Mesoblast Ltd (MESO) 2017 Q4 法說會逐字稿

Hello, and welcome to Mesoblast's financial update and operational highlights webcast for the 3 months ended June 30, 2017, and year ended June 30, 2017. An announcement and slide presentation have been lodged with the ASX. These materials will also be 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.

Thank you. Together with our CFO, Paul Hodgkinson, I'd like to welcome you all to our corporate update and financial results for the year ended June 30. Today, in addition to our financials, we want to devote a significant amount of time to those product candidates with potential for significant outcomes and value inflection points in the coming 12 months, particularly our cardiovascular strategy and franchise.

If we can go to Slide 4, please. Mesoblast is building a leading franchise of cellular medicines. We're a leader in the disruptive cellular technology platform. We've got proven capability for commercial translation with a first product candidate already approved, launched and generating revenues through our licensee in Japan, JCR Pharma. And we've got an advanced pipeline of cellular medicines with 3 assets in Phase III clinical trials. The 21st Century Cures Act is a recently enacted legislation, providing for an expedited approval path for cellular medicines designated as regenerative medicine advanced therapies or RMATs. I will talk more on this later as it relates to a number of our lead product candidates.

As you all know, we have the leading intellectual property portfolio in the mesenchymal lineage space, with over 800 patents and patent applications across 69 patent families, providing us with protection across the major markets, including U.S., Europe, Japan and China. We have a well established, industrially scalable manufacturing capability that will support our commercial needs. We have a world-leading technology platform that is based on highly purified immuno-selected mesenchymal lineage precursors.

In response to specific activating signals present within damaged tissues, these mesenchymal lineage cells secrete a diverse variety of biomolecules, which are responsible for both immunomodulation and tissue repair. As an example, in hearts of patients with advanced heart failure, inflammatory signals from cytokines such as interleukin-1 or TNF-alpha, known to be major mediators of heart failure, will activate our cells to release counter-inflammatory factors and other molecules necessary for blood vessel formation, cardiac muscle regeneration and restoration of heart function. As an example of the central nature of inflammation in cardiovascular disease is a recently published CANTOS trial, results of which were presented only days ago at the European Society for Cardiology meeting, where interleukin-1 blockade in a large group of patients after a heart attack prevented long-term adverse major cardiovascular events. For the first time, this trial puts inflammation at the center of the disabling cardiovascular complications that we're all trying to address.

Slide 11 speaks to the portfolio of advanced product candidates that we're focusing on. And as you can see, one product candidate has already been launched in Japan through our partner JCR Pharma, and the other 3 Tier 1 product candidates are in advanced clinical development.

Now let's turn to our cardiovascular franchise and in particular, our MPC-150-IM product for chronic heart failure. Slide 13 speaks to the continuum of the disease in patients with heart failure. Class I and Class II New York Heart Association heart failure is adequately treated with current treatments, including a number of generic drugs as well as new combination oral agents. And for many years, these patients represent relatively stable disease. However, when despite maximal oral therapy patients progress as they always do into Class III and Class IV heart failure, the outcomes are very poor. And in fact, end-stage heart failures associated with mortality outcomes that are very similar to cancer.

Slide 14 now speaks to our approach to treating patients with Class IV end-stage heart failure. There are about 250,000 patients in the U.S. alone who suffer from advanced heart failure, New York Heart Association Class IV. In at least 50,000 to 60,000 of these patients the 1-year mortality exceeds 50%, which is a major unmet medical need. For these patients, the only options are either a heart transplant, which as you know is very much limited by the lack of available donors and in fact only 2,000 transplants are performed per year. And the other option is an artificial mechanical device or the left ventricular assist device. Now left ventricular assist device implantation has certainly improved survival in this patient population, but mortality remains at approximately 30% at 12 months. In addition, there are substantial quality of life complications associated with LVAD implants, including gastrointestinal bleeding, which limits the increasing use of these devices as a result of recurrent hospitalization rates. As you can see on this slide, there is double-digit growth in LVAD usage. And to date, approximately 5,000 LVADs are used on an annual basis.

