Mesoblast Ltd (MESO) 2017 Q3 法說會逐字稿

Hello, and welcome to Mesoblast financial update and operational highlights webcast for the period ended March 31, 2017. An announcement and slide presentation have been lodged with the ASX, and these materials will also be made available on the Investor page at www.mesoblast.com. (Operator Instructions) As a reminder, this conference call is being recorded.

Before we begin, let me remind you that during today's conference call, the company will be making forward-looking statements that represent the company's intentions, expectations or beliefs concerning future events. These forward-looking statements are qualified by important factors set forth in today's announcement and the company's filings with the SEC, which could cause actual results to differ materially from those in such forward-looking statements. In addition, any forward-looking statements represent the company's views only as of the date of this webcast and should not be relied upon as representing the company's views of any subsequent date. The company specifically disclaims any obligations to update such statements.

With that, I would now like to turn the call over to Dr. Silviu Itescu, Chief Executive of Mesoblast. Please go ahead.

Hello, and welcome to this call. Our agenda today is to present our financial results, our operational update and our upcoming time lines. With me on this call is our Chief Financial Officer, Mr. Paul Hodgkinson.

Paul, if you wouldn't mind taking the listeners to the financial results on Slide 6, please.

Thanks very much, Silviu.

So if you turn to Slide 6. And I'll go through the financial results. So first things first. All numbers I'll quote today are in U.S. dollars, and I'll cover the highlights. So if we look at the highlights for the -- both the 3- and the 9-month period ending March 31, 2017, we basically did as we promised. We looked to operational streamlining and took out a significant proportion of our costs, and you can see that in the second and third bullet. We took 24%, $16.4 million out of the cost base and a similar amount -- similar percentage in the third quarter, $5.1 million, in order to fund the Phase III trial for CHF that we brought back inside the company. And so if we look at the total burn of the company, it was $73.4 million versus $74.2 million last year. So we've managed to contain the increased cost with CHF within the total burn of the company.

If we turn to Slide 7. How did we get those savings? So the $16.4 million really came from 2 main areas, and that was within R&D. And we took a reduction in the headcount, which we've previously announced, through a labor restructure. And we removed cost of consultants and travel, and we took that cost base down by approximately 28% in headcount over the corresponding period in FY '16. Within Manufacturing, we undertook quite a significant activity reduction, predominately because we had sufficient material for all our current ongoing trials. And we also had a minor restructuring labor within that and other cost containment areas such as consultants and travel, so we've managed to save $11.1 million on that program. And then lastly, within the area of Management and Administration, we now expect another 5% or $0.8 million. And that allowed us to fund that additional CHF program.

If we turn to Slide 8. Let's look at the cash position of the company. So at the end of March, we had cash reserves, which was set at $69.1 million. And that was just after a successful institutional placement of 26 million shares, raising just under $40 million before costs with our global institutional investors with some new institutional and sophisticated investors also in the mix. And then finally, as we -- we have an equity facility, as you're aware, that we could use, yet unused, but it's available over the next 2 years to provide additional funds as and when we require. And so the company is in a very strong financial position.

And now I would like to turn back to Silviu for an update on the operational performance.

Thanks, Paul.

If we could turn to Slide 10. This slide is an overview of our science and how we're turning that into commercial products. We're using immuno-selected mesenchymal precursor cells, highly purified homogenous cells that have receptors that are able to respond to damaged signals and inflammatory signals, which are found in the tissues where these cells are placed. So in response to these activating signals, our cells secrete a diverse variety of biomolecules, which are then responsible for tissue repair and immunomodulation. The specificity of the triggering signals potentially reduces the likelihood of off-target side effects. And importantly, the specificity of this triggering process in our cells results, and this is based on preliminary clinical data, in an optimal response in patients who have the greatest and most advanced disease state.

So that, if you turn to Slide 11, is the underlying mechanism of action that underpins what we call our lead Tier 1 product candidates. And you can see here that the lead clinical programs are in very late stages of development. We have 3 programs in Phase III and one in Phase II amongst our Tier 1 product candidates. Our program, MPC-150-IM, is in Phase III for advanced Class III heart failure and is also in patients with Class IV heart failure with a left ventricular assist device implant. Our product candidate, MPC-06-ID, is in Phase III for chronic low back pain. Product candidate MPC-300-IV has completed a Phase II trial in patients with biologic refractory rheumatoid arthritis. And our most advanced product is our MSC-100-IV product for acute graft-versus-host disease. It has already been approved, launched and is currently generating revenues in Japan and in the U.S., is in the final stages of a Phase III program.

