Mesoblast Ltd (MESO) 2018 Q1 法說會逐字稿

Hello, and welcome to Mesoblast's financial update and operational highlights webcast for the 3 months ended September 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. Good morning, everybody. I'm very pleased to be presenting today the first quarter financial results and operational highlights.

If you could turn to Page 5 of the presentation, please. We have a disruptive cellular medicine platform that is based on use of monoclonal antibodies to provide a homogeneous, well-characterized and highly potent cellular population.

Slide 6. We're very pleased with our scalable industrialized manufacturing capabilities using our proprietary media formulations, which provide for product delineation and enable commercial-scale yields.

If you turn to Slide 7, you can see our broad and deep pipeline, and we're delighted with the status of our maturing late-stage product candidates. Each of these will be addressed in detail.

On Slide 8, we believe that our portfolio of advanced product candidates is very well positioned to achieve accelerated approvals under the recently enacted 21st Century Cures Act.

Slide 9 broadly covers the intellectual property position. We have an extensive portfolio, which covers compositions of matter, manufacturing and therapeutic applications of potent immunoselected mesenchymal lineage precursors and their progeny, and their IP portfolio of approximately 800 patents granted and in application across all the major jurisdictions globally.

Now let's turn to our diverse pipeline of cellular medicines. Our first product candidate is MSC-100-IV for steroid-refractory acute graft versus host disease. Slide 12 speaks to the market opportunity for this product candidate.

Over 30,000 allogeneic bone marrow transplants are performed globally. We are addressing the #1 complication of this procedure, which occurs in about 50% of patients and has a potentially devastating complication of acute graft versus host disease. Already our licensee, JCR Pharmaceuticals, has launched the product in Japan, which has received full approval and is generating sales today. We will focus on the U.S. market in the next few slides.

Before I hand over to our Chief Medical Officer, Dr. Donna Skerrett, who will update you on this program, let me briefly take you through our commercial strategy for this exciting product candidate, Slide 13.

Firstly, we will be targeting the pediatric market which is -- with steroid-refractory graft versus host disease. This patient population has already demonstrated extensive safety and efficacy data using our therapy. There's a high economic burden and we've already received fast-track designation for MSC-100-IV, providing a pathway for priority review and accelerated approval.

In addition, post completion of the program, we will seek to extend the label into adults who have the highest risk for mortality: Those with liver and gut disease. Here, we've already seen a signal of efficacy in a prespecified subset population of an earlier Phase III trial.

And finally, we will develop a life cycle management potential in a parallel disease chronic graft versus host disease, because already there's extensive data published that MSCs are effective in this target population.

Now I'd like to hand over to Dr. Donna Skerrett, who will take you through the exciting data generated to date and the Phase III program for acute graft versus host disease. Donna?

Thank you, Silviu. So as you've heard, graft versus host disease is a serious and life-threatening complication of allogeneic stem cell transplantation and it's really a devastating outcome for the procedure, which is really meant to save someone's life, particularly someone who's struggling from cancer or another serious illness. And in my personal experience, I've seen these patients as a hematologist and also now as Chief Medical Officer of this company, working with sites on managing these patients, and so it is quite challenging and I'm thrilled that we're able to share with sites and with you our prior experience with our product, MSC-100-IV, in this indication and our promise of moving towards a licensure goal for this indication.

As you've heard, we have extensive experience with this indication. The bulk of the clinical experience comes through an Expanded Access Program which has evaluated MSC-100 in 241 pediatric patients who underwent stem cell transplantation. This program was active in approximately 50 sites across the globe and evaluated children ages 2 months to 17 years who had serious GVHD, Grades B to D, involving the skin as well as many patients' sexual organs. All the patients had failed to respond to steroids, and importantly, many of the patients also failed to respond to multiple prior agents and they were truly salvaged patients.

If you look to Slide 14, please, we show the early indicator of outcome which is the overall response rate, which is assessed at day 28 in patients. And at day 28, we're able to evaluate responses in organs to determine response by grade as well as in the individual organs. And what we're showing here is that the overall response rates are approximately 65% and that responses were observed for patients across all GVHD grades and did not differ by baseline organ involvement.

On the next slide, 15, we're showing the correlation of day 28 overall response with day 100 survival. So if a patient is a responder at day 28, that individual has an 82% probability of survival at day 100, and that compares to 39% of those patients who are -- in those patients who are nonresponders. So clearly, the response at day 28 is an important indicator of subsequent survival.

