royalty income following pattern exploration.

Research and development was 7 million for each of the years ended June 2013 and 2012. $1.3 million decrease in the amortization of intangibles resulting from last year’s intangible asset right down was substantially offset by initial costs in fiscal 2013 related to the commencement of the Medidur clinical trial and increased incentive compensation across.

General and administrative expense increased by 301,000 to 7.2 million for the year ended June 2013 from 6.9 million in the prior year period. This increase was primarily attributable to cash incentive compensation approvals actually offset by lower professional fees.

Operating expenses for the year ended June 2012 also included the 14.8 million impairment right down of our finite-lived intangible assets. Net loss for fiscal 2013 was 11.9 million or $0.52 per share compared to net loss of 24.8 million or $1.19 per share for fiscal 2012.

Turning to our results for the fourth quarter ended June 30, 2013. We reported revenues of 492,000 compared to 699,000 for the same period last year. Collaborative research and development decreased by 80,000 primarily as a result of lower amortization of differed revenue related to our Pfizer collaboration actually offset by increased revenues from technology evaluation agreements and the upfront license fee from Enigma Therapeutics.

Royalty income from Bausch & Lomb decreased by 126,000 as a result of lower Retisert sales and the discontinuation and the discontinuation Vitrasert sales.

Research and development expense totaled 2.3 million for the quarter ended June 2013 compared to 1.4 million in the prior year period with the increase primarily attributable to clinical development costs for the commencement of the first Medidur Phase III trial.

General and administrative expense totaled 2.2 million for the quarter ended June 2013 compared to 1.6 million last year, primarily attributable to increased incentive compensation accruals. Net loss for the three months ended June 2013 was 2.9 million or $0.17 per share compared to a net loss of 2.3 million or $0.11 per share for the prior year quarter.

I will now turn the call back over to Paul.

Paul Ashton

Thanks Len. So to sum up, it’s been an excellent year and quarter for us. Key points are: one, commencement of our Phase III program for Medidur for the treatments of posterior uveitis; two, we see a interim data from a Phase I/II investigator-sponsored study supportive of our hypothesis that Medidur will show similar efficacy to Retisert but with the improved side effect profile of ILUVIEN; three, the ILUVIEN product is now being marketed by Alimera in the EU. We look forward to the results of the FDA to view Alimera’s resubmission of the NDA due on October 17; and four, we continue to be pleased with our preclinical research on our Tethadur peptide protein delivery system and are working with a global biopharmaceutical company on ophthalmic applications of this platform technology.

At this point, we’d be happy to take your questions. Operator, would you please initiate the Q&A portion of the call?

Question-And-Answer Session

Operator

Certainly. [Operator Instructions] And we have a question from Greg [indiscernible]. Your line is open.

Unidentified Analyst

Good afternoon, everyone. Thanks for taking my question. Paul, congrats on a great quarter.

Paul Ashton

Thank you.

Unidentified Analyst

If you could remind me in terms of the profit share arrangement you have with Alimera and in terms of how we should model you’re being able to receive your share of the profits with regards to sales in Europe for 2014. Would you expect that at some point you might be able to receive a portion of the sales?

Paul Ashton

I would certainly hope so. With respect to how the precise details of how the profits works and we’ll do better than to answer your question I will pass you over to Lori Freedman who can provide furthermore granularity.

Lori Freedman

Hey Greg. So the way the profits work is obviously it’s a profit foot or net profits which is basically gross profits less sales and marketing. And it’s on a country by country basis. So the net profit our share’s net profit in Germany will not be offset by commercialization cost in any of the other countries. As to what those numbers are going to look like for 2014, we obviously don’t have that information yet in a way that we can pass along to other people. So Alimera keeps that nice and tight and we contractually are unable to give away any of that information.

Unidentified Analyst

Okay, great. Thank you very much. Maybe a follow up just on your uveitis program, congrats on getting that program started and the details on time lines when you do think it would be in terms of guiding when we might be able to see first data from that trial? Is there any quarter in 2014 or beyond that you think would be reasonable for us to expect to hear from pSivida?

Paul Ashton

We anticipate it will take one year to recruit, so that would be essentially a year from now to think will it finish recruiting. And then it’s a one year follow up before the primary end point. We are currently not planning to do an interim analysis although I guess we could certainly consider that. We don’t anticipate that we’re going to have too many problems with [p-values] so whenever you do an interim analysis it cost you something in terms of your statistical power in the study.

And as we believe that the study is already statically overpowered to show efficacy we probably have a bit of p-value as it were to spare. We are not currently anticipating that although we could certainly perform an interim analysis at some point should we deem it appropriate all the lines to do so.

Unidentified Analyst

Okay and maybe a follow up on that assuming you get an approval or Alimera gets an approval for ILUVIEN for diabetic macular edema does that change your thoughts around perhaps doing an interim analysis in Uveitis?

Paul Ashton

There is a few things that may affect our decision to do an interim analysis that is certainly one of them. There are some other factors I think you probably get a good view of likely data when the one year results that they investigate response and study announced and I would anticipate the results of that study will give into the (inaudible) meeting which is typically held in May 2014. Perhaps, likely to be the first data from 12-month follow-up of a certain number of patients.

(inaudible) was doing an interim analysis will be that you have a weighing follow-up time with your patients, so it can be a little difficult to interpret although having said that the [pSivida] sponsored data that we have just seen in terms of reduction in inflammation and improvement in innovation is, I was extremely pleased with that.

Unidentified Analyst

Maybe switching to financials; it will be my last question, is there any particular guidance around P&L items for 2014?

Paul Ashton

No we don’t typically give guidance. As you know -- at this, for companies of our type, there are events that can occur that can have a very significant impact. And if you do a licensing deal with someone then that can be a pretty damn big impact. But you never know that you have a deal until the wires clears in your account. So it’s very difficult to give guidance on those things they can evaporate just when you think you have a deal sometimes.

Unidentified Analyst

Maybe last question just on R&D spend you are seeing a pickup in R&D spend in the fourth quarter relative to your prior three quarters as you continue to conduct that first Phase III for a posterior uveitis directionally any comments around R&D spend as 2014 evolves?

Paul Ashton

Yes it’s going to o up; it’s not going to explode. The total cost of that trial and generally the total cost of these kinds of trials is about $100,000 per patient. And this is 120 patients, so that you can do the math yourself, it is about 12 million bucks plus or minus. And that cost is spread over the total duration of the trial including the follow-up periods although it is lumpy some quarters are obviously higher than others.