Slide 15 speaks to the market segments where LVAD implants are used and where we see substantial growth opportunities for Mesoblast. There are 3 distinct market segments in using LVADs. The bridge to transplant market appears to be saturated. As I mentioned earlier, there is no growth in cardiac transplants. More than 50% now of LVAD usage is for what's called Destination Therapy, where LVADs are put into patients who are not candidates for transplants, which is the bulk of the Class IV heart failure population, and are kept in as a permanent therapy. Where we see the greatest growth potential is what's called a Bridge to Recovery market. That, we see, has the potential to grow this market by up to tenfold if there was a therapy that could sufficiently strengthen the native heart to facilitate just a temporary implantation of LVADs to allow the LVAD to be removed and allow the native heart muscle to take -- to be able to maintain the circulatory needs of the patient.

Now in addition to this as the market driver for our cell therapy, the next slide shows you the quality of life complications associated with a permanent LVAD implant. And as you can see, the #1 complication is bleeding, particularly from the gastrointestinal tract that requires recurrent hospitalizations. Patients with an LVAD are 8x more likely than matched heart failure patients to have significant gastrointestinal bleeding and recurrent hospitalizations. Infections also play a major problem in terms of long-term use of these VADs. We believe that our cells, in addition to strengthening the native heart, have the potential to reduce these multiple quality of life complications and pharmacoeconomic issues associated with long-term LVAD implants.

Why do we believe that? Because we've had a pilot study that was published in 2014 circulation, a study that was funded by the National Institutes of Health and performed across multiple U.S. sites through the CTSN, the Cardiothoracic Surgical Network. In this part of study, which used a micro dose of cells, only 25 million of our allogeneic MPCs, 1/6 of the dose currently used in our Phase III programs. In this study, there were no safety issues observed. But importantly, the median time to a first re-hospitalization event was doubled in the patients who had a single injection of these cells into the native heart compared to controls. More than twice as many cell-treated patients compared with controls were able to tolerate temporary weaning of their artificial heart, such that they were able to maintain circulation, suggesting strengthening of the native myocardium. And as importantly, at the trial's primary endpoint of 90 days, there was a clear signal of a mortality benefit, 30% of controls have died compared with 0 of the treated patients.

On the basis of these very important signals, the National Institutes of Health decided to fund a 159-patient, placebo-controlled, double-blinded randomized -- 2:1 randomized trial, where 2/3 of the patients receive a single injection into their native myocardium of 150 million MPCs, 6x more than the dose in the pilot trial and versus sham-treated controls. Important to note that the cells are injected at the time of the LVAD implant. And so the concept then is that we are looking to see whether a single injection into the native heart results in strengthening of that native heart muscle, and reduction in the complications associated with an LVAD implant. And importantly, again, the product that's being injected into these patients, into the native myocardium, is identical to the product that's being tested by catheter into the left ventricle in patients with Class III heart failure. It is our product MPC-150-IM, 150 million allogeneic MPCs. The primary efficacy endpoint of this trial is the proportion of patients who are able to tolerate a weaning or a turning off of the artificial device at 6 months between cell-treated and controls. That is a -- the ability to maintain your circulation with the LVAD switched off, is an indirect measurement of strengthening of the native heart muscle. And is the -- would be the first step in identifying patients whose LVADs could be explanted. In addition, the study is evaluating over 12 months time to recurrent hospitalization, gastrointestinal bleeding that may be the cause of recurrent hospitalization rates, overall patient survival and various additional quality of life measurements. Enrollment is expected to complete imminently and top line results for this trial, measuring the trial's primary endpoint, are expected during the first quarter of calendar year '18.

Now how does this relate to our larger Phase III trial in heart failure? So the predominant patient population in our catheter-based Phase III trial targets patients in advanced Class II and predominantly Class III heart failure populations. This represents a much larger market opportunity than Class IV heart failure. As many as 1 million patients in the U.S. suffer from Class III heart failure. And again, the burden of disease is significant with recurrent heart failure hospitalizations, and mortality remains significant where mortality and recurrent hospitalizations in Class III heart failure patients approaches 15% to 20% over an 18-month period. And this is despite maximal existing therapies.