If we turn over now. I'd like to give you a detail of each of our Tier 1 product candidates operationally. Slide 13 speaks to the MPC-150-IM potential target market. The heart failure epidemic is large and continues to grow and provides a very significant burden of illness and an unmet medical need in Western countries. In the U.S. in particular, as many as 6 million people today suffer from chronic heart failure. And the most of advanced forms in Class III and Class IV represent the greatest unmet need where despite existing therapies, patients continue to have recurrent hospitalization and ultimately die. Our objective is to develop a product candidate to target the tremendous burden in this advanced form of chronic heart failure.

Slide 14 is a summary of data from our previously published Phase II clinical trial. The objectives of that Phase II trial were twofold. One was to identify a dose response and an optimal therapeutic dose, and secondly, to identify the optimal target population that represents the most likely therapeutic benefit. As you can see in this slide, this slide demonstrates the effects of a single injection of either a low dose or a mid-dose or a high dose of our cells by catheter into the left ventricle in patients with Class II/III heart failure and a low ejection fraction. And what you see is that the effects at 6 months demonstrated dose response in terms of reduction in systolic volume and reduction in diastolic volume relative to placebo, with the most significant effect being seen at the 150 million dose, where the therapeutic benefit was approximately 25 to 26 millimeters of volume improvement over this period of time. Systolic volumes are a well-known predictor of adverse events over time, as defined by recurrent hospitalizations and deaths. So we were particularly pleased to see this effect on volumes at so-called surrogate end points at 6 months, which identified an optimal therapeutic dose.

If you go to Slide 15. The -- there was an important post-hoc analysis performed in the study to ask a very important question, which was would this therapeutic benefit of systolic and diastolic volumes be more likely to be seen in patients with less advanced disease or more advanced disease? The state of advanced disease was defined in this post-hoc analysis on the basis of a threshold systolic volume at baseline of more than or less than 100 ml, and that's a threshold that previously has been well correlated with progressive decline and accelerated progression in heart failure.

As you can see in Slide 15, in fact, where patients were matched according to large systolic volumes at baseline, the therapeutic benefit of our 150 million dose was even more enhanced. And the placebo corrected delta, as you can see in the table at the bottom, last right-hand column, placebo corrected delta was double in patients who had systolic volume of more than 100 at baseline than the whole group overall, demonstrating effect that the patients with the more advanced stage of disease are an even better therapeutic target for ourselves than the earlier stage of disease.

Slide 16 further attests to the point I just made. And this looks at the end point which is the only end point that, to date, has been accepted by the FDA for approval of any drugs in heart failure, which is a time to heart failure major adverse cardiac event, defined as either a heart failure-related hospitalization or cardiovascular death. On the left-hand side, you can see the Kaplan-Meier Curve for all patients in the study comparing the large -- the highest dose of 150 million cells single dose versus placebo, demonstrating that over a 3-year period, there were no heart failure MACE events after a single high-dose injection. On the right-hand side, you can see the Kaplan-Meier of the patients selected on the basis of a high systolic volume at baseline. And here, you can see the treatment benefit is even more exaggerated as a result of the control patients being at even greater risk of having a major cardiac event over a 3-year period. And yet, the same patients treated with a single dose of our cells were completely protected against any heart failure MACE events over this period of time. So these results were very heartening. They were published in major cardiovascular journal circulation research and allowed us to move into Phase III clinical trial.

If you can go to Slide 17. This slide sets out the specifics of the Phase III trial design. The current Phase III trial targets patients with advanced heart failure, as defined by Class IIb/III disease with large baseline systolic volumes. These are patients who are at the highest risk of recurrent hospitalizations, HF-MACE events and mortality. The -- as I've mentioned earlier, these are precisely those patients where existing therapies do not work very well and the economic burden is the greatest. The way we are enriching for these patients is based on inclusion criteria, which require patients to have had a heart failure hospitalization in the previous 9 months and/or to have very highly elevated baseline NT-proBNP, a well-known biomarker for severity of disease. The trial's efficacy end point is a comparison of recurrent nonfatal heart failure major adverse cardiac events between 1:1 randomized controls and self-treated Class II/III patients. In addition to that, we're looking at terminal events such as death, implant of a mechanical heart assist device or a heart transplant. And these terminal events are being analyzed in relationship to the nonfatal recurrent heart failure MACE events in the trial.