Now if we go to Slide 16, I mentioned that many of the patients -- in fact, most of those patients have failed multiple lines of therapy. But we also want to get an idea of what responses look like in patients who had only received steroids and then received MSC-100 treatment course. And here, we're showing 2 groups of patients: one subset from the Expanded Access Program, and one, the pediatric subset from a larger randomized control trial. And with these combined study results, we're able to demonstrate that, compared with placebo-controlled patients, MSC-100-IV produced superior overall response at day 28, a clinically meaningful endpoint, and that was statistically significant, while overall response combined was 76% compared to 21.4% in the controlled.

We also are showing on the right-hand side the overall survival by capturing survival probability for patients who received MSC-100-IV at 78.6% compared to 50% in controlled. And with these combined data, we've had discussions with the FDA and have reached agreement for the ongoing Phase III trial design and its eligibility for an accelerated approval pathway.

Next, Slide 17. So we are currently completing enrollment of a Phase III pediatric trial which is evaluating first-line therapy in acute GVHD patients after failing steroid therapy. This is a multi-center single-arm study. It's open-label, and it will evaluate efficacy through day 100 and follow up safety components through day 180. The study will enroll up to 60 patients. They are pediatric patients who have failed to respond to systemic clinical steroid therapy. The patients have severe GVHD as in our prior experiences, Grade C to D, involving skin, liver and/or G.I. tract, and Grade B patients involving the liver and GI tract without concomitant -- with or without skin diseases. The primary endpoint of the study is the overall response rate at day 28. This is the same overall primary endpoint evaluated previously and the key secondary endpoint of survival at day 100 by responding status.

Now in this ongoing study, we have previously conducted an interim analysis for futility, evaluating a primary endpoint. We conducted that analysis in November 2016 and previously reported that, that analysis was successful. And so as I mentioned, we're nearing completion of this study. We expect to have enrollment complete by the end of this year and look forward to completing the study and analyzing the results and moving forward with this program. I'll now hand back to Silviu to discuss the next product in our pipeline.

Great. Thank you very much, Donna. Moving on to the next program, and keeping on with the theme, where we're targeting the most severe subset of patients in bad diseases: chronic heart failure.

If you go to Slide 19, this slide shows the continuum of heart failure and the patient journey with this progressive and ultimately fatal disease. We're developing our product candidate, MPC-150-IM, to target the sickest segments, Class III and Class IV heart failure, both of which have very high mortality rates.

Next slide, Slide 20. The Class IV heart failure market opportunity. 250,000 to 300,000 patients per year suffer from this end stage of disease Class IV heart failure. The most severe end-stage heart failure patients, 50,000 of them, have a 1-year mortality rate that exceeds 50%. This is as bad as any cancer disease. And the treatment options are minimal for these patients.

If you go to Slide 21, this summarized the schema of a pilot trial that was performed and funded by the NIH several years ago and published in circulation, evaluating a micro dose of MPCs, 25 million cells injected into the native heart of end-stage heart failure patients at the time of getting an artificial heart, a left ventricular assist device. This was a 30-patient randomized, placebo-controlled study.

Slide 22 speaks to the published outcome of this pilot study. There were no cell-related safety events, and the important endpoints were that the time to a first recurrent hospitalization rate was almost doubled from 51 days in the controlled group to 91 days in the cell-treated group. More than twice as many cell-treated patients were able to be weaned off their artificial heart and were able to maintain their circulation without assistance. And at 90 days, there was a suggestion of a survival benefit with 30% of the controls having died versus none of the cell-treated patients.

On the basis of this promising pilot study, the NIH decided to fund a larger study across 40 sites in the U.S. of 159 patients, testing not 25 million but 150 million of the allogeneic MPCs, the current MPC-150-IM product that's in clinical development. This 159-patient trial completed enrollment in the third quarter of 2017. The primary efficacy endpoint of the study is the number of temporary weans from the artificial device that can be tolerated by either controlled patients or cell-treated patients over 6 months. And the secondary endpoints of the study over 12 months are the time to recurrent hospitalization, overall patient survival and a variety of quality of life measurements.

The 6-month primary endpoint we expect will be reached in the first quarter of next year, and full data readout on all endpoints we expect will be read out in the third quarter of next year.

Slide 24 speaks to the commercial strategy for this product candidate for Class IV and Class III heart failure. If the data for this trial are positive, we expect to be able to leverage the data for earlier market entry in end-stage heart failure patients. Today, approximately 5,000 patients with end-stage heart failure get an artificial device, an LVAD. We believe that if positive in this trial, a single injection of our cells will be used as an adjunct to LVADs in this 5,000-patient population and, potentially, if we can strengthen the native heart muscles efficiently, in up to 50,000 patients with end-stage heart failure. In addition to the Class IV heart failure population, we will seek to bridge the results from this study to the much larger Class III heart failure population via label extension if our Phase III trial results in that population are positive.