Slide 21 speaks to the data that's being generated in this target population in our published Phase II trial that was published in Circulation Research in 2015. And as you can see in these data, the overall study in 60 patients, randomized placebo-controlled study, demonstrated that a single injection by catheter into the left ventricle of the MPC-150-IM product prevented over a 3-year period any recurrent hospitalizations or deaths. And equally as important, you can see on the figure on the right that, that effect was amplified in patients with the most advanced forms of disease, stratified at baseline on the basis of very large left ventricular end-systolic volumes, more than 3 standard deviations above normal or more than 100 ml. Now that is very important, because that is consistent with the underlying mechanism of action. As I mentioned earlier, the signals within the ailing myocardium are necessary to activate our cells to release the biomolecules important for cardiovascular or cardiomyocyte recovery, functional recovery and anatomical recovery. And so unlike small molecules, we expect that our cells are likely to be more effective in the more severe stages of disease, and this slide demonstrates that effect. And it allowed us to then select by enrichment criteria for patients with a more advanced forms of disease in our ongoing Phase III trial.

Where are we with the Phase III program in advanced heart failure patients in Class III? The trial has recruited now more than 400 patients out of approximately total number of 600 patients. In April, we presented data that showed that we were successful in a prespecified interim futility analysis of the efficacy endpoint in the Phase III trial's first 270 patients. And we were very pleased and excited about that. The trial's independent data monitoring committee formally recommended that the trial be continued as planned, and we expect enrollment to complete in the second half of next year. This trial is complementary together with the LVAD trial in Class IV heart failure patients.

Now I'd like to move on to our next product candidate, which has some significant inflection points in the coming 12-month period. Our product MSC-100-IV for steroid-refractory acute graft versus host disease. This product candidate also addresses a very serious and life-threatening complication, this time of a bone marrow transplant. In children and adults, who have failed steroids following the onset of GVHD in a bone marrow transplant candidate, there are no approved drugs that can make a difference. The market opportunity is substantial. There are more than 30,000 allogeneic bone marrow transplants performed globally, and this product is advanced in our portfolio to the extent that, in fact in Japan, through our partner JCR, the product TEMCELL has already received approval. It's being reimbursed at a substantial price for a treatment course and has provided sufficient information for us to feel comfort around our plans for FDA approval and potential market launch.

What is our development strategy for this product in the U.S.? The ongoing multi-center, single-arm, open-label Phase III trial in up to 60 pediatric patients with steroid-refractory graft versus host disease is coming to a conclusion. There was a pre-specified interim futility analysis of the trial's primary endpoint that we were successful in, in November 2016, which gives us great confidence. The FDA has granted a Fast Track designation for this product to improve overall response rates in children with steroid-refractory disease. And the Fast Track designation has the potential to shorten the time to approval through both priority review and a streamlined rolling review process. In addition, the product's existing Orphan Indication may additionally lead to extended marketing exclusivity after FDA approval. We will use this trial to launch the product in the U.S. and then extend its use in adults through a second Phase III trial that targets the highest risk patients, those with liver and gut disease. Those -- in those patients, prior data have shown that these cells appear to be effective and it's where the largest unmet need continues to be in adults.

Finally, our third Phase III program with major inflection points upcoming is our Chronic Low Back Pain product due to disc degeneration. Again, this is a very large unmet medical need in the U.S. And in particular, this is the one area where we think we can make a major impact on the problems of opioid usage. In the U.S., 50% of opioid usage is in patients with chronic lower back pain. Recent data suggest that opioid usage in these patients is no better than nonsteroidal anti-inflammatory drugs. In addition to that, as we all know, there is a major epidemic of opioid overdosing and as many as 30,000 people are likely to die in 2017 from opioid overdosage, a major unmet need recognized by the 21st Century Cures Act.