Please turn to Slide 18 for an operational update on this Phase III trial. The trial is planned to enroll approximately 600 patients. In April 2017, we performed a prespecified interim futility analysis of the trial's efficacy end point. That was when 270 patients had been followed through at least 3 months. We've now treated -- we've now enrolled over half the trial. After notifying the company of the results of the interim analysis, the trial's Independent Data Monitoring Committee formally recommended the trial be continued as planned because the interim trial was successful -- interim analysis was successful. In line with best practice for blinded Phase III clinical trials, the interim analysis data were only reviewed by the Data Monitoring Committee. Mesoblast, the FDA and the trial investigators remain blinded for the grouped safety and efficacy data for this trial as well as the numerical results of the interim analysis. The Data Monitoring Committee will continue to review the ongoing data from the trial and will be reporting to us their results on an interim basis.

In addition to this Phase III trial, which is actively ongoing, a second trial targeting advanced end-stage heart failure patients has progressed substantially. This is our Phase IIb trial in patients with -- who received a left ventricular assist device due to the very severe end-stage nature of their disease. The study is sponsored and funded by the U.S. National Institutes of Health and is being conducted across the U.S. by the NIH-funded Cardiothoracic Surgical Trials Network, or CTSN. This is a 159-patient, double-blind, placebo-controlled, 2:1 randomized trial. It follows a previous preliminary pilot trial of 30 patients, which was also published in circulation. And the trial is evaluating the safety and efficacy of a single injection of the MPC-150-IM, the same product that is being evaluated by catheter in our other Phase III trial. Here, it's being injected directly into the native myocardium at the time of an implant of a left ventricular assist device.

The objective of this study and its primary efficacy end point is to see whether patients who received the single injection cells have an increased ability to sustain their circulation when the left ventricular assist device is turned off. In other words, whether they're able to maintain systemic circulation without the assistance of an artificial heart. That was the -- a significant result in the earlier study in 30 patients. In addition, the study will evaluate over a 12-month period overall survival, overall rehospitalization rates and functional capacity improvements. The enrollment of this study is expected to complete during this half, and we expect top line results to be presented during the second half of 2017.

Now I'd like to move forward with an update on our inflammatory diseases portfolio. This covers the product MPC-300-IV for multiple applications. Slide 21 speaks to the potential market in biological refractory rheumatoid arthritis. Rheumatoid arthritis is a disease that affects as many as 2% of general population, and it's the #1 disease for which biologic agents are currently being marketed. It's a market of over $15 billion worldwide for the biologic agents. And despite the substantial improvement in outcomes using these biologic agents, there continues to be a major unmet medical need for as many as 30% of patients who use biologic agents, particularly TNF inhibitors. And the reason for this is that as many as 30% of patients remain refractory to benefits from TNF inhibitors and other biologic agents or cannot tolerate these due to risks of infectious complications and malignancies.

As a result of biosimilars entering into this market, we expect that the biologic refractory and anti-TNF refractory populations will continue to grow and will continue to represent a major unmet medical need. This is where I think -- where we think MPC-300-IV may potentially fill the treatment gap based on our preclinical data that suggests that our cells may have an impact on multiple cytokine pathways, not just single cytokine pathways. And based on preliminary clinical data to date, we think that we have a unique approach to this disease with a durable outcome and without overt or any evident safety concerns.

If we go to Slide 22. You can see here the Phase II study design for MPC-300-IV in this hardest-to-treat patient population. A randomized, placebo-controlled, double-blind study was performed, evaluating a single injection of either 1 million cells per kilogram or 2 million cells per kilogram of our MPCs versus placebo in patients who have had an inadequate response to at least one anti-TNF agent and who have continued active disease. The objectives of the study were to determine, over the primary end point of 12 weeks, whether there was -- whether the treatment with ourselves was safe and secondarily, whether there was an evidence of a signal on benefit and -- on benefits on the disease activity as assessed by a number of parameters, including the American College of Rheumatology composite clinical responses, health assessment questionnaire for function and the DAS28 activity score of disease.

Slide 23 summarizes the data that we have previously presented through the first 39 weeks of the study. The safety profile through the first 12 weeks and over the entire 39-week period was comparable among the placebo and both MPC treatment groups. There have been no cell-related serious adverse events. And this is a particularly important outcome given the published adverse event profile of other biologic agents. Importantly, both MPC doses outperformed placebo at week 39 in each of the ACR 20/50/70 responses as well as by median analysis of the ACR components. Continuous variables, including the HAQ for function, DAS28 for activity were used in line with the FDA guidance. And use of these continuous variables at both the 12-week primary end point and throughout the 39-week period identified the 2 million MPC per kilogram dose as the most effective. The 2 million dose showed the earliest and most sustained treatment benefit. And even though the 1 million dose per kilogram showed an intermediate effect, it's clear that the 2 million dose is preferable in future studies. Given the serious nature of this disease, we believe that MPC-300-IV is well positioned to be developed as a regenerative advanced therapy to target this major unmet medical need.