Let's turn to Slide 25, which talks to the heart failure market opportunity for Class III heart failure patients. This is a large unmet medical need, which in the U.S. alone targets approximately 1.9 million patients today. Again, this is a condition that's associated with recurrent hospitalizations, high morbidity and a mortality rate that approaches 20% over 2 years.

Slide 26 reminds you of the Phase II data that were generated in a 60-patient randomized placebo-controlled trial, the results of which were published several years ago in circulation research. On the left-hand panel, you see that following a single injection of 150 million MPCs into the left ventricle by catheter, there were no hospitalizations or deaths in the cell-treated patients compared to a 33% event rate over 3 years in the controlled patients.

On the right-hand side, you see a post hoc analysis of a subgroup of patients with the largest systolic volumes, more than 100 ml, matched between treatment and controls. And here, again, you see that a single injection of 150 million MPCs protect it against any hospitalizations or deaths, but here, you see the control group is at an even greater risk of progression, and 71% of patients had a hospitalization or death over a 3-year period.

On the basis of these results, the program moved into Phase III, and Slide 27 talks to the Phase III trial design. The Phase III trial is targeting those patients with advanced heart failure on the basis of large baseline systolic volumes of about 100 ml or more, and the reason for that is that those patients with less systolic volumes are well known to have a high risk of recurrent hospitalizations and deaths. This is where the existing therapies are very limited and where the economic burden is greatest. The ongoing Phase III trial is enriched for these patients on the basis of a recent heart failure hospitalization and on the basis of a significantly elevated baseline NT-proBNP level. The primary endpoint is a comparison of recurrent hospitalization rates between the treatment arms and control arms, and the most important secondary endpoint is an evaluation of terminal events, deaths, implantation of an artificial heart or a transplant.

Slide 28 speaks to the operational update of this program. The trial has enrolled more than 400 of approximately 600 patients, and remembering this is an event-driven trial, so it may be that we may not need to recruit the full 600 patients if we reach the total number of events.

In April of this year, we were successful in accomplishing a pre-specified interim futility analysis of the trial's primary efficacy endpoint after the first 270 patients were evaluated. Multiple times now the trial's independent data monitoring committee has recommended continuing the trial as planned, indicating no evidence of any cell-related safety events. The trial is targeted to complete enrollment towards the end of next year.

Now let's move on to Slide 30 to our product candidate, MPC-06-ID, for chronic low back pain. This is a non-opioid alternative for this bad disease that affects over 3 million patients in the U.S. today and for which conservative measures are not sufficiently effective to avoid the prescription of opioids or surgical interventions.

Slide 31 speaks to the devastating opioid epidemic that is currently underway in the U.S., in Australia and in most Western countries. 50% of all opioid prescriptions are for chronic low back pain. Over 1,000 people are treated in the U.S. emergency departments every day for misusing prescription opioids, and over 33,000 people died last year as a result of prescription opioid-related overdoses. This is such an emergency that the U.S. President in October '17 declared it a public health emergency. Clearly, a non-opioid solution for chronic low back pain is imperative.

Slide 32 now speaks to the Phase II trial that we've presented previously. 100 patients with over 6 months of chronic low back pain due to degenerative disc disease and unresponsive to conservative therapies were randomized to receive either a single low-dose injection into the disc, a single higher-dose injection, an injection of saline or an injection of hyaluronic acid. Pre-specified analyses were performed for change in pain from baseline using visual analog score and change in function using Oswestry Disability Index. The endpoint composite over 24 months was evaluated and is now the primary endpoint in our ongoing Phase III trial, and it's shown here on this Slide 32. The composite of achieving 50% or more reduction in pain from baseline through 24 months, together with at least a 15-point improvement in function over 24 months in the same patient, was evaluated. And as you can see in this slide, more than 3x as many patients who received a single low-dose of our cells achieved this very high threshold over 2 years compared to saline-treated controls. This was significant by the intent to treat analysis and almost significant by the protocol analysis. And just to reiterate, this is the primary endpoint of our ongoing Phase III trial.

If you now look at Slide 33, we look with more granularity at the effect of cell therapy on pain and function over 36 months. On Slide 33, you see the effect of either a low dose or a high dose of our cells in green and blue over 36 months on mean change from baseline in the VAS score. And assuming that the VAS score in each of the 4 groups was fairly similar at baseline and approximated between 65 and 70 points, what you're seeing here is that there's about a 50% reduction in pain with either of the 2 MPC doses as early as 6 to 12 months and sustained for the majority of the 36-month period.