Just to reiterate, Slide 28, having completed a randomized, placebo-controlled 100 patient trial, we were able to show that a single injection of the lowest dose of our cell, 6 million allogeneic MPCs directly into the degenerated disc, resulted in over 2 years of significant reduction in pain and significant improvement in function. In fact, just several months ago, we updated the market that the vast majority of patients who were successful -- successfully treated for 2 years maintained that treatment benefit for up to 3 years. We're very excited about these data. And in fact, in discussions with the FDA we have clear alignment that the composite primary endpoints of 50% reduction in pain and 30% improvement in function for at least 2 years is an adequate -- for 12 months and for 2 years is an approvable endpoint for this product. We intend to have further dialogue with the FDA, particularly given the important unmet need in regard to developing therapies that avoid opioid initiation at all in patients with chronic unremitting pain.

On that note, I think I'd like to shift to Paul, who is going to provide you with the financial results.

Thanks, Silviu. So just on Slide 31, let's just cover up the highlights for the financials. So as of the end of June, we had $45.8 million on hand. And with the recent fully underwritten entitlement offer of USD 40 million, it brings us to a pro forma opening cash balance of $84 million. Last year, on this call, we talked to you about saving costs in order to fund the income of our cost at CHF. And I'm very pleased to state that we delivered $20.7 million of savings, a 28% reduction on the lines we targeted, in order to offset the cost of the incremental program. The overall company cash flows in this year versus last year were, therefore, held to just 8% growth over the previous year. The other piece I'm pleased to say is this was the first year post U.S. listing and this was the year that we had to become self-compliant, and we successfully achieved that and that was signed off this week.

If we turn to Slide 32. Let's just touch on those savings, where they came from. About $20.7 million of savings came through the R&D product support cost, so that was a reduction in headcount in the business, and you'll see in the accounts our headcount numbers have come down significantly since last year. And we took out $17.7 million cost within our manufacturing base. We have product ready for our ongoing current trials, and we also had additional savings from labor in there. We did lose a little bit on management and admin, but even in that category there were reductions in consultancy expenses, rent and corporate overhead.

Now I'd like to turn back to Silviu to finish on the key milestones for the upcoming 12 months.

Thanks, Paul. Now on this last slide, we focus on the key milestones in each of our Tier 1 product candidates. As anticipated, the greatest number of milestones and value inflection points are derived from our MPC-150-IM heart failure product candidate. The Phase III trial for advanced heart failure, predominantly in Class III patients, will continue to enroll and expected to target its completion in the second half of next year. The Phase IIb trial is expected to complete enrollment, this is in end-stage heart failure, imminently. And we expect, as I've mentioned earlier, the readout on -- top line readout on the primary endpoint for this trial in the first quarter of next year. For our back pain product candidate, MPC-06-ID, the Phase III trial is expected to complete enrollment in the fourth quarter of this year. For our intravenous product, MPC-300-IV for inflammation, the 12-month readout in biologic refractory RA is expected during this upcoming quarter. And for our GVHD product, MSC-100-IV, the Phase III trial in children is expected to complete enrollment and report on top line primary endpoint readout in the second half of this year. In addition, there are multiple discussions ongoing around potential corporate partnerships for each of our lead indications.

Thank you. I'd like to now open it to questions.

(Operator Instructions) Your first question comes from Mark Breidenbach from Oppenheimer.

I just have a couple of questions, mostly focusing on the cardiovascular program. If I can start on the ongoing Phase III trial, it sounds like you're enrolling at a pretty good clip. You have over 400 patients enrolled. And I think on the last quarterly call, it was around 300. Would you say enrollment is now proceeding at full speed? And also, can you comment on where we stand with respect to events before primary analysis can be conducted?

Yes, I think both of those are very good questions. I would say that we're at steady-state recruitment right now. And we've given you a clear guidance on when we expect to complete enrollment. But as you point out, this is an event-driven trial, and we have an understanding with the FDA of the minimum number of events that need to be achieved in order to close out this trial. And it's very clear to us that the type of patients that we're reaching for and that we're enrolling are advanced heart failure patients who have a high risk of recurrent events, both recurrent nonterminal hospitalization events and also at high risk for terminal events, including death or need for an LVAD or need for transplantation. Given the high numbers of these events in this target patient population, it is possible that we may close out this trial in less than 600 patients. And that's an ongoing discussion, and it depends on, as you note, how fast events are being accrued.