Now these trials although the primary endpoint is 12 months and we can submit for approval without 12 month primary endpoint data, the actually duration of the trial is 3 years. So that $12 million will be spread over a considerable period of time but not evenly. All of that is giving you information but perhaps not answering your question directly. So I apologize.

Operator

(Operator Instructions)

Lori Freedman

Okay well there being no more questions I would like to thank you all for joining us today. I look forward to speaking with you again next quarter. In the meantime, if you have any additional questions please feel free to contact us. And thank you.

Operator

Thank you for participation in today’s conference. This does conclude the program, and you may all disconnect at this time.

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ThermoGenesis Corp's CEO Discusses F4Q 2013 Results - Earnings Call Transcript

Executives

Matthew Plavan - CEO

Ken Harris - CEO, TotipotentRX

Dan Bessey - CFO

Analysts

Jason Kolbert - Maxim Group

ThermoGenesis Corp (KOOL) F4Q 2013 Earnings Conference Call August 29, 2013 5:00 PM ET

Operator

Good day and welcome to the ThermoGenesis Corp Fourth Quarter and Full Fiscal Year 2013 Financial Results Conference Call. All sites are currently in a listen-only mode. Please note there will be a question-and-answer session later on in the call. Also note, today's conference will be recorded and will be accessible both by phone and internet. Please refer to the press release about this conference all on the Company's website thermogenesis.com for further detail.

The Company has asked that I read the following statement. Management will make comments today contain forward-looking statements. Forward-looking statements are any statements that are made that are not historical facts. These forward-looking statements are based on current expectations of the management team and there could be no assurance that such expectations will come to fruition. Because forward-looking statements involve risks and uncertainties, ThermoGenesis' actual results could differ materially from management's current expectations. Please refer to the Press Release, the Company's Forms 10-K, 10-Q and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time sensitive and is accurate only at this time. If any portion of this call is rebroadcast, retransmitted or redistributed at a later date, ThermoGenesis will not be reviewing nor updating this material.

I would now like to turn the conference over to Mr. Matthew Plavan, Chief Executive Officer of ThermoGenesis Corp. Please go ahead sir.

Matthew Plavan

Thank you, operator. Welcome everyone and thank you for joining us today. With me is Dan Bessey, our Chief Financial Officer and Ken Harris, the Chief Executive Officer of TotipotentRX. During today's call, we'll first review our progress highlights for fiscal 2013 and then Dan will provide a brief operational and financial results summary. Then I'll review the Company's important upcoming milestones.

I'd like to start the call by dialing back the lens for a retrospective on our accomplishments this past year and how we are now positioned heading into 2014 for near term shareholder value creation. Through the proposed merger and other initiatives, we believe we are now poised to unlock the true potential of our cell processing in delivery technologies as we transform our organization into a fully integrated regenerative medicine company able to serve what is arguably the greatest opportunity in the history of healthcare, the multibillion dollar markets emerging for curative regenerative medicine treatments. In fact looking back to the time we began this transformation over two years ago, we charted our course for success according to four basic principles and we have methodically delivered against each of them.

These principles for success are one, focus our efforts; two, drive growth in our base business; three, reduce and maintain our operating expenses to align our cost structure with our revolving revenues and four, invest in our regenerative medicine business as the primary driver of our long term growth strategy including product development and clinical programs.

The past 24 months hindsight reflects our positive track record. No doubt, we are now more focused. The products we sell today support our transition to applied regenerative medicine. All other products have been divested and we have continued to improve the quality of features of our cell processing platforms.

Our cell channels are substantially optimized and better focused on expanding our share in flat market geographies and leading in markets where growth is occurring. We have accelerated our global sales efforts by being direct in critical territories where we have the organic reach and by having a single distribution presence in those regions where our partner is still the best channel strategy.

We have regained greater control of our faith in China, Southeast Asia and Europe by taking back the distribution rights to the AXP from large global distributors to go direct or to engage smaller more capable regional partners, better entrenched in the key geographies to maximize our market effectiveness.

The final major step in this strategy with the termination of GE as our exclusive distributor in U.S. and Canada, which we announced today. We are now in a direct supply arrangement with our customers in those territories, the U.S. and Canada. Dan will elaborate more on the long term benefits of this change later in the call.

Success with our first principle focus has led to success with our second principle, driving growth in our base business. In Europe where there have been no new private banks, public or private to be opened in the last 12 months we have now won two AXP accounts competitively, the NHSBT in the UK and Crioestaminal in Portugal and we expect to continue this streak into 2014.

In China, we are the first mover to automation via our exclusive distribution arrangement with Golden Meditech. Fiscal 2013 has also been a year of superb quality for our products and the AXP in particular. Consistently ensuring world class quality and relentlessly striving for better quality is why we serve the best and largest cord blood banks on the planet.

Moreover, our consistent reliability has been instrumental to our effectiveness in gaining market share. As we continue to raise the quality bar for automated cell processing and storage, we increase the distance between ourselves and our competitors and we substantially raise the barriers to entry for new comers.

As for the third principle, controlling costs and living within our means, we've been appropriately frugal this past year, managing our operating costs, that is our costs before considering M&A and IT legal costs. Those were down from the prior year by $1.6 million. Therefore we have maintained a streamlined cost basis, better positioned our base business for cash generation in the near-term and to help fund our growth initiatives, which leads me to the all-important fourth principal, investing in our regenerative medicine business as a primary driver of our long term growth strategy.

Over the past two years and especially in the past year, we have demonstrated a serious commitment to the development of in-vivo clinical data supporting the efficacy of our products in a number of indications with a goal to providing surgeons and patients proof that their cells can be used safely and effectively to treat certain vascular and orthopedic conditions as well as [Audio Gap] stem cell clinical initiatives including cord blood application advances. We have done so through co-sponsored clinical studies with our commercial partners Totipotent and Spine Smith as well as academic institutions like the University Of Naples, Italy and the University of California at Davis.

And after quite some time in the making, this past July we initiated in earnest our transformation to a regenerative medicine business through our investment in the proposed merger with our clinical research and product development partner TotipotentRX to form Cesca Therapeutics, the fully integrated regenerative medicine company I spoke of earlier.

Now to have a real shot at meaningful near term participation in the multi-billion dollar regenerative medicine markets for vascular, orthopedic and neural treatments, we know our transformation has to be swift and comprehensive. Therefore we believe finding the right partner in Totipotent at the right time was key for us and our shareholders.

This proposed merger is a natural result of a long term successful commercial partnership with TotipotentRX. Upon consummation of the merger, we will be able to fully leverage the combination of our devices and patented platform technology with Toti's differentiated proprietary self-formulations in an unparalleled hospital network and embedded CRO through the Fortis Healthcare Global reach to create a formula for developing fast, safe and effective therapies with enormous therapeutic and commercial potential.