In contrast, you can see that the saline-treated controls barely achieved a minimal reduction from baseline in VAS score at time points beyond 6 months. Now just to put this into context, in meta-analysis using opioids, opioids were no better than 10 point pain reduction at 3 to 6 months, and I'm not aware of long-term studies that have demonstrated this kind of durability and this degree of pain reduction in this target population of patients. If we can see this degree of pain reduction in our Phase III trial, we would expect that in the patient journey, patients would not need to initiate opioids.

The next slide, Slide 34, shows a similar analysis for improvement in disability, in function. And you can see even clearer separation between the 2 treatment arms over 36 months compared to the 2 placebo arms. This is the basis for why we're working with the agency to evaluate a composite of both pain and function in the same patient over time, which would establish an overall mechanism actually for regeneration of the disc along the same lines as you would typically see with disc replacement strategies such as surgery or fusion interventions.

And on Slide 35, the update of this trial. 360 patients are being randomized across U.S. and Australian sites. This trial is close to completion. We expect to complete recruitment towards the end of this year. The FDA has provided written guidance that the use of a composite primary endpoint at 12 and 24 months is acceptable. The agreed thresholds of 50% decrease in VAS pain score and 15 point improvement in function score are acceptable as endpoints without any additional intervention. If the Phase III results replicate the Phase II results in pain and function, we expect to be able to leverage this product candidate as a potential non-opioid treatment option for chronic low back pain.

And finally, let's move to our inflammatory diseases portfolio on Slide 37. This product candidate, MPC-300-IV, is a product that has been well defined on the basis of its surface receptors that allows it to respond to multiple pro-inflammatory signals including TNF-alpha, interleukin-17, interleukin-6 and other cytokines, and it responds by then releasing anti-inflammatory factors that are necessary and relevant for modulating the multi-cytokine dependent pathways of a variety of autoimmune diseases. Today, we've used this product candidate in over 130 patients across 3 randomized controlled trials in type 2 diabetes with inadequately controlled glucose, in patients with diabetic kidney disease and, most recently, in biological refractory rheumatoid arthritis.

Slide 38 speaks to the market opportunity for this product candidate in biologic-refractory rheumatoid arthritis. Today, the use of TNF inhibitors globally exceeds $19 billion market around the world, and yet, 1/3 of patients who were exposed to anti-TNF agents are either refractory or resistant or intolerant of the effects of these drugs. We are targeting these patients.

Slide 39 outlines the Phase II trial design, a randomized placebo-controlled trial that -- in TNF and other biologic-refractory patients evaluated either 1 million cells per kilogram, 2 million cells per kilogram, or placebo over primary target that was 12 weeks and an overall follow-up period of up to 52 weeks.

The results, the full results over the 52-week period were recently presented at the American College of Rheumatology by the trial's lead investigators. Slide 40 summarizes the outcome of that presentation. Infusions were well tolerated and there were no treatment-related serious adverse events. A single intravenous infusion in the biological refractory population resulted in dose-related improvements in symptoms, in function, in disease activity and in patient-reported outcomes.

The 2 million per kilogram dose showed clearly the greatest overall treatment response. Onset of treatment with this dose occurred as early as 4 weeks, peaked at 12 weeks, was sustained for 39 weeks and waned by 52 weeks. Greatest benefits over the 52-week period were seen clearly in patients who had failed less than 3 biologics, meaning those patients with the most active inflammatory disease. This is potentially identified as the optimal target population. So the conclusion of the presentation was that the Phase II clinical trial evidence of signals responses, together with the safety profile, positioned potentially the product candidate MPC-300-IV as an early treatment option in biologic-refractory RA patients. Future studies are going to evaluate whether higher doses as induction therapy, given that we saw no safety problems, could induce even greater rates of low disease activity or remission within that first 12-week period.

And on that note, I think I'll switch over to Paul, who will be talking to the financials for this -- for the last quarter.

Thanks very much, Silviu. Let's look at Slide 42. Firstly, our cash position. So as you can see, we continue to manage our cash efficiently. So the operating cash flows remain pretty constant over -- in comparison to prior year, were $20.3 million for the quarter. If we actually look at the cash on hand position, we're now standing at $62.9 million at the end of September, having obviously just concluded the successful September entitlement offer of 36 million shares. So $62.9 million in cash.