Next slide speaks to our product candidate for chronic low-back pain, MPC-06-ID. Again, this represents a tremendous market opportunity in unmet medical need. There is a significant burden of illness for patients with degenerative disease who have failed all modalities that are conservative, including steroid injections and opioids. And as we all know, the epidemic of opioid use is one that is a tremendous burden in Western societies and has been recently addressed in the 21st Century Cures Act in the United States.

Slide 26 is a summary of the end point being used in the existing Phase III trial, as was obtained in the Phase II trial of 100 patients. This was a randomized, placebo-controlled, blinded study of 100 patients, evaluating 1 of 2 alternative control arms against a low-dose injection direct -- of MPCs directly into the intervertebral disc or a high-dose injection of MPCs into the intervertebral disc. These patients have had at least 6 months of chronic low back pain, unresponsive to all conservative modalities. The end points evaluated were at least 50% improvement in pain and at least a 15 point or 30% improvement in function at both 12 and 24 months. These are major responder criteria, and the type of criteria that are used in surgical approaches to the intervertebral diseased disc.

Looking at these parameters, and you can see in this figure, bottom right, the composite responder analysis per protocol at 12 and 24 months demonstrated that a single injection of our MPCs into the diseased intervertebral disc resulted in over threefold greater responses at 12 and 24 months than the saline-injected controls and substantially greater also than the other control group using hyaluronic acid. On that basis, the low dose, 6 million cell dose, was judged to be the appropriate dose to move into Phase III.

Slide 27 is a summary of the recently reported data of the durable 36-month outcomes from this Phase II trial. Using the Intent to Treat analysis, which is in line with FDA guidance for the ongoing Phase III trial, the result of over a 24-month period demonstrated a 38% composite outcome in the 6 million MPC group versus 10% of the saline group. Taking these patients through 36 months, we observed that 82% of the MPC-treated group who had achieved that primary end point at 24 months continue to maintain treatment success through 36 months. 86% of the MPC group who had met the pain responder criteria through 24 months continued to be pain responders at 36 months. And 92% of the MPC group who have met the functional responder criteria at 24 months remained functional responders at 36 months. Moreover, there were no differences in measurements of safety between cell-treated patients and control over 36 months.

Together, these results demonstrate that a single injection into the intervertebral disc gives patients a very high likelihood of a durable response that is maintained for as long as 36 months following injection. And this is very similar in outcomes -- the durable outcomes to what we've seen in cardiovascular disease, in the heart failure Phase II study, where a single injection to the myocardium gave us at least 36 months’ protection against heart failure hospitalizations or deaths, and is similar to what we're seeing in rheumatoid arthritis, where a single injection has resulted in at least a 39-week durable response. And so these consistent durable responses that are being seen here are signals that need to be considered across multiple disease states and are consistent with an underlying mechanism of action that goes well beyond symptomatology and is suggestive of resetting the underlying disease itself.

And as a result of these Phase II data, we are -- we continue to be confident about the Phase III program. A 360-patient Phase III trial continues to recruit well across North America and Australia and is on track to complete enrollment by the end of 2017. And we have taken on board written guidance from the FDA that the use of the composite primary end point that I've described is acceptable for product approval. The thresholds for pain and function are acceptable to the agency. The time points are acceptable to the agency. And we look forward to completing recruitment and to presenting interim data in due course.

The final program that I want to touch on now on Slide 29 is our program for Acute Graft versus Host Disease, our nearest-term revenue product candidate, MSC-100-IV, for steroid-refractory disease. This continues to be a major and serious life-threatening complication of a bone marrow transplant. As many as 50% of patients who undergo an allogeneic bone marrow transplant will get Graft versus Host Disease, and as many as half of those will be refractory to steroids. Particularly in children, mortality can be as high as 80% to 90% in steroid-refractory GVHD. And in adults with liver and gut disease, the highest-risk subset mortality resembles the pediatric mortality. So we're targeting these very high-risk, high-mortality components of this disease with MSC-100-IV. In Japan, this product has already received approval and has been launched by our partner in Japan, JCR Pharmaceuticals, and has been reimbursed by the insurance organizations in Japan at approximately up to $195,000 per full treatment course.