The merge agreement has been unanimously approved by the Board of Directors of each company and we expect to close in the fourth quarter of calendar 2013. The merger is of course subject to customer and closing conditions, certain financial conditions and approval by the shareholder of both companies.

In fact, before I turn the call over to Dan for a review of the numbers and operational results, Ken Harris has joined us here today and I would like to ask Ken to provide an update of the ongoing initiatives at Totipotent and to talk a little bit about the results of some of our recent joint commercial efforts. Ken?

Ken Harris

Thanks, Matt and thanks for those of you joining us today. Just to review TotipotentRX is a leading regenerative medicine company that is engaged in the research, development and commercialization of cell-based therapeutics.

The company currently has eight autologous cell therapies in various stages of clinical development, targeting areas of high end, unmet medical needs, including osteoarthritis, avascular necrosis and critical limb ischemia.

We also anticipate enrollment to begin in the Amaris (ph) trial by December 2013 which is the first of its kind allowing the treatment of primary acute myocardial infarction patients having low ejection fractions. This treatment delivers an autologous cellular therapy and is completed in one procedure and under 60 minutes in the heart cath-lab.

Through our strategic partnership with Fortis Healthcare, an esteemed chain of specialty hospital network throughout India and Asia, we have assembled one of the industry's most experienced cell therapy CRO team along with an unmatched footprint in India to execute at every level of both ours and our clinical client trials providing complete and seamless cellular therapies and device clinical services, improving on the efficiency and delivering better clinical trial outcomes to any type of project in regenerative medicine.

In partnership with the Fortis Memorial Research Institute in Delhi, we announced a successful launch of their pediatric bone marrow transplant program at the Fortis TotipotentRX Center for Cellular Medicine. The new program recently achieved its first 100-day survival milestone following an allogeneic bone marrow engraftment in a pediatric patient with aplastic anemia using a donor with ABO-incompatible bone marrow.

The successful transplant was performed using the ThermoGenesis AXP AutoXpress system and as mentioned we anticipate ramping this program providing sophisticated allogeneic and autologous metaplatic stem cell transplants in the severely underserved global Indian population.

This week alone, we did six additional transplants, five of them being medically challenging, mismatched allogeneic bone marrows. The fully vetted and approved protocols we have developed using ThermoGenesis AXP platform reduced the transplant related risks in these children suffering from life threatening diseases such as genetic diseases or sickle cell anemia and thalasemia major and blood based cancers including multiple myeloma.

Speaking about our recent joint announcement between Thermo and Toti in August, TotiRx has been using the ThermoGenesis devices and equipment in our clinical trial work and our cord blood banking businesses for some time and the superior performance of this technology is an integral component of the success of our clinical trial work.

It's important to highlight that this equipment already being in place and integrated in to development platforms will make initiation of the next phase of clinical trials for Cesca's pipeline that much faster and more efficient.

On behalf of TotiRx, I would like to emphasize our enthusiasm for the proposed merger. It creates a combined company with enormous potential for value creation in an area of medicine that is taking leaps in terms of therapeutic potential.

With that, I'll turn the call over to Dan for the ThermoGenesis' financial and operational review.

Dan Bessey

Thank you, Ken and good afternoon everyone. Today I will begin with a review of our financial results for the full year and fourth quarter, followed by an update on the status of the regulatory filings required for the Cesca merger, and I will conclude with our thoughts on the funding mechanisms for clinical trials.

But before I get into the financial results, I will discuss four strategic initiatives that impacted our financial results and fiscal 2013. Additionally, certain of these initiatives will impact our near-term financial results, while others should have longer-term sustained benefit to our results.

First, as Matt mentioned earlier, we terminated our agreement with GE as our distributor for the AXP in the United States and Canada. This territory was the only remaining geography in which GE served as our AXP distributor after we took back Europe and Asia from GE about a year ago. Taking it back is the final step in our status strategy to consolidate our cord blood products into a single channel per region or to sell directly in regions where we have sufficient reach.

There are significant benefits that have and will continue to accrue to us from this strategy. With cord blood collections in the U.S. and EU flat or declining, private banks are looking for ways to reverse this trend by enhancing the clinical value of cord blood collected and to identify other ways to leverage their infrastructure to grow their revenues. A direct relationship with our key customers, especially in North America will allow us to more effectively leverage Cesca's clinical and scientific capabilities to help them achieve their goals.

We can now offer our customers the ability to generate clinical data to demonstrate uses for cord blood beyond bone marrow transplants through rapid cost effective clinical studies performed by our clinical research organization. Furthermore, we are better positioned to offer new products to sell to their existing base of customers.

And lastly, we expect to achieve better economics where we are providing our products directly as we do not have the higher overhead that large distributors carry. This translates into more competitive bidding for us in our markets and more profitable business to us as well.

In conjunction with the termination of the GE distribution agreement, we expect that inventory rebalancing will result in lower AXP orders as GE winds down its inventory. In fact GE began to rebalance our inventory levels in the fourth quarter of 2013 by placing no new AXP orders, which resulted in a reduction of revenues for the quarter of approximately $700,000 to $800,000.

We expect the financial impact of the remaining AXP wind down to be largely complete by the quarter ending September 30th and have a similar impact on our revenues during that quarter. Thus, as of the December quarter of this year we expect the financial impact of GE's inventory rebalancing to be near complete, and that AXP revenues will return to previous levels or greater.

Perhaps one of the most important recent strategic developments was the approval of our AXP System and related backset in China. In partnership with Golden Meditech we expect sales in Asia to be a major driver of revenue growth over the next several years. We have already begun to see the benefits of this strategy as we significantly increase sales to China in the recently completed fourth quarter, which enabled us to partially offset the effects of the GE inventory rebalancing.

During the next few quarters, we expect that sales in the Asian marketplace will continue to enable us to counterbalance the temporal effects of the GE inventory rebalancing and provide a revenue bridge to historical levels of AXP sales in the U.S.

Third, as we have discussed in previous calls, we divested our ThermoLine and CryoSeal product lines during 2013 in connection with our strategic objective of focusing our efforts on transforming our core products into tools that can be used in regenerative medicine. As a result, our revenues associated with these two non-core product lines have declined to historical levels.

However, divesting these product lines allowed us to reduce our operating expenses and improve our gross margins, which was a critical deliverable in our strategy to realign our cost structure, so that it is scalable to our current revenue sources.