Let's have a look at the profit and loss account in addition to that. So Slide 43. In terms of the revenue line, we can see a promising start to the TEMCELL asset which was launched, I'll remind you, in February 16. It continues to grow over time, and this is our share of the royalty in coming -- coming in. And in addition to that, in this particular quarter, we received a milestone on sales.

Again, on Slide 44, looking at the cash-related expenses of research and development, manufacturing and management, you can see that our R&D expenses did increase by $1.4 million or 10%. This is no surprise as we have the CHF development of the program, and we're continuing to fund CHF GVHD and disc. However, as foreshadowed in earlier meetings, we have offset the increased cost within R&D with the savings within manufacturing, which decreased by $2.4 million. And our management and admin costs, again, have continued to reduce as we contain items such as rent and IT costs in the prior period and we're now seeing those full year effects translate through.

So with that, I will now hand back to Silviu who'll conclude on the milestones coming for the future quarters.

Thank you, Paul. We're very excited about the upcoming milestones and catalysts for the company. There's some really important milestones that I think you can all look forward to.

With respect to MSC-100-IV for pediatric graft versus host disease, we expect to complete enrollment, as you heard from Donna, towards the end of this quarter, with a day 28 primary endpoint data readout sometime during Q1 and the day 100 survival data by Q2 of next year. We're very excited about this program. It will provide us with the ability to have that first launchable product into the U.S. market.

MPC-150-IM for advanced and early -- and end-stage heart failure is also in a very pivotal position. The Phase IIb trial in Class IV end-stage heart failure patients has a 6-month primary endpoint readout towards the end of Q1 next year. The full trial data readout is by Q3. Given the high mortality in this patient population, a positive result will be very meaningful. The Phase III trial for Class II and III heart failure targets completion of enrollment by the end of next year, and we would hope that the 2 data sets would bridge each other.

Our product MPC-06-ID for chronic low back pain is -- the Phase III trial is expected to complete enrollment towards the end of this year or very early in the new year. And again, given the magnitude of the opioid epidemic, we expect to be able to update the market on how this program is going in the short term.

And finally, of course, we continue in advanced discussions with multiple potential partners across these and other product indications in development.

Thank you, and we would welcome questions.

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

First question might be one for Donna. We were just wondering with regard to the graft versus host disease trial, if you have a sense for what the FDA is doing as an approvable 28-day response rate and 100-day survival versus the current standard of care. And also is the trial enrolling pediatric patients who are getting the cell therapy immediately after steroids? Or are there opportunities for intervening therapies between steroids and the cell therapy?

Hi, Mark. Thanks for your questions. So your first question regarding the FDA, sounds like the expectations with the FDA in terms of defining success, we did negotiate with the FDA on the assumptions we used to design this trial. And the hypothesis we generated that would provide a comparative expected response from a hypothetical control population. So we have reached agreement with the FDA on what success would look like in the trial. So I would say the answer to your question is yes, we do have a mutual understanding of what would define success for this study. And your second question regarding the patient population, in this trial, patients are going onto this trial after having failed steroids and not having received any other agents. And that does differ a bit from our prior experience where we did patients who treat -- received multiple other agents but we do have experience with the steroid-only population and it's really allowing us to have a very clear idea early on in this disease of where the cell therapy would be utilized and would be mostly effective for this devastating condition.

Okay. One other question on the -- actually, the RA program, on the data that was recently presented at the ACR conference. Would you say there are any implications for the possibility of re-dosing given that we saw some HLA sensitization and change in donor-specific antibody status?

Thanks, Mark. Look -- well, the data suggests that disease is not cured by the 2 million per kilogram initial dose. So the data suggested that perhaps somewhere between 39 to 52 weeks, a repeat dose could be warranted going forward. Having said that, I think a higher induction dose, 3 or 4 million cells per kilogram, might not only give us a higher remission rate upfront but might give us greater durability. I think that remains to be evaluated. Your question around HLA sensitization, we saw some patients develop anti-HLA antibodies in this group. We have seen a small number of patients develop anti-HLA antibodies in the heart failure population previously. Other studies that we've performed such as disc, we did not see anti-HLA antibodies. Nevertheless, when you do see certain anti-HLA antibodies that have not been associated with any kind of adverse events, nor with any differences in clinical outcomes, we have experience now with several thousand doses in GVHD-treated patients where the cells were repeat-dosed every couple of weeks, and not only do we not see any problems with the repeat dosing but we do not see any drop in efficacy or any evidence of, I guess, neutralization, you might say, from alloantibodies. So I think the short answer is we don't believe that sensitized patients would have any issues with repeat dosing.