Okay. Now given how different the population is in the Phase III trial versus the NIH-sponsored Phase IIb, I'm trying to get a sense for whether you see that there is much potential for read through between the results we're going to see in first quarter '18 and what we might ultimately see from the Phase III trial.

Yes, that's a excellent question. So I don't look at these patients as being so different, by the way. There is a clear continuum from Class III to Class IV heart failure. They are the same patients. What happens is that when you get to Class -- in Class III, you're certainly able to maintain your circulation, you're not able to respond adequately to stress and you decompensate, and decompensation results in hospitalization and death. In Class IV, you're not even able to undergo stress. You're bed-bound. You're not able to physically do much. You're not even able to -- at the end stages, able to maintain your circulation. And so these patients, in order to be -- remain alive, need to have an artificial heart put in them. They're really the 2 ends of the most advanced forms of heart failure. So the primary endpoint of the NIH-sponsored trial is to see whether a single injection of our product candidate results in sufficient strengthening of the myocardium, so that this LVAD can ultimately be explanted. Now that would imply shifting the patient from Class IV to Class III or even Class II. And one of the major criteria -- and in fact, the most important criteria for putting an LVAD into these patients is an ejection fraction at less than 25%. If your ejection fraction is above 25%, you're not a candidate for an LVAD implant. What we are expecting or hoping to see or would like to see is that in those patients who've had an injection of cells into their native myocardium, when the LVAD is switched off, their ejection fraction goes up above 25% and the LVAD is then able to be explanted. That is the objective, ultimately, of this program. And so if you see that we meet the primary endpoint of this trial, meaning that significantly more patients are able to wean -- to be weaned off their artificial device, that by default means that we sufficiently strengthened the myocardium such that these patients no longer need, potentially, a VAD or depending on what their ejection fraction looks like, could potentially be explantable and could potentially be in much earlier stages of heart failure. If, in fact, they move back by 1 or 2 classes, that would imply a survival benefit of use.

Let me just add 1 last follow-up, if I could. I know when a couple of your other, let's call them Tier I indications like rheumatoid arthritis and disc pain, there is a point at which mesenchymal cell therapies probably won't be much use, especially if there is radiographic evidence of advanced disease. I'm trying to get a sense for if there is a point in heart failure where you'll hit a similar wall of no return that's beyond the reach of immunomodulatory cell therapies.

That's an interesting question. And again, I'd like to point you back to the CANTOS trial that just read out 2 days ago. And the New England Journal paper that accompanied that and the many reviews that now put inflammation at the center of cardiovascular disease, right? And there is an extensive body of literature that says, as you progress from Class II to III to IV heart failure, the inflammatory mediators in the heart go up and up and up, whether it's TNF or interleukin-I or a number of others. On top of that, putting an artificial heart into a patient whose inflammatory mediators are very high, further serves to increase that inflammatory response because the artificial heart is not a-- is a piece of foreign material that activates the immune system. And so you've got a perfect setup in these Class IV heart failure patients of inflammation driving the poor outcomes. We have cells that are very potent immunomodulatory agents. And if they're going to work, they're going to work most potently in this target patient population. So the short answer to your question is, no, in heart failure in particular, I don't see any kind of wall that limits the use of our cells.

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

Silviu, I just want to touch upon the RMAT designation and the cardiovascular program. Now given that we are expecting the LVAD readout, the Phase IIb, in first quarter calendar year '18 and you'll still be running the other bigger trial, would you be able to give us your thoughts around how you would approach the RMAT designation for this?