Our strategy for launch in the United States is on Slide 31. We are launching it in the U.S. with pediatric first to be followed by adult graft versus host disease. In the pediatric disease segment, we are completing a multi-center, single-arm, open-label Phase III study in 60 children with steroid-refractory graft versus host disease. The prespecified interim futility analysis of the trial's primary end point was successfully achieved in November 2016. We announced that previously. And the FDA has granted us a Fast Track designation for this product to improve overall response rate in children with this disease. Fast Track designation has the potential to shorten the time to FDA approval through priority review and a streamlined rolling review process. We also have an Orphan Indication designation for this product, which may additionally lead to potential commercial benefits after FDA approval. For the adult population, we plan to target a Phase III trial in high risk -- in the highest-risk subset of patients with liver and gut disease, where a previous study demonstrated a positive signal of efficacy. The end points in both children and adults with this disease are an overall response at day 28, with the key secondary end point being survival at day 100 amongst responders.

And the final slide I want to touch on is on Slide 33, which are the upcoming milestones and catalysts for 2017, grouped by Tier 1 product candidates. For our MPC-150-IM, heart failure product, our Phase IIb for patients with Class IV disease with an LVAD implant is scheduled to complete imminently by mid this year with 6-month follow-up being the designated duration of end point. And therefore, our Phase IIb data readout we expect to see towards the end of this year. For the MSC-100-IV product, we expect to complete the Phase III trial enrollment and present top line data during the second half of this year. For the MPC-06-IV product candidate, as I've mentioned earlier, the Phase III trial is expected to complete enrollment by the end of this year. And our MPC-300-IV product for inflammatory conditions will have a 12-month readout during third quarter of '17. And of course, we continue to be in discussions with a number of potential pharma partners and hope to be able to announce new corporate partnerships during the period.

Thank you very much, and we would love to take some questions.

(Operator Instructions) Your first question comes from Elemer Piros at Cantor.

What I'd like to ask you, Silviu, is what is your target enrollment rate in the heart failure trial? You disclosed that it's over half or over 300. And at what sort of patient number would you contemplate maybe an accelerated strategy there?

Yes, that's a very good question. So we are substantially above 50% enrolled to date. The interim analysis was performed a lot earlier than we had originally anticipated. The reason for that was strategic in nature. We wanted to make sure that there was a signal in order to continue appropriate funding and resourcing for the program. So the interim analysis was performed and approximately 25% of total events have been obtained. Remember that this is a trial that is event-driven, meaning we are targeting approximately 540 total events. And at the outset of this trial, we anticipated that we would need about 600 patients who are either Class II or Class III in order to accrue that number of events. What we're now seeing is, as this trial is unfolding, is that, in fact, this is predominantly a Class III heart failure trial. The majority of the patients are of Class III. And those patients have a much higher hospitalization rate and a much higher mortality rate or terminal event rate than Class II heart failure patients. And as a result of that, we will continue to evaluate the number of events that are being seen. And then maybe the total number of patients may be reduced below the 600 mark as the trial continues to accrue Class III heart failure patients. It's a little bit early to say that and that, I think, part of the process now is to have further dialogue with the agency and to have further discussions around precisely what the total number of patients is as we're seeing a treatment benefit in the hardest-to-treat patients.

Okay, okay. And secondly, I observed that we are getting close to the, potentially, the 52-week readout for the rheumatoid arthritis trial. When would you estimate that to occur?

Yes. Look, I would expect that, that occurs early in the third quarter. There was nothing particularly magical about week 52 of the patients. The primary end point of the Phase II trial was 12 weeks, and we were particularly successful in evaluating the data within that first 12-week period. After the 12-week period, really, patients are continuing to be followed. But there's less stringency around what additional drugs each treatment arm may get. Nonetheless, as we reported previously, through week 39, we saw a significant treatment benefit. And I would hope that we are able to report similar consistency through 52 weeks. I think the -- it is clear that we have a durable effect from a single injection, and we will be reporting the week 52 data early in the third quarter.

Yes. And lastly, if I may, just one more. Would you please maybe describe your strategy for the GVHD indication in Europe? To what extent the usage of mesenchymal stem cells, at least in academic centers in Europe, became a standard of care in the steroid-refractory population?