Okay, that's actually very helpful. And then just a quick final one for me. I think previously, with regard to the chronic lower back pain trial, you had been guiding enrollment would be complete by the end of this year. Looks like it's pushed back a little bit now. Are there any particular reasons that it's taking longer than expected?

Look, I think if it's pushed back, it will be pushed back by a couple of weeks. Yes, really immaterial. But whether it's this side of Christmas or whether it's a month later, I think, is the only difference.

The next question is from Elemer Piros from Cantor.

Maybe if I could follow up on the RA durability question. So would you undertake the next trial on your own or with the RA program and show perhaps a higher induction response with the higher doses? Or would you prefer to have a partner take care of that?

We have begun discussions with several potential partners now that we've got a full data set to talk to. I think the RA program is -- it's not just about clinical development. Ultimately, it will be about the ability to commercialize and distribute the product, and that will require a substantial effort. So ultimately, I think there is little doubt that we would want to do that together with an appropriate commercialization partner. In the short term, we're very focused on bringing in partners into our Phase III assets which are closest to commercialization because they will drive the greatest value proposition for the company. And again, until we close several of those outcomes, our resources will be fully focused on those 3 -- Phase III assets. But of course, we're pursuing partnering opportunities in parallel across all these fields.

And maybe a follow-up question to Donna. Donna, now that you have an agreement with the FDA on what would be a respectable benchmark versus historical controls, is a 55% response rate at 28 days in that ballpark in the GVHD trial?

Well, we haven't said what that benchmark would be, but I will tell you that it is something that is very consistent with what we have observed all along in our program.

Okay. And maybe coming back to Silviu. Silviu, the NIH now expects the full data set from the stage 4 heart failure trial in the third quarter. Any chance that any top line readouts would be available sooner? Or they just want to go for the full Monty?

No, no, no. I think I was pretty clear that the primary endpoint will be available end of Q1. the full secondary endpoints -- survival, hospitalization and quality of life measurements -- will require a full 12 months of -- to complete. So we expect the primary endpoint to be available at the end of Q1.

Okay. And maybe one question for Paul. Paul, the $63 million that is -- was available at the end of September 30, all else being equal, what sort of runway would that provide at the moment?

Yes. You've seen in the operational cash flows that we've been consistently running at just north of $20 million. So my view is there's a 9-month runway in that, which we'll, obviously, be able to extend through a conclusion of a partnering deal which has a double benefit of an upfront supplement in the cash reserve, and we expect partners to pick up the clinical development costs going forward, so it lowers the burn further.

The next question is from Kevin DeGeeter from Ladenburg.

Donna and Silviu, can you just comment to -- you mentioned chronic graft versus host disease, there's an opportunity to expand that program. Any thoughts with regard to how we can extend some of the learning from the acute graft versus host disease to better understand potential dose level and dose regimen for that patient population? And when might we learn more with regard to a development program on that potential line extension?

Maybe I can have a first shot at this, Donna, then please complement what I'd like to add. Kevin, those are all terrific questions. What's interesting is that the mechanism of action, by which ourselves are likely to impact acute graft versus host disease and chronic graft versus host disease are likely to be overlapping but not identical, and that's because chronic graft versus host disease is thought to have more of a mechanism driven by B-cells such as other autoimmune diseases do, whereas graft versus host disease is driven much more by T-cells. And so that, again, speaks to the beauty and the strength of our cell therapy. It can target multiple arms of the immune system. And chronic graft versus host disease, whilst often preceded by acute, nonetheless, is a separate disease partially overlapping but really in large numbers of patients who may have never have had acute graft versus host disease. And there's recent precedent of a competitor technology that has received fast track approval on the basis of as few as 40 to 50 patients, open label, with chronic graft versus host disease in adults. So there is a precedent. That's how severe the unmet medical need is. And given that we believe that we can target the underlying mechanism of action with a product that is otherwise very safe, this becomes a very important potential indication to both extend the label and create pipeline diversification.

Okay. Great. That's actually extremely helpful. And then just maybe with regards -- just a strategic status update with regard to commercialization of graft versus host disease, are you still prioritizing partnering for the U.S. and other major markets for graft versus host disease? Or has your thinking perhaps evolved as this data matures and the thought process with regard to the chronic graft versus host disease clarifies?

As you heard from Donna, we are imminently completing enrollment in this pediatric trial. That -- with the positive readout, it creates a real value inflection point, with only a 28-day readout being necessary to know that we have a successful Phase III and a launchable product. The footprint for the pediatric launch is very, very small. You know that, really, a handful of MS cells would be needed to meet the needs of the product launch in the U.S. More importantly, to our way of seeing things is a potential partnership with a strategic company that shares our vision of the strategy of the product which is use the pediatric launch to establish a beachhead in the U.S. transplant market, then extend the label to the adults with the same disease, which is 4x the population size of the pediatric and label-extend and broaden to the chronic GVHD population. That would be the basis for a commercial partnership, that sort of alignment of strategy.