Yes. I mean, obviously, these are details that I'm not able to share publicly. But fundamentally, the view is there is an underlying mechanism of action that is common to Class III and Class IV heart failure. And that mechanism of action is driven by inflammation and immune system abnormalities. And adding an LVAD on top of that further aggravates the problem in patients, both in the heart and in the periphery, the systemic problems, which are related to endothelial dysfunction and poor vasculature and the like. And so this -- the continuum provides the underlying mechanism for our cells to work in both Class IV and Class III heart failure, and it's really -- the RMAT designation ultimately rests on the product candidate itself, its mechanism of action and the targeted pathways of the disease we're focusing on. And clearly both Class III and Class IV heart failure patients represent a life-threatening condition for which there are no alternatives today.

And in terms of timing, do you think you would be in dialogue with the FDA after you have the results of the Phase IIb trial in hand?

Look, I can't speak to timing and specifics, and those discussions are obviously ongoing.

All right. And just one last question from me, just on TEMCELL and its Japan experience. You mentioned you've got now enough information to feel more comfortable about the U.S. and the U.S. launch. Would you be able to share any insights that you've seen from Japan that you can potentially have a read through for the U.S.?

Yes. Tanu, it's Paul. Yes, we're very pleased with TEMCELL's progression. You can see in the -- both in the P&L and in the cash flow that the royalties that we're getting in and, obviously, they come as a lag behind the actual sales in the market because we only get paid 3 months in arrears, are growing at a tremendous rate inside the company's business. Yes, it's off a low base because we only launched February last year, but the growth rate and progression is exactly in line with where we'd expect it to be for that 30,000 worldwide transplants in the Japanese portion for that. So yes, we're very pleased with that and the pricing remains strong, yes.

And I would add to that, Paul, that we're also pleased by the pricing for treatment cost that our partners were able to obtain in Japan, which gives us a good guideline given the uptake in Japan and the uptake by physicians for their patients, gives us good guidelines around how we're likely to see pricing and uptake in the U.S. market.

Your next question comes from Alethia Young from Crédit Suisse.

This is Derek Yuan on for Alethia. My first question is around, could you -- cash run rate, could you provide more color, since you guys are working on cost cutting? If there is no partnership happening, like how long can this cash last? And then could you provide color on that? And my second question is about the heart failure program, like for the first readout in the beginning of 2018, I'm wondering can you actually file with that data for the Class IV? Or we have to wait for first read-out?

Thank you for those questions. So first of all, with respect to our cash reserves, the use of the cash that we have on hand aims to achieve the key outcomes that we've just talked about in our Phase IIb and Phase III programs to provide us, if positive, with the kind of value inflection points that are going to be material for this company within the next 12 months. Therefore, the capital that is -- that we now have as a result of the recent entitlement offer plus the previous cash on hand, we are confident it gives us the runway to -- through these important milestones and the next 12-month period. Now, if we complete our strategic partnerships, whether it's in GVHD or back pain or potentially in the cardiovascular assets, of course, we would have a runway that extends beyond 2 years. And with the second question. Would the readout -- I think you asked, would the readout in our Phase IIb trial in Class IV heart failure patients be potentially usable in an early filing. And again, I think that question is linked to our ongoing discussions with the FDA. But I think the way you should be looking at this particular trial is in a similar vein to Phase IIb pivotal trials in patients with advanced forms of cancer. If you have a 50% mortality at 12 months in an appropriately powered randomized placebo-controlled trial, a positive signal around survival is often sufficient, particularly in a breakthrough designation environment to have conditional approval. I think that's the way this trial should be looked at and that's -- that forms the basis of our ongoing discussions.

Your next question comes from Jason Kolbert from the Maxim Group.

Silviu, it's Jason McCarthy for Jason Kolbert, who is traveling right now. I have a question. I just wanted to shift gears over to rheumatoid arthritis. The data was impressive at 39 weeks. You do have a 12-month data that's coming this quarter. What do you expect to see in terms of ACR 20, 50 and 70? And what do you need to see to then take this to a pivotal trial? And a follow-up to that question is how are you going to position MPCs in a market that's about to go biosimilar for HUMIRA and other TNFs like [ENTRESTO] .