Yes. Look, I think our strategy is to have European sites within our Phase III programs, particularly in adults. We have extensive experience already in Europe as well. And I'd certainly take your point that there are many academic centers that use autologous MSCs in acute graft versus host disease. I think what we are aiming to provide is a very well-characterized homogeneous product with well-defined characteristics, lot-to-lot potency assays without variability. And I think that's been the biggest issue in academic centers, the variability in autologous patient product. So I think the data from both the pediatric and adult trials will be across both the U.S. and Europe and will provide us with, we hope, concomitant approvals in both jurisdictions.

Your next question comes from Tanu Jain at Bell Potter Securities. Sorry, your next question comes from Anupam Rama at JPMorgan.

It's Eric in for Anupam. Silviu, you've talked a bit in the past about how the 21st Century Cures Act opens up potential path to accelerated approval for regenerative therapies. And I'm just wondering if you could talk a bit about how we should be thinking about FDA's criteria to recognize parts of -- potentially recognize parts of the pipeline as regenerative therapy and whether you've had discussions with the agency about the potential filability of the CHF program in the base of a single Phase III study?

Thanks for that question. Appreciate it. As a general rule, we believe that the 21st Century Cures Act provides a pathway that, for regenerative mesenchymal therapies, that is parallel to the Breakthrough designation pathways for non-regenerative medicine therapies in other disease states. Specifically, the regenerative medicine component of the 21st Century Act allows for diseases -- or products that are targeting diseases with high mortality or high disease burden and provides a pathway for us, as you mentioned, a single trial approval process, conditional approvals on the back of single well-designed Phase III trials as well as end points that are achievable in smaller data set, including surrogate end points. And I think that's a reasonable way to summarize what the benefits are of this regenerative medicine pathway. You'll note that our target population in heart failure is a continuum from Class IV to Class III, the sickest segment of patients with the highest risk of recurrent hospitalizations and mortality. So we are specifically targeting those patients that would meet the criteria for regenerative medicine advanced therapy, and in fact, is now precedent with at least one other company with an autologous cell-based product, having received designation for this target patient population. We have effectively been waiting for 2 gating events. One is the -- a positive interim analysis of the current Phase III trial in Class III patients. And the other is completion of the Phase IIb trial in Class IV patients, which is imminent, as I've said earlier, but approximately 160 patients. With those 2 pieces of data in hand, we expect to be having meaningful dialogue with the FDA this -- over the short period in order to explicitly be in a position to come back to the market with a very specific pathway towards a potential accelerated approval pathway for this particular product, MPC-150-IM.

Got it. And maybe, actually, sticking up on Elemer's question earlier. Just strategically, you're thinking about accessing the EU market with the CHF program. I mean, right now, it looks like most of your sites are -- you're predominantly recruiting from North American sites. I'm just wondering, when you kind of look to potentially kind of boost the enrollment trajectory here, how are you thinking about potentially bringing on EU sites?

This is a really, really important question. So we specifically limited the study to date to the U.S. for a particular reason. And that's really cost containment. We needed to make sure that we saw a positive signal, which we now have in the interim analysis, before we expanded the trial into Europe. Now that we've seen a therapeutic benefit at this early stage of the disease, you're absolutely right, we need to accelerate by increasing the number of sites. To simultaneously have European approval in the same study, we probably have to have up to 40% of patients being recruited in Europe. And so we're currently planning expanding this program into multiple European sites.

Your next question comes from Tanu Jain at Bell Potter Securities.

Just a couple of quick ones for me. With the MPC-150-IM, the Phase IIb study, assuming that it passes the criteria of 21st Century Cures Act RMAT designation, even otherwise, with 159 patients of double-blinded, placebo-controlled trial, do you think, given the severity of the disease, you could use this as your registrational trial?

It's a very good question, Tanu. This is about as sick a population as you can get, right? These are patients beyond Class IV. This is Class IV end-stage heart failure. The mortality rate in these patients is 80% to 90% at 12 months if you do nothing. They must have an artificial heart, an LVAD, implanted just to be alive and just to have a chance of being bridged to, let's say, a transplant, right? So this bridge to transplant is an indication in and of itself. For patients who are more than 65 and get an LVAD put in, they have it as what's called a destination therapy because they're too old to have a potential transplant. This -- the current market in the U.S. is about 5,000 LVADs implanted. And of course, we know that no more than 3,000 patients undergo a heart transplant. There are about 60,000 patients in Class IV heart failure today in the U.S. So the current options are very limited. The objectives of this trial are to see whether an injection of our cells into the left ventricle at the time of an LVAD placement improves cardiac functions sufficiently over a 12-month period to allow physicians to turn off the artificial heart and -- as a result of the cardiac -- the native heart being able to maintain circulation in an enhanced way. That's the primary end point. Secondary end points relate to overall survival and hospitalization rates because even though patients may survive with these LVAD implants, the quality of life continues to be suboptimal, the recurrent hospitalizations, high evidence of inflammation and bleeding and infections, complications. So if we see any one of those outcomes being materially impacted by single injection of our cells, as, in fact, we saw in the Phase II trial published in circulation a couple years ago where we had a twofold increase in the number of patients who were able to sustain the systemic circulation without an LVAD and a significant reduction in hospitalization rates, if we were to see that, then I think there's a dialogue to be had with the agency around a potential conditional approval on the basis of this single trial given that there are no other alternatives to this very sick patient population. So look, let's see how this trial evolves. We expect to complete enrollment imminently, and then we'll be having those kinds of discussions with the FDA.