Lastly, in July 2013 we signed a definitive merger agreement with TotipotentRX, which is the catalyst event in our transformation into an integrated regenerative medicine company, Cesca Therapeutics. In order to accomplish this, the Company has incurred certain professional fees, which impacted both our third and fourth quarters of fiscal 2013. Combining with costs we have incurred to defend against the Harvest law suit and other IP matters, we have incurred approximately $1.5 million in legal and professional fees in fiscal 2013. While this represents a meaningful sum of money, we believe they are critical investments that will drive significant value creation as we transform into a regenerative medicine company.

Having covered the major strategic initiatives, let's move onto an overview of our financial results starting with our full year results. Net revenues for the year ended June 30, 2013 were $18 million, a decrease of $1 million or 5% from $19 million for the same period in 2012. Revenues decreased due to the divestiture of our CryoSeal and ThermoLine product lines during fiscal 2013.

These two non-core product lines representing $2.2 million in revenues for the year ended June 30, 2012 compared to $944,000 for the year ended June 30, 2013. This decrease was partially offset by an increase in revenue from Res-Q disposables as a result of an increase in the number of bone marrow procedures and an increase in new customers.

Gross profit for the year ended June 30, 2013 was $6.4 million, compared to $6.3 million for the same period in 2012. Gross margins increased from 33% for fiscal 2012 to 35% for fiscal 2013. The increase in gross profit and related increase in gross margins for the year ended June 30, 2013 is primarily due to lower inventory reserves and a change in the mix of products sold in the fiscal year resulting from the sale of CryoSeal and ThermoLine product line.

Operating expenses for the year ended June 30, 2013 were $9.4 million, compared to $11.7 million for the same period in 2012. The decrease in operating expenses of $2.3 million was primarily due to low (Audio Gap) personnel costs resulting from the January 2012 restructuring, lower costs for clinical studies and a gain on the sale of our two non-core product lines. These decreases were offset by increases in legal and professional fees associated with the proposed merger with TotipotentRX, legal diligence associated with the Res-Q patent litigation and costs associated with establishing sales and distribution channels in Asia.

As you note in our Form 10-K and related earnings release we have introduced a new financial performance measure to better enable our shareholders to assess our operating performance. Adjusted EBITDA is a non-GAAP measure defined as loss from operations excluding amount for depreciation and amortization, stock based compensation expense, impairment of intangible assets and gain on the sale of product lines.

Adjusted EBITDA is a common measure of operating performance and helps us to evaluate our performance by removing from our operating results, certain non-cash items which do not relate to our core operating performance.

Adjusted EBITDA loss was $4 million for the year ended June 30, 2013, compared to $4 million for the same period in 2012. The adjusted EBITDA loss was the same as the prior year as we offset the decreases in revenue from a change in the mix of products sold in our global markets with a decrease in expenses resulting from our cost reduction initiative.

However, excluding the financial impact of the CryoSeal and the ThermoLine divestitures and the incurrence of legal and professional fees associated with the Cesca merger and IP defense, our adjusted EBITDA loss actually decreased by $1.5 million, which represents a 36% improvement in our core operations over the prior year.

Net loss for the year ended June 30, 2013 was $3.1 million or $0.19 per share, compared to a net loss of $5 million or $0.30 per share for the same prior year period. ThermoGenesis ended the fourth quarter with $6.9 million compared to $7.5 million at the end of the third quarter and $7.9 million at the end of fiscal 2012 and the Company's product backlog at the end of the fourth quarter was 300,000.

With respect to our financial results for the fourth quarter, the events and trends impacting our full year results were also the primary drivers in our fourth quarter operating results. Revenue and gross profit declined as a result of the divestiture of our CryoSeal and ThermoLine product lines and a decline in number of AXP disposables sold in the United States market.

However these decreases were partially offset by increases in AXP revenues from the growth in sales in China and increases in our Res-Q disposables which are used by one of our partners in orthopedic regenerative medicine procedures.

Our operating expenses increased due to legal and professional fees associated with the proposed merger with TotipotentRX, legal diligence associated with Res-Q patent litigation and costs associated with establishing sales and distribution channels in Asia. These increases were partially mitigated by cost savings from our cost reduction initiatives.

Our adjusted EBITDA loss for the fourth quarter increased for the reasons just discussed. However excluding the financial impact of a change in the mix of products sold in our global markets and the incurrence of legal and professional fees associated with the Cesca merger and IP defense, our adjusted EBIT loss increased by only $300,000 which is attributable to the temporal decline in AXP sales in the U.S.

Before turning the call back to Matt for closing comments I will briefly comment on our progress on the Cesca merger. We continue to focus on preparing the various regulatory documents to comply with SEC rules and regulations including our Form 10-K for the year ended June 30, 2013 and the Form S-4 for the proposed Cesca merger.

In anticipation of the merger we accelerated the timing of completing our Form 10-K from mid-September to the end of August. Concurrent with accelerating our own audit, we're also in the process of completing a two year audit of TotipotentRX's financial statements in addition to preparing pro forma financial information to be included in our forthcoming S-4 which we expect to file with the SEC in mid to late September.

We are also actively evaluating our best options to fund our clinical trials and we believe they are the catalyst for driving potential significant shareholder value over the near term. We are assessing various funding mechanisms including potential partnerships with other companies operating in the medical device and regenerative medicine space as well as more traditional forms of equity financing. Moreover as of this call, we have no specific plans in place.

With that I will turn the call back to Matt for his concluding remarks.

Matthew Plavan

Thank you Dan. Before turning to the fiscal 2014 outlook, there are a couple of important topics to cover. As many of you have probably seen early in August of this year, Cytomedix announced an agreement to license its Angel System to Arthrex for the concentration of PRP for use in orthopedic indications. Obviously this is a disappointing announcement for us as the Angel System will essentially replace the Res-Q system as Arthrex's product of choice for PRP and orthopedics.

However Arthrex could no longer afford to delay their market entry with a PRP product to complete against Harvest and other companies. So we understand their decision to move forward with another technology. Arthrex has been a great development partner for us and in fact we see new potential areas of collaboration between Cesca and Arthrex, which we're going to continue to pursue in the coming months.

With regard to the claim filed last fall by Harvest Technologies related to the patents for the Res-Q system, in early summer we filed an answer and a counter claim in response to their complaint. Our counter claims are based on antitrust and other alleged improper conduct by Harvest and further seeks declarations that the Res-Q System does not infringe their patents and that their patents are invalid.

While I can't speak to this issue in any further detail at this point, I assure you that we are vigorously defending our IP and our products against the Harvest claims while aggressively pursuing our separate claims against them.