Look, Jason, I appreciate the questions. These are all very, very important strategic questions for the company. I think the first point, to be clear, the trial was a small pilot study evaluating 1 of 2 increasing dosing of a single dose of cells against placebo in patients with TNF refractory -- anti-TNF refractory disease. And the primary endpoint was 12 weeks. And we significantly accomplished the objective at 12 weeks around improvements in ACR, improvements in function and improvements in disease activity scope. We have demonstrated that the durable effects of -- was seen for at least 39 weeks, and we have identified that there is a dose response or a dose-related effect, so that the higher dose is clearly better than the lower dose. We will be providing the 52-week data this upcoming quarter. And that really is about rounding out -- closing out the trial, a lot of data is being value added. I have no reason to believe that the durability of the effect would be anything other than what was seen at 39 weeks, but the full results will be provided. I think the question -- the 2 next questions are critical. One is, how do we position this product in the alimentarium of patients -- of a rheumatologist who's treating rheumatoid arthritis; and b, how do we take the data into Phase III? So I think, first of all, as you get the biosimilars into the marketplace, the numbers of patients who are treated first line with a TNF inhibitor is clearly going to grow quite rapidly. So that market will grow. The pricing per -- on an annual basis of a TNF inhibitor will clearly come down as there's greater competition. We believe the opportunity for us is in the anti-TNF refractory population because about 30% of patients will continue to be refractory, because either the drug doesn't work very well or there's a significant side effect profile, including infections or malignancies. That 30% target will actually grow over time. It'll be the fastest-growing segment, as the biosimilars take further hold. We also believe that the pricing point for the anti-TNF resistant population will be sustained at a premium, because that's the group that will continue to have an unmet medical need. So we will target that patient population. Now how to take the data that we've already generated to the next level? What we've shown is that there's a dose response. That the 2 million per kilogram single infusion at the front-end gave us a clear signal of efficacy that was durable. But I don't think we have hit the maximal effective dose. Clearly we haven't. We haven't plateaued. And the objective in rheumatology circles is to induce remission. We're very pleased that a single upfront infusion of 2 million per kilogram gave us a low disease activity score that was seen for at least 39 weeks. But really the objective is to see whether we can induce remission as early as possible. And so I would say that the next trial would be a randomized placebo-controlled trial, evaluating additional regimens of front-ended loaded infusions that would be at even higher doses than we've currently tested in order to see whether we can achieve early and durable remissions. That will be the objective of, say, 150- or 180-patient randomized, placebo-controlled trial that would either role into a supportive Phase III outcome.

(Operator Instructions) The next question comes from Dennis Hulme from Edison Investment Research.

My first question relates to the graft versus host disease trial, the pediatric trial. Can you just talk about the timing of a potential results announcement out of that compared to when the trial is fully recruited? And do you expect to announce when recruitment is complete or just when the results are available?

So it's an open-label study with no control arm. And therefore, we're a little bit sensitive in talking about the specific numbers of patients recruited, so they're not -- so we don't bias the trial in any way. But I think, yes, we don't have many patients left to close out this trial. And we will certainly be announcing the final patient enrollment when it happens. And then the trial's primary endpoint is a day 28 overall response. And so you can expect that the top line results of the trial's primary endpoint will be presented shortly after we announce that the final patient's been enrolled.

Okay. And then just moving on to the heart failure trial, the end-stage heart failure trial. You said you've got the first endpoint data coming through after 6 months. But then there's the clinical survival data after 12 months. Because it's a randomized trial, is announcing the first blood results 6 months going to interfere with your blinding for the randomization for the clinical follow-up? How is that going to work out?

Well, it certainly won't have any impact on randomization, because all patients would have been fully enrolled and they're being followed. Look, I think the point is a good one. In other words, we need to have alignment with the FDA and with the NIH around what data are available and what data can be presented, so as not to bias the rest of the trial. So you're absolutely, right. However, I think for internal strategic purposes, the company will absolutely have access to the trial's primary endpoint data at 6 months. That will allow us to start planning for important regulatory and market activities as well as will allow us to have substantial further discussions with potential cardiovascular partners.

So do you expect to be able to announce something about that 6-month primary endpoint?

Yes, we do.

Your next question comes from Elemer Piros from Cantor.