Right. And just if I go back to the Boston Children's Hospital trial. Now that's, again, trying to measure the same thing, whether your cells can improve cardiac function in the pediatric population. Can you give us a sense of time lines around when you might see data from that and whether you would have that in hand as well in your discussions with the FDA?

Look, I think that's also a very important study. It's at the other extreme of life, of course, children with congenital heart disease with -- who were born with a left ventricle that is hyperplastic and is unable to maintain systemic circulation. They undergo a range of surgical procedures to correct this. But really, at the end of the day, only about 30% of children are able to end up maintaining a systemic circulation due to the left ventricular function. So the objective here is, as you say, to see whether a single injection of MPC-150-IM into the hyperplastic left ventricle is able to increase the number of patients who can undergo appropriate surgical procedures because they're able to then maintain the left ventricular circulation. The objective of this study is really -- it's sparse in nature. It's a very rare condition. But from Mesoblast's perspective, not only are we hopeful of seeing a positive outcome, but it provides us with the kind of safety data in the pediatric heart failure population that is necessary in any event for product approval to demonstrate that we have evidence of safety and efficacy all the way from end-stage elderly through to the early pediatric population. I -- this is an investigator-led study, and I don't think I can give you any specific time lines at this point in time.

All right. Okay. And just one last one for me. Just on the rheumatoid arthritis trial. Now if I recall, for the 12-month data readout, we are looking for some kind of imaging data as well. Can you just take us through that?

We have been collecting radiographic data at 6 months and we'll be collecting it through 12 months. And we would hope that we can see evidence of differences in progression between the treated and controlled patients, which would parallel the effect on the underlying disease activity scores. If we see that, we'll be extremely excited about it.

(Operator Instructions) Your next question comes from Kevin DeGeeter from Ladenburg.

This is actually Jake on the line for Kevin. So with the Mallinckrodt agreement, is there plans for any additional interim analysis on the back pain or graft versus host disease programs prior to the runout of the option period?

No, I don't think there will be any further interims prior to completion of the option period. Does that address the question?

Yes, yes. That's it for me.

Your next question comes from Tanu Jain of Bell Potter Securities.

Silviu, just a follow-up for me. Just on your partnership front, can -- starting with Mallinckrodt, can you just give us an update on how conversations are going there? And also then, potentially talk about what's your strategies around CHF over 300-IV product in terms of looking for a partner, the time lines, the ideal time to partner, et cetera.

Yes. Look, we are in advanced discussions with Mallinckrodt, as you would expect, on the areas that are part of the option arrangement. And those discussions are progressing well. I think there's a good cultural fit between the 2 companies, and I would expect to update the market in due course on how those partnership discussions are evolving. We also continue to be in discussions on both our heart failure program -- our heart failure product candidate as well as our rheumatoid arthritis product candidate with a number of major pharmaceutical parties. And those discussions are progressing well, so hope to update the market in due course. Our overall strategy, of course, is to have one or more partners for several of these lead product candidates because at the end of the day, they all require substantial resourcing, both to complete clinical development but more importantly, to successfully launch and be in a position to have distribution channels and commercial capabilities. And I think we are looking for potential partners who have strengths in the areas for each of these product candidates, as does Mallinckrodt in the areas of inflammation, immunology and pain.

Your next question comes from Jason McCarthy at Maxim Group.

I'm actually on for Jason Kolbert, who's traveling. In the RA study, I know the 12-month data is coming up. How are you positioning Mesoblast for a pivotal study? Like HUMIRA and the biologics are really going out to 12 months. Have you considered what your end point in the pivotal program would be? And are you thinking about the ability to redose since you are using only a single IV injection, infusion?