Additionally, I do want to emphasize that our ability to grow our share in the PRP and bone marrow processing markets extend to expanding the application base of both the MXP and AXP platforms, as well as new product innovations currently under evaluation. To fully exploit this market opportunity, our strategy has always been and continues to be to leverage multiple platforms.

Looking now to fiscal 2014, the keys to value creation for our shareholder require our continuing to build the base business by leveraging our first mover position in Asia and increasing our competitive share in both the Americas and Europe. We must also introduce innovative cell processing technology upgrades along with cutting new edge products and work closely with our customers to help expand the use of cord blood in medical practice to new indications.

However, our focus will shift to a much greater degree in the coming year to achieving our clinical milestones. Progressing our clinical development milestones are the primary drivers to value creation because they advance our therapeutic products targeting large patient populations.

In parallel to the completion of the Cesca merger transaction in the fourth quarter of calendar 2013, these clinical milestones include our vascular initiatives which are one, the commencement of patient enrollment in a Phase I-b clinical trial in acute myocardial infarction and two; to advance our treatment candidate for Critical Limb Ischemia into a Phase II or Phase II/III study.

Second, our orthopedic and soft tissue initiatives are to generate robust new clinical data with the completion of three Phase I clinical trials, one in non-healing ulcers, one in osteoarthritis and one in spinal fusion.

And finally, our hematopoietic stem cell clinical initiatives include cord blood advancements where we seek to launch and operate the first internationally recognized high risk bone marrow transplant program for people of Indian origin. This program will include both allogeneic generic bone marrow and cord blood transplants.

Achievement of these clinical milestones has its greatest value if developed within our unique Cesca commercialization framework. What that means is that development costs must be kept down, which we will be able to do with Toti's CRO and the Fortis relationship.

Regulatory hurdles must be overcome which we do through an autologous cell approach and by adherence to strict standards and control for collection handling and redelivery to the body, as dictated by our protocols and kits and then finally that the products themselves be high quality, consistent and backed by clinical evidence which we achieve through world class integrated tools and technologies in clinical data.

So as I bring our prepared remarks to a close, I'd like to leave you with one thought. I know I speak for Ken and Dan when I say that we intend for Cesca Therapeutics to be the market leader in the development and commercialization of stem cell applications for regenerative medicine. We believe our present actions, coupled with our future plans will make this a reality.

With that I would like to open up the call for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Jason Kolbert at Maxim Group.

Jason Kolbert - Maxim Group

Can you just outline for me what the first clinical milestones you expect will be as coming year plays out?

Matthew Plavan

Yes. First and foremost we do expect to announce the Phase 1b results on critical limb ischemia. Enrollment has concluded and all of the raw data has been sent to the independent data analysis team which is a combination of U.S. based radiologist and vascular surgeons and they will be reading those results blinded.

We also anticipate starting the enrolment of Amherst in December, which is our acute myocardial infarction study. That's a double-blinded placebo control study of 30 patients and is the most significant Phase 1b study that we have seen in the industry with both a primary endpoint of safety and secondary endpoints around efficacy.

And then third I think we will be moving on to achieving the National Marrow Donner Program Accreditation for our bone marrow transplant program, which will be the first of its kind offshores from U.S.

Operator

(Operator Instructions). This concludes our question and answer session. I would like to turn the conference back over to Mr. Matthew Plavan for any closing remarks.

Matthew Plavan

Thank you operator and again we thank you all for joining us on the call today and we look very forward to keeping you apprise of our progress here in the near term. Have a great day. Have a great evening.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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ThermoGenesis Corp's CEO Discusses F4Q 2013 Results - Earnings Call Transcript

Executives

Matthew Plavan - CEO

Ken Harris - CEO, TotipotentRX

Dan Bessey - CFO

Analysts

Jason Kolbert - Maxim Group

ThermoGenesis Corp (KOOL) F4Q 2013 Earnings Conference Call August 29, 2013 5:00 PM ET

Operator

Good day and welcome to the ThermoGenesis Corp Fourth Quarter and Full Fiscal Year 2013 Financial Results Conference Call. All sites are currently in a listen-only mode. Please note there will be a question-and-answer session later on in the call. Also note, today's conference will be recorded and will be accessible both by phone and internet. Please refer to the press release about this conference all on the Company's website thermogenesis.com for further detail.

The Company has asked that I read the following statement. Management will make comments today contain forward-looking statements. Forward-looking statements are any statements that are made that are not historical facts. These forward-looking statements are based on current expectations of the management team and there could be no assurance that such expectations will come to fruition. Because forward-looking statements involve risks and uncertainties, ThermoGenesis' actual results could differ materially from management's current expectations. Please refer to the Press Release, the Company's Forms 10-K, 10-Q and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time sensitive and is accurate only at this time. If any portion of this call is rebroadcast, retransmitted or redistributed at a later date, ThermoGenesis will not be reviewing nor updating this material.

I would now like to turn the conference over to Mr. Matthew Plavan, Chief Executive Officer of ThermoGenesis Corp. Please go ahead sir.

Matthew Plavan

Thank you, operator. Welcome everyone and thank you for joining us today. With me is Dan Bessey, our Chief Financial Officer and Ken Harris, the Chief Executive Officer of TotipotentRX. During today's call, we'll first review our progress highlights for fiscal 2013 and then Dan will provide a brief operational and financial results summary. Then I'll review the Company's important upcoming milestones.

I'd like to start the call by dialing back the lens for a retrospective on our accomplishments this past year and how we are now positioned heading into 2014 for near term shareholder value creation. Through the proposed merger and other initiatives, we believe we are now poised to unlock the true potential of our cell processing in delivery technologies as we transform our organization into a fully integrated regenerative medicine company able to serve what is arguably the greatest opportunity in the history of healthcare, the multibillion dollar markets emerging for curative regenerative medicine treatments. In fact looking back to the time we began this transformation over two years ago, we charted our course for success according to four basic principles and we have methodically delivered against each of them.

These principles for success are one, focus our efforts; two, drive growth in our base business; three, reduce and maintain our operating expenses to align our cost structure with our revolving revenues and four, invest in our regenerative medicine business as the primary driver of our long term growth strategy including product development and clinical programs.

The past 24 months hindsight reflects our positive track record. No doubt, we are now more focused. The products we sell today support our transition to applied regenerative medicine. All other products have been divested and we have continued to improve the quality of features of our cell processing platforms.