The next question is from Ed Tenthoff from Piper Jaffray.

So a lot of good questions, great update. If you could, assuming we get some positive data from the Class IV study next year, is this something where you would be able to file on that for the more advanced patients and then potentially do a supplemental BLA upon the completion of the Class II/III study? It seems to me like there's an opportunity to maybe hit the market fast and almost like you just established a beachhead with respect to the heart failure and cardiovascular market. So what's sort of the strategy from a regulatory standpoint if that one reads out positive?

I think, Ed, you're very, very much, as usual, spot on with the general regulatory strategy. I think clearly, it all depends on the strength of the data. I think this is very much a population that has few alternatives. A mortality that resembles many cancers, 50% mortality. Even with an LVAD in place, the mortality is still 30% to 40% in 12 months with some very bad morbidity and complication rates. I think that if we see evidence of a survival benefit or reduction in major complications, I think the agency -- we will be having some very important discussions with the agency around a potential early launch of this product. And how to then bridge the data from this trial to the larger Class III heart failure population, obviously, will require additional discussions, but I think that's exactly how we're building a step wise progression to a cardiovascular launch.

It makes a lot of sense. And then maybe a quick follow-up, if I may, just on the disc product. If you could remind me what the time frame is on primary endpoint. Is that something where we could get Phase III data in early '19?

So again, I would look at this program in 2 ways. The most traditional and conservative approach is you're looking at a product that looks at durable composite endpoints of 12 and 24 months as per the device guidance in the back pain surgical community. On the other hand, I think, given the opioid epidemic and the mandate to accelerate development of products that are opioid-sparing, given that 50% of opioid prescriptions is in this very target population, we will be looking at -- and under -- particularly under the 20th Century Cures Act, at ways by which we can generate early or intermediate or interim data sets for discussion with the agency.

The next question is from Alethia Young from Crédit Suisse.

This is Derek Yuan for Alethia. My first one is for the GVHD program for the adult population. I mean, do you have to see a positive pediatric data before thinking about that, like, population? Or they're more like a separate patient population? And I mean, for either scenario, could you tell us what kind of data or trial FDA wants to see for adult? And I have a follow-up.

I'll ask Donna to expand on this answer. But I think we have had discussions with the agency, whereby the adult trial design will leverage the pediatric data in a way that will allow us to move seamlessly from a pediatric positive result into a high-risk adult population. And the 2 data sets would -- the pediatric data set would underpin what we're doing in the adult program. But in addition to that, the adult program would be buttressed by the extensive data previously generated in an earlier Phase III trial in adults. So with those data, with the signal from those data and the pediatric accelerated approval, the 2 will come together into a relatively short adult study. Donna, can you speak to the signals that were previously seen in the adult subset population with the product?

Certainty. So it's clear from the prior randomized controlled trial that the adult patients with gut and liver involvement had the highest responses to our sales compared to the controlled population. And so that is indeed the target population that we will focus on for the adult study and label extension. And those are the sickest patients with acute graft versus host disease. They are most likely predicted to fail to respond to steroids and therefore high risk and the highest risk of mortality.

Okay. Got it. For the back pain trial, I'm wondering for the Phase II study that you have, like, 3-year data already. And maybe could you talk about, like, did you do other kinds of management besides pain reduction? For example, like imaging to look at the disc or any other, like, function or assessment that can give you confidence on the regenerative nature of the drug?

Yes, terrific question. Terrific question. So first of all, with guidance from the FDA, looking at the composite endpoint of both pain and function through specified measurements, when you look at those data, you see separation between the placebo groups and the treatment arms somewhere between 1 and 3 months. You see peak effect between 6 to 12 months. You see a durable effect by 24 months, and then you start to see some waning but still significant benefits through 36 months. The fact that you see that kind of separation between the treatment and placebo groups speaks very much to the biologic nature of the response and, likely, the restorative underlying mechanism of action. We know that what these cells do is that they do a 2-step outcome. They respond to that inflammatory stimulus in the disc by releasing anti-inflammatory factors and they release factors that result in anabolic repair of the disc proteoglycan matrix by stimulating the local cells. That, whilst it's a restorative and regenerative process, is not curative, right? You're not replacing the disc. And so the real question within the Phase II trial -- and by the way, we've seen all of that pathologically and mechanistically in large animal models that have been published. And the real question is since it's not -- we're not replacing and curing the process, is how long does this process last? When do you potentially need to re-dose? And so we've shown you clinically a durable effect in pain and function. On the basis of that, we think that, potentially, the effect lasts at least through 24 months. But yes, we have seen imaging data and we've correlated radiographic data of the intervertebral disc height with responder status, meaning if you're a responder with pain and function versus if you're a non-responder in pain and function. Those patients who were successful responders demonstrated radiographic increase in disc height through 12 months, which is highly suggestive of an underlying restorative process that will guide us in our future studies both in terms of obtaining additional data using imaging in the Phase III as well as potentially guiding when we may want to read those.