Silviu, I was wondering if you could elaborate on the RA, the next trial that you just described briefly? Would you plan to undertake this study on your own?

Look, our current cash reserves are clearly focused on the very near-term inflection points around our cardiovascular franchise and GVHD and back pain, all of which are in Phase III. We have to manage our cash reserves very carefully. I think that in parallel, we hope to execute one or more corporate partnerships. With additional cash on hand, we can certainly then address the next trial design for rheumatoid arthritis. In addition, with an RA partnership, of course, then the type of RA trial designs moving forward around increasing dosage, increasing frequency of upfront regimen for induction therapies, et cetera, becomes a joint partnership decision.

Would you please elaborate the connection between having an end-stage heart failure condition having the LVAD device implanted and GI bleed as a major comorbidity?

Sorry, could you just rephrase the question? I think I understood what you were saying about the comorbidity endpoint. Yes, if you could just...

Yes. So GI bleed is a very common observation and it appears that treatment appears to reduce that. And I'd just like to maybe better understand the connection between the device, on the device end and in GI bleed as a complication.

Sure. Absolutely. That's really an important question. So about 40% -- up to 40% of patients who are on these latest-generation LVADs have severe GI bleeding complications that results in recurrent hospitalization. It's the #1 cause of recurrent hospitalizations and it's what makes an LVAD implant not pharmacoeconomically efficient, if you like. Our cells are, remember, are living delivery vehicles for multiple bioactive factors. Amongst them are factors relevant for switching off inflammation and factors relevant for creating a mature blood vessel vascular network. And that's the way the cells, we believe, work in the ailing heart. They are activated by inflammatory signals in the heart, they release their factors locally when they're injected into the myocardium. Now in Class III and Class IV heart failure, the inflammatory response, the immune-mediated inflammatory response is not just limited to the heart, it is a systemic problem. And you have, for example, vascular abnormalities distally in the renal arteries, in the major organs, even in the coronary arteries, where the vasculature has got endothelial dysfunction, is not able to dilate and perfuse these organs because of heavy systemic inflammation. When you have an LVAD put in, that just amplifies or magnifies the problem. And this inflammatory problem both in the heart and away from the heart in the peripheral organs is magnified. In the gastrointestinal tract, what appears to be happening are abnormal blood vessels become created as a result of the inflammation in the LVAD patients. And these blood vessels are abnormal, thin-walled and leaky and result in bleeding in the gut that can be life-threatening. What our cells do is not just dampen down the inflammation in the heart and result in reparative processes in the heart muscle itself, but the secretion effect is out into the circulation. That ultimately results, we believe, in maturation and repair of those leaky blood vessels in the gut. By repairing those vessels, we think that we will see and have observed in the pilot study a significant reduction in bleeding of the gastrointestinal tract, which will, if that's what comes out, will have an impact on recurrent hospitalization rates. And that would have an effect on the pharmacoeconomic rationale for use of LVADs in more patients.

Yes. Okay, okay. That was very clear. The next one, it's almost housekeeping, but just wanted to understand the pace of enrollment in the Class IIc heart failure study. During the last 4 months, you enrolled north of about 100 patients, and you estimate now that the remainder, like, is less than 200, would take another year. Is that a little bit overly conservative?

Look, we're trying to be very conservative so we don't get surprised. And if we're fortunate enough to increase that recruitment rate or reduce the total number of the patients needed because we see sufficient events, then that will be on the upside.

Okay, okay. And very lastly, I noticed that you project the results from the pediatric GVHD study for the second half of calendar '17. So that would be the fourth quarter in September. So is it possible that you would have results in -- as early as in September?

No, we're talking about by the end of this year.

(Operator Instructions) Thank you. That brings us to the end of today's call. I'll now hand back to Dr. Itescu for closing remarks.

We're very excited by the upcoming 12 months. We're very excited by the potential value inflection points, if we are able to successfully achieve these outcomes in the Phase III programs at hand. And we're very pleased and grateful for the support from our major international investors. Thank you very much for today. And we look forward to updating the market shortly.