Thanks. These are critical questions. I think the way to think about the results that we've presented is to compare them probably to rituximab, in this space, in the biologic refractory, TNF-refractory patient population. Rituximab is used as an induction therapy with 1 or 2 doses, I think, within the first 2 weeks, and then demonstrated a primary benefit outcome at week 12 and a sustained benefit through 26 weeks. And then for product use in commercial, I think the clinicians are able to then assess disease activity in these very hard to treat patients, TNF-refractory patients, and potentially redose after 26 weeks as they see fit based on a whole range of biomarkers. I think we're seeing a very similar type of outcome when you consider the MPC data so that we've seen that a single induction therapy of 2 million per kilo has given us the best outcome through 12 weeks, has maintained a durable response through 39 weeks. And I think where we're at right now is to consider potentially an even higher dose as induction or potentially an additional dose at some point down the track, whether it's at week 26 or week 39 or something like that. And I think a Phase III program would have a design that would be somewhat adaptive, that would evaluate higher induction doses, 2 million or higher at induction and potentially have an arm that looks at a repeat dose. But the primary end point appears sufficiently to be 12 weeks, as with other biologic agents, and we would aim to have a durable effect out to at least 26 weeks and probably beyond.

Your next question comes from Alethia Young from Crédit Suisse.

This is actually (inaudible) on for Alethia. My first question is can you give us more detail on what's your partnership discussion right now for the heart failure program? And my other follow-up question is it's probably early, but can you talk a bit about what's your commercial manufacturing preparation and what efforts you have done there?

Sure. Maybe I'll take your second question first. With respect to commercial manufacturing, we've invested substantially in particularly the MSC-100-IV product, which is the most advanced, so that we have -- are ready for providing all the documentation in line with the clinical data for BLA filing. And so we will have the full commercial package on manufacturing in line with the clinical outcomes, and we've worked very hard with Lonza at their plant in Singapore to have a GMP-qualified and FDA-compliant process in time for commercial launch. For our MPC products, we have produced sufficient quantities of product for all of our clinical programs and depending on which ones move fastest towards marketing. The back-pain product is probably the closest to commercialization. We're beginning to lock in our final product formulations for commercial processing. Your first question was partnering discussions on cardiovascular disease. And again, I think it's reasonable to say that we are in dialogue with a number of the leading cardiovascular companies globally and regionally. And I think a very important gating event was the interim analysis that we've just performed. And having seen a positive treatment benefit in this very hard to treat patient population, Class III heart failure, this was more than just a futility analysis. This was an interim analysis that was both for futility and to see whether there was a therapeutic benefit with -- on the basis of a treatment to placebo delta. And having seen that, I think those discussions will continue to progress in a favorable way. We -- of course, the second important factor here is the LVAD trial of roughly 160 patients, which is about to complete enrollment, and how that gets positioned with respect to the agency as a potential launchable program. So those discussions with pharma companies in the cardiovascular space continue. They've been particularly enhanced by the recent interim analysis, and we'll be updating the market in due course.

Your next question comes from Dennis Hulme at Edison.

I'd like to follow up on your answer to the previous question, where you mentioned in the interim analysis, you're able to see therapeutic benefit versus placebo. Can you tell us a little more about that, what you saw there or what was seen there?

Look, I'm not able to go into the specifics, but there was a predefined threshold of benefit between treatment and placebo that was defined as the minimum requirement for continuing or discontinuing the trial, and we were successful in achieving that.

Okay. So that was a predefined threshold, which has been past your review to median, they informed you that you created that threshold?

Correct.

And also, are you able to give an update of when you expect recruitment to be complete in the heart failure Phase III trial?

Well, as I answered earlier, we -- this trial was originally planned to enroll 600 patients. And that was in line with the requirement to gather about 540 total heart failure MACE events. What we're seeing is that, in fact, we are recruiting patients who are sicker than we previously anticipated, more Phase III patients and -- sorry, more Class III patients than Class II patients. And those Class III patients have substantially higher rates of heart failure MACE events than Class II patients. So it is possible the total number of patients may come down from 600 patients. It's too early to say at this point in time. But nonetheless, we're aiming to complete enrollment during 2018, second half of 2018.

Okay, 2018. and you mentioned potential expansion sites into Europe. Has that commenced? Or is that just something that's in planning at the moment?

It's something that is being very actively planned as we speak.

That brings us to the end of today's call. I'll now hand back to Dr. Itescu for closing remarks.

Thank you very much for our listeners. I'm pleased to have provided an update on our financials and operational highlights for the quarter. Thank you very much.

That does conclude our conference for today. Thank you for participating. You may now disconnect.