Got it. That's helpful. And last one, just want to clarify for the disc program, like, primary composite endpoint, which is 12 and 24 months. Will you, like, reveal 12 months data when you have that, or you have to report it at 24 months?

We have in place an approach that will review interim data from this program, and those are discussions that are ongoing with the agency.

The next question is from Tanu Jain from Bell Potter Securities.

Donna, probably one for you regarding GVHD. Given the vast experience you've had with the Expanded Access Program in GVHD, could you perhaps give us some sense of what kind of similar or parallel trend you might have seen in the current pediatric trials so far?

Certainly. Thanks for your question. So I mentioned that we conducted an interim analysis and we're about midway through enrollment in this program, and we designed that interim analysis so that it would be informative and give us an idea about our ability to achieve the primary endpoint in -- when enrollment is complete. And that was based on the types of responses we've seen overall in this program through the EAP program. And overall, we saw, and I showed earlier, a response rate of 65%, which varied a little bit by prior exposure, but that is consistently the response rate that we've seen. So if that gives some sort of confidence to others, and it certainly does to me, about where we expect to be for the program, that's what we're aiming for. Our experience has been in that range, if not higher, from some looks.

Right. So is it safe to assume that you're seeing that kind of trend at the interim futility point?

The interim analysis that we conducted assured us that we were in the range where we expected to be.

(Operator Instructions) The next question is from Jason McCarthy, Maxim Group.

A lot of great questions already. A lot of mine have been answered. Silviu, perhaps you could talk a little bit about the RA study. I know the 52-week data was just recently presented. What are the company's plans around moving to a Phase III program? And how do you position a stem cell therapy versus TNF therapies, especially since they're going biosimilar in the RA market?

Yes. Thank you. Good questions. I think the issue around biosimilar is a very important one, right? So we specifically have targeted the TNF refractory population for 2 reasons. Number one, we believe that our cells preferentially work when there is severe disease on hand, meaning that if you've got a lot of inflammation, a lot of cytokine -- cytokines in the bloodstream, those cytokines serve to activate our cells and that's where our cells are most effective. So the right time to intervene, we believe, is in a patient population that has not responded well to an anti-TNF agent, still has sufficient inflammation, and that's where our cells potentially can be used as a first-line therapy in TNF refractory patients. That's because of their likely potency and effectiveness. In addition to that, from a strategic point of view, you're absolutely right. Given that there's going to be a surge in biosimilars over the next few years, there will be an increased use of TNF agents more broadly, and that will create an even greater requirement for the TNF refractory population. So we're positioning our treatment right in that segment where you'll experience growth but where the unmet need will remain the largest. With respect to how we'll move our program into Phase III, I think it's pretty clear to us that there are 2 questions that require answering. Number one is we haven't achieved the maximum effective dose yet. That's pretty clear. And given that there's no safety concern, we need to go higher as induction therapy. The primary objective of all rheumatologists in this field are to try to induce early remission in these RA patients. We've seen some patients achieving remission early and we've seen a substantial number of patients achieving low disease activity scores early and for durable periods through 39 weeks. Our primary objective is to find the highest safe and effective dose that maximizes remission and low disease activity. And that will be the objective of the next, let's say, Phase IIb program which would be either when we have substantially increased resourcing or when we have a partner on board. The objective would be to define the right treatment regimen as we move the program into Phase III.

The next question is from Dennis Hulme from Edison.

Returning to the chronic back pain program, can you talk a little more about how the current composite primary endpoint works? For example, do patients need to achieve those improvements in both pain and function at both 12 and 24 weeks to be considered responders? Or is the -- or that's done differently?

No, no, that's -- no, that's the right -- this has to be a contiguous response at 2 time points for both thresholds of pain and function. So very high bar, right?

Thank you for clarifying that. Yes, it is a very high bar.

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

Well, I want to thank everybody for the insightful questions, and thank you for sharing this time with us. Good morning.

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