Our cell channels are substantially optimized and better focused on expanding our share in flat market geographies and leading in markets where growth is occurring. We have accelerated our global sales efforts by being direct in critical territories where we have the organic reach and by having a single distribution presence in those regions where our partner is still the best channel strategy.

We have regained greater control of our faith in China, Southeast Asia and Europe by taking back the distribution rights to the AXP from large global distributors to go direct or to engage smaller more capable regional partners, better entrenched in the key geographies to maximize our market effectiveness.

The final major step in this strategy with the termination of GE as our exclusive distributor in U.S. and Canada, which we announced today. We are now in a direct supply arrangement with our customers in those territories, the U.S. and Canada. Dan will elaborate more on the long term benefits of this change later in the call.

Success with our first principle focus has led to success with our second principle, driving growth in our base business. In Europe where there have been no new private banks, public or private to be opened in the last 12 months we have now won two AXP accounts competitively, the NHSBT in the UK and Crioestaminal in Portugal and we expect to continue this streak into 2014.

In China, we are the first mover to automation via our exclusive distribution arrangement with Golden Meditech. Fiscal 2013 has also been a year of superb quality for our products and the AXP in particular. Consistently ensuring world class quality and relentlessly striving for better quality is why we serve the best and largest cord blood banks on the planet.

Moreover, our consistent reliability has been instrumental to our effectiveness in gaining market share. As we continue to raise the quality bar for automated cell processing and storage, we increase the distance between ourselves and our competitors and we substantially raise the barriers to entry for new comers.

As for the third principle, controlling costs and living within our means, we've been appropriately frugal this past year, managing our operating costs, that is our costs before considering M&A and IT legal costs. Those were down from the prior year by $1.6 million. Therefore we have maintained a streamlined cost basis, better positioned our base business for cash generation in the near-term and to help fund our growth initiatives, which leads me to the all-important fourth principal, investing in our regenerative medicine business as a primary driver of our long term growth strategy.

Over the past two years and especially in the past year, we have demonstrated a serious commitment to the development of in-vivo clinical data supporting the efficacy of our products in a number of indications with a goal to providing surgeons and patients proof that their cells can be used safely and effectively to treat certain vascular and orthopedic conditions as well as [Audio Gap] stem cell clinical initiatives including cord blood application advances. We have done so through co-sponsored clinical studies with our commercial partners Totipotent and Spine Smith as well as academic institutions like the University Of Naples, Italy and the University of California at Davis.

And after quite some time in the making, this past July we initiated in earnest our transformation to a regenerative medicine business through our investment in the proposed merger with our clinical research and product development partner TotipotentRX to form Cesca Therapeutics, the fully integrated regenerative medicine company I spoke of earlier.

Now to have a real shot at meaningful near term participation in the multi-billion dollar regenerative medicine markets for vascular, orthopedic and neural treatments, we know our transformation has to be swift and comprehensive. Therefore we believe finding the right partner in Totipotent at the right time was key for us and our shareholders.

This proposed merger is a natural result of a long term successful commercial partnership with TotipotentRX. Upon consummation of the merger, we will be able to fully leverage the combination of our devices and patented platform technology with Toti's differentiated proprietary self-formulations in an unparalleled hospital network and embedded CRO through the Fortis Healthcare Global reach to create a formula for developing fast, safe and effective therapies with enormous therapeutic and commercial potential.

The merge agreement has been unanimously approved by the Board of Directors of each company and we expect to close in the fourth quarter of calendar 2013. The merger is of course subject to customer and closing conditions, certain financial conditions and approval by the shareholder of both companies.

In fact, before I turn the call over to Dan for a review of the numbers and operational results, Ken Harris has joined us here today and I would like to ask Ken to provide an update of the ongoing initiatives at Totipotent and to talk a little bit about the results of some of our recent joint commercial efforts. Ken?

Ken Harris

Thanks, Matt and thanks for those of you joining us today. Just to review TotipotentRX is a leading regenerative medicine company that is engaged in the research, development and commercialization of cell-based therapeutics.

The company currently has eight autologous cell therapies in various stages of clinical development, targeting areas of high end, unmet medical needs, including osteoarthritis, avascular necrosis and critical limb ischemia.

We also anticipate enrollment to begin in the Amaris (ph) trial by December 2013 which is the first of its kind allowing the treatment of primary acute myocardial infarction patients having low ejection fractions. This treatment delivers an autologous cellular therapy and is completed in one procedure and under 60 minutes in the heart cath-lab.

Through our strategic partnership with Fortis Healthcare, an esteemed chain of specialty hospital network throughout India and Asia, we have assembled one of the industry's most experienced cell therapy CRO team along with an unmatched footprint in India to execute at every level of both ours and our clinical client trials providing complete and seamless cellular therapies and device clinical services, improving on the efficiency and delivering better clinical trial outcomes to any type of project in regenerative medicine.

In partnership with the Fortis Memorial Research Institute in Delhi, we announced a successful launch of their pediatric bone marrow transplant program at the Fortis TotipotentRX Center for Cellular Medicine. The new program recently achieved its first 100-day survival milestone following an allogeneic bone marrow engraftment in a pediatric patient with aplastic anemia using a donor with ABO-incompatible bone marrow.

The successful transplant was performed using the ThermoGenesis AXP AutoXpress system and as mentioned we anticipate ramping this program providing sophisticated allogeneic and autologous metaplatic stem cell transplants in the severely underserved global Indian population.

This week alone, we did six additional transplants, five of them being medically challenging, mismatched allogeneic bone marrows. The fully vetted and approved protocols we have developed using ThermoGenesis AXP platform reduced the transplant related risks in these children suffering from life threatening diseases such as genetic diseases or sickle cell anemia and thalasemia major and blood based cancers including multiple myeloma.

Speaking about our recent joint announcement between Thermo and Toti in August, TotiRx has been using the ThermoGenesis devices and equipment in our clinical trial work and our cord blood banking businesses for some time and the superior performance of this technology is an integral component of the success of our clinical trial work.

It's important to highlight that this equipment already being in place and integrated in to development platforms will make initiation of the next phase of clinical trials for Cesca's pipeline that much faster and more efficient.

On behalf of TotiRx, I would like to emphasize our enthusiasm for the proposed merger. It creates a combined company with enormous potential for value creation in an area of medicine that is taking leaps in terms of therapeutic potential.

With that, I'll turn the call over to Dan for the ThermoGenesis' financial and operational review.

Dan Bessey

Thank you, Ken and good afternoon everyone. Today I will begin with a review of our financial results for the full year and fourth quarter, followed by an update on the status of the regulatory filings required for the Cesca merger, and I will conclude with our thoughts on the funding mechanisms for clinical trials.

But before I get into the financial results, I will discuss four strategic initiatives that impacted our financial results and fiscal 2013. Additionally, certain of these initiatives will impact our near-term financial results, while others should have longer-term sustained benefit to our results.

First, as Matt mentioned earlier, we terminated our agreement with GE as our distributor for the AXP in the United States and Canada. This territory was the only remaining geography in which GE served as our AXP distributor after we took back Europe and Asia from GE about a year ago. Taking it back is the final step in our status strategy to consolidate our cord blood products into a single channel per region or to sell directly in regions where we have sufficient reach.

There are significant benefits that have and will continue to accrue to us from this strategy. With cord blood collections in the U.S. and EU flat or declining, private banks are looking for ways to reverse this trend by enhancing the clinical value of cord blood collected and to identify other ways to leverage their infrastructure to grow their revenues. A direct relationship with our key customers, especially in North America will allow us to more effectively leverage Cesca's clinical and scientific capabilities to help them achieve their goals.

We can now offer our customers the ability to generate clinical data to demonstrate uses for cord blood beyond bone marrow transplants through rapid cost effective clinical studies performed by our clinical research organization. Furthermore, we are better positioned to offer new products to sell to their existing base of customers.

And lastly, we expect to achieve better economics where we are providing our products directly as we do not have the higher overhead that large distributors carry. This translates into more competitive bidding for us in our markets and more profitable business to us as well.

In conjunction with the termination of the GE distribution agreement, we expect that inventory rebalancing will result in lower AXP orders as GE winds down its inventory. In fact GE began to rebalance our inventory levels in the fourth quarter of 2013 by placing no new AXP orders, which resulted in a reduction of revenues for the quarter of approximately $700,000 to $800,000.

We expect the financial impact of the remaining AXP wind down to be largely complete by the quarter ending September 30th and have a similar impact on our revenues during that quarter. Thus, as of the December quarter of this year we expect the financial impact of GE's inventory rebalancing to be near complete, and that AXP revenues will return to previous levels or greater.

Perhaps one of the most important recent strategic developments was the approval of our AXP System and related backset in China. In partnership with Golden Meditech we expect sales in Asia to be a major driver of revenue growth over the next several years. We have already begun to see the benefits of this strategy as we significantly increase sales to China in the recently completed fourth quarter, which enabled us to partially offset the effects of the GE inventory rebalancing.

During the next few quarters, we expect that sales in the Asian marketplace will continue to enable us to counterbalance the temporal effects of the GE inventory rebalancing and provide a revenue bridge to historical levels of AXP sales in the U.S.

Third, as we have discussed in previous calls, we divested our ThermoLine and CryoSeal product lines during 2013 in connection with our strategic objective of focusing our efforts on transforming our core products into tools that can be used in regenerative medicine. As a result, our revenues associated with these two non-core product lines have declined to historical levels.

However, divesting these product lines allowed us to reduce our operating expenses and improve our gross margins, which was a critical deliverable in our strategy to realign our cost structure, so that it is scalable to our current revenue sources.

Lastly, in July 2013 we signed a definitive merger agreement with TotipotentRX, which is the catalyst event in our transformation into an integrated regenerative medicine company, Cesca Therapeutics. In order to accomplish this, the Company has incurred certain professional fees, which impacted both our third and fourth quarters of fiscal 2013. Combining with costs we have incurred to defend against the Harvest law suit and other IP matters, we have incurred approximately $1.5 million in legal and professional fees in fiscal 2013. While this represents a meaningful sum of money, we believe they are critical investments that will drive significant value creation as we transform into a regenerative medicine company.

Having covered the major strategic initiatives, let's move onto an overview of our financial results starting with our full year results. Net revenues for the year ended June 30, 2013 were $18 million, a decrease of $1 million or 5% from $19 million for the same period in 2012. Revenues decreased due to the divestiture of our CryoSeal and ThermoLine product lines during fiscal 2013.

These two non-core product lines representing $2.2 million in revenues for the year ended June 30, 2012 compared to $944,000 for the year ended June 30, 2013. This decrease was partially offset by an increase in revenue from Res-Q disposables as a result of an increase in the number of bone marrow procedures and an increase in new customers.

Gross profit for the year ended June 30, 2013 was $6.4 million, compared to $6.3 million for the same period in 2012. Gross margins increased from 33% for fiscal 2012 to 35% for fiscal 2013. The increase in gross profit and related increase in gross margins for the year ended June 30, 2013 is primarily due to lower inventory reserves and a change in the mix of products sold in the fiscal year resulting from the sale of CryoSeal and ThermoLine product line.

Operating expenses for the year ended June 30, 2013 were $9.4 million, compared to $11.7 million for the same period in 2012. The decrease in operating expenses of $2.3 million was primarily due to low (Audio Gap) personnel costs resulting from the January 2012 restructuring, lower costs for clinical studies and a gain on the sale of our two non-core product lines. These decreases were offset by increases in legal and professional fees associated with the proposed merger with TotipotentRX, legal diligence associated with the Res-Q patent litigation and costs associated with establishing sales and distribution channels in Asia.

As you note in our Form 10-K and related earnings release we have introduced a new financial performance measure to better enable our shareholders to assess our operating performance. Adjusted EBITDA is a non-GAAP measure defined as loss from operations excluding amount for depreciation and amortization, stock based compensation expense, impairment of intangible assets and gain on the sale of product lines.

Adjusted EBITDA is a common measure of operating performance and helps us to evaluate our performance by removing from our operating results, certain non-cash items which do not relate to our core operating performance.

Adjusted EBITDA loss was $4 million for the year ended June 30, 2013, compared to $4 million for the same period in 2012. The adjusted EBITDA loss was the same as the prior year as we offset the decreases in revenue from a change in the mix of products sold in our global markets with a decrease in expenses resulting from our cost reduction initiative.

However, excluding the financial impact of the CryoSeal and the ThermoLine divestitures and the incurrence of legal and professional fees associated with the Cesca merger and IP defense, our adjusted EBITDA loss actually decreased by $1.5 million, which represents a 36% improvement in our core operations over the prior year.

Net loss for the year ended June 30, 2013 was $3.1 million or $0.19 per share, compared to a net loss of $5 million or $0.30 per share for the same prior year period. ThermoGenesis ended the fourth quarter with $6.9 million compared to $7.5 million at the end of the third quarter and $7.9 million at the end of fiscal 2012 and the Company's product backlog at the end of the fourth quarter was 300,000.

With respect to our financial results for the fourth quarter, the events and trends impacting our full year results were also the primary drivers in our fourth quarter operating results. Revenue and gross profit declined as a result of the divestiture of our CryoSeal and ThermoLine product lines and a decline in number of AXP disposables sold in the United States market.

However these decreases were partially offset by increases in AXP revenues from the growth in sales in China and increases in our Res-Q disposables which are used by one of our partners in orthopedic regenerative medicine procedures.

Our operating expenses increased due to legal and professional fees associated with the proposed merger with TotipotentRX, legal diligence associated with Res-Q patent litigation and costs associated with establishing sales and distribution channels in Asia. These increases were partially mitigated by cost savings from our cost reduction initiatives.

Our adjusted EBITDA loss for the fourth quarter increased for the reasons just discussed. However excluding the financial impact of a change in the mix of products sold in our global markets and the incurrence of legal and professional fees associated with the Cesca merger and IP defense, our adjusted EBIT loss increased by only $300,000 which is attributable to the temporal decline in AXP sales in the U.S.

Before turning the call back to Matt for closing comments I will briefly comment on our progress on the Cesca merger. We continue to focus on preparing the various regulatory documents to comply with SEC rules and regulations including our Form 10-K for the year ended June 30, 2013 and the Form S-4 for the proposed Cesca merger.

In anticipation of the merger we accelerated the timing of completing our Form 10-K from mid-September to the end of August. Concurrent with accelerating our own audit, we're also in the process of completing a two year audit of TotipotentRX's financial statements in addition to preparing pro forma financial information to be included in our forthcoming S-4 which we expect to file with the SEC in mid to late September.

We are also actively evaluating our best options to fund our clinical trials and we believe they are the catalyst for driving potential significant shareholder value over the near term. We are assessing various funding mechanisms including potential partnerships with other companies operating in the medical device and regenerative medicine space as well as more traditional forms of equity financing. Moreover as of this call, we have no specific plans in place.

With that I will turn the call back to Matt for his concluding remarks.

Matthew Plavan

Thank you Dan. Before turning to the fiscal 2014 outlook, there are a couple of important topics to cover. As many of you have probably seen early in August of this year, Cytomedix announced an agreement to license its Angel System to Arthrex for the concentration of PRP for use in orthopedic indications. Obviously this is a disappointing announcement for us as the Angel System will essentially replace the Res-Q system as Arthrex's product of choice for PRP and orthopedics.

However Arthrex could no longer afford to delay their market entry with a PRP product to complete against Harvest and other companies. So we understand their decision to move forward with another technology. Arthrex has been a great development partner for us and in fact we see new potential areas of collaboration between Cesca and Arthrex, which we're going to continue to pursue in the coming months.

With regard to the claim filed last fall by Harvest Technologies related to the patents for the Res-Q system, in early summer we filed an answer and a counter claim in response to their complaint. Our counter claims are based on antitrust and other alleged improper conduct by Harvest and further seeks declarations that the Res-Q System does not infringe their patents and that their patents are invalid.

While I can't speak to this issue in any further detail at this point, I assure you that we are vigorously defending our IP and our products against the Harvest claims while aggressively pursuing our separate claims against them.

Additionally, I do want to emphasize that our ability to grow our share in the PRP and bone marrow processing markets extend to expanding the application base of both the MXP and AXP platforms, as well as new product innovations currently under evaluation. To fully exploit this market opportunity, our strategy has always been and continues to be to leverage multiple platforms.

Looking now to fiscal 2014, the keys to value creation for our shareholder require our continuing to build the base business by leveraging our first mover position in Asia and increasing our competitive share in both the Americas and Europe. We must also introduce innovative cell processing technology upgrades along with cutting new edge products and work closely with our customers to help expand the use of cord blood in medical practice to new indications.

However, our focus will shift to a much greater degree in the coming year to achieving our clinical milestones. Progressing our clinical development milestones are the primary drivers to value creation because they advance our therapeutic products targeting large patient populations.

In parallel to the completion of the Cesca merger transaction in the fourth quarter of calendar 2013, these clinical milestones include our vascular initiatives which are one, the commencement of patient enrollment in a Phase I-b clinical trial in acute myocardial infarction and two; to advance our treatment candidate for Critical Limb Ischemia into a Phase II or Phase II/III study.

Second, our orthopedic and soft tissue initiatives are to generate robust new clinical data with the completion of three Phase I clinical trials, one in non-healing ulcers, one in osteoarthritis and one in spinal fusion.

And finally, our hematopoietic stem cell clinical initiatives include cord blood advancements where we seek to launch and operate the first internationally recognized high risk bone marrow transplant program for people of Indian origin. This program will include both allogeneic generic bone marrow and cord blood transplants.

Achievement of these clinical milestones has its greatest value if developed within our unique Cesca commercialization framework. What that means is that development costs must be kept down, which we will be able to do with Toti's CRO and the Fortis relationship.

Regulatory hurdles must be overcome which we do through an autologous cell approach and by adherence to strict standards and control for collection handling and redelivery to the body, as dictated by our protocols and kits and then finally that the products themselves be high quality, consistent and backed by clinical evidence which we achieve through world class integrated tools and technologies in clinical data.

So as I bring our prepared remarks to a close, I'd like to leave you with one thought. I know I speak for Ken and Dan when I say that we intend for Cesca Therapeutics to be the market leader in the development and commercialization of stem cell applications for regenerative medicine. We believe our present actions, coupled with our future plans will make this a reality.

With that I would like to open up the call for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Jason Kolbert at Maxim Group.

Jason Kolbert - Maxim Group

Can you just outline for me what the first clinical milestones you expect will be as coming year plays out?

Matthew Plavan

Yes. First and foremost we do expect to announce the Phase 1b results on critical limb ischemia. Enrollment has concluded and all of the raw data has been sent to the independent data analysis team which is a combination of U.S. based radiologist and vascular surgeons and they will be reading those results blinded.

We also anticipate starting the enrolment of Amherst in December, which is our acute myocardial infarction study. That's a double-blinded placebo control study of 30 patients and is the most significant Phase 1b study that we have seen in the industry with both a primary endpoint of safety and secondary endpoints around efficacy.

And then third I think we will be moving on to achieving the National Marrow Donner Program Accreditation for our bone marrow transplant program, which will be the first of its kind offshores from U.S.

Operator

(Operator Instructions). This concludes our question and answer session. I would like to turn the conference back over to Mr. Matthew Plavan for any closing remarks.

Matthew Plavan

Thank you operator and again we thank you all for joining us on the call today and we look very forward to keeping you apprise of our progress here in the near term. Have a great day. Have a great evening.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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