Mesoblast Ltd

ASX:MSB

Earnings Call Transcript 2020-Q1

[Operator]

Hello, and welcome to Mesoblast's financial results webcast for the quarter ended September 30, 2019. 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 represents the company's intentions, expectations or the belief 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 obligation 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.

[Silviu Itescu]

Thank you. Good morning, good afternoon, and thank you for joining us in the financial results call for the first quarter ended September 30, 2019. Joining me is our Chief Financial Officer, Josh Muntner.We could go to Slide 4. Slide 4 is a snapshot of our corporate history, demonstrating the -- over a decade of scientific, manufacturing, clinical development and corporate highlights and experience targeted at bringing to market our allogeneic, off-the-shelf cellular medicines. Slide 5. Our cellular medicines are underpinned by 3 pillars: our innovative technology platform, our late-stage pipeline and our ability to commercialize these products. Our technology targets some of the most severe disease states refractory to conventional therapies. We understand and have characterized well the multimodal mechanisms of action of our cells, key and the unifying mechanism of action of which these cells work. And each of our lead indications is a very strong and potent anti-inflammatory capabilities, which concurrently target multiple arms of the immune system and thereby results in improved outcomes in very refractory diseases. Our late-stage pipeline is exemplified by our graft versus host disease product candidate which we have initiated and are in the final stages of completion with a rolling BLA, Biologics License Application, to the FDA for potential product approval in the U.S. Two Phase III product candidates, one in heart failure and one in back pain, have near-term trial readouts in the U.S., back pain Phase III product candidate has already been partnered in Europe and Latin America with Grünenthal, and our Phase III heart failure product candidate has been partnered in China with Tasly.In terms of commercialization, we are focusing on bringing the graft versus host disease product to market ourselves. We're building a U.S. sales force targeted for that product launch. We have industrial-scale manufacturing that is now building an inventory in anticipation of our first product launch. And in Europe, we're proud to say that the first approved product candidates using mesenchymal lineage technology have been commercialized by our licensees in Europe and in Japan, and the growth in royalty from that Japan partner continues to demonstrate strength, and you'll hear a lot more about that in our financial results shortly.Slide 6 speaks to the commercial scale manufacturing capability that we have put in place. We have a scalable allogeneic or off-the-shelf cellular medicine platform. The manufacturing capabilities meets stringent criteria set out by international regulatory agencies, including the FDA and the European Medicines Agency. We have robust quality assurance processes that ensure final product with batch-to-batch consistency and reproducibility. This is very, very important capability that allows consistency of product, consistency of clinical trial material and ultimately, consistency of commercial products. The expansion capabilities are scalable, and they meet our commercial needs. We, beyond that, have proprietary xeno-free technologies, which will enable sufficient yields for our long-term global commercial projections. And we have in place next-generation processes, including 3-dimension bioreactors to reduce significantly labor costs and drive down cost of goods. Slide 7 speaks to the very strong global intellectual property estate that we've built with over 1,000 patents and patent applications across all the major jurisdictions. This cover compositions of matter, manufacturing and therapeutic applications using mesenchymal lineage cells for a whole range of disease states. The strategy of the company is to license to third parties our strong IP estate when those third parties have demonstrated clinical and commercial capability. And in those areas we see core to our commercial growth, we'll use our IP to provide very strong global protection against competitors seeking to develop competitive products in the areas of our core commercial focus.Now move to Slide 8. This slide is a snapshot of our commercial and late-stage product pipeline. And as I've mentioned earlier, the 2 commercial products, TEMCELL in Japan and Alofisel in Europe are the 2 first products that received approval by major regulatory bodies using allogeneic mesenchymal lineage cell technologies. And we are very pleased with our partnership with JCR in Japan and Takeda in Europe and in the U.S. for Alofisel. In terms of our late-stage product pipeline, the remestemcel-L product represent the entry point into the U.S. market for our mesenchymal stem cell first-generation product. It's completed successfully a Phase III trial in children with severe steroid refractory graft versus host disease, and we are in the final stages of completing our submissions to the FDA for potential approval in the United States. That product has additional follow-on potential in areas such as Crohn's disease and knee osteoarthritis, and we'll talk a lot more about those other potential indications in due course.Our so-called second-generation suite of products are derived from mesenchymal precursor cell, the MPC suite of products, and they're exemplified by Revascor, our product for heart failure, which is in the midst of Phase III for patients with advanced chronic heart failure. It's also being developed for patients with end-stage heart failure with a left ventricular assist device, and more on that a little bit later. In China, this product has been partnered with Tasly, one of China's premier companies in the cardiovascular space. MPC-06-ID is our proprietary product candidate for chronic inflammatory lower back pain. It's also in the midst of Phase III and it’s been partnered in Europe -- with Europe's lead pain development and commercialization company, Grünenthal. And finally, our Phase II assets in biologic refractory rheumatoid arthritis and diabetic nephropathy we’re in Phase II, the intravenously delivered MPC product has demonstrated successful clinical outcomes. Slide 9 is a summary of partnerships and license agreements we have in place, and we will talk more about those as they relate to our operational highlights.And now I'd like to turn it over to Josh, who will update you all on our first quarter financials. Josh?

[Josh Muntner, Chief Financial Officer]

Thanks, Silviu. Let me start by saying how glad I am to report on the financial progress we've made. Today, we are pleased to report an improved cash position and strong, consistent revenue growth.Looking at Slide 11. We've laid out our Q1 results from the prior 2 years. We see solid growth in both milestone revenue and commercialization revenue. Overall, revenue increased by $5.4 million, a 46% increase to $17 million for the first quarter of fiscal 2020 compared to $11.6 million for the year prior period. Of course, the revenue includes the $15 million milestone payment paid to us by Grünenthal. This drove milestone revenue up by 43% over the year prior period.Moving to commercialization revenue, which is to say royalties received. We are, once again, reporting record royalty revenue received from JCR Pharma on sales of TEMCELL to treat GVHD in Japan. As shown on Slide 11, royalties from TEMCELL increased to $1.9 million for the quarter from the year prior period in 85 -- from the year prior period with an 85% increase. We continue to be pleased with the growth JCR has had with TEMCELL to treat acute GVHD in Japan as it provides an important guide for how we may be able to perform if our product, remestemcel-L, is approved by the FDA as a treatment for acute GVHD.Furthermore, JCR has expanded their license to our technology in order to seek potential label extensions in 2 more settings. We may consider such uses for remestemcel-L for our -- for remestemcel-L or other allogeneic stem cell products in the future. The growing sales and potential future uses of TEMCELL provide us great confidence in the future for that product.On Slide 12, I'll walk through the remainder of the income statement. We've already discussed the growth in revenue. Now I’ll move down the line. And you can see a significantly lower R&D expense than the year prior period, a 33% reduction from $18.5 million to $12.4 million. The $6 million decrease was due to reduced activity levels around our Phase III clinical trials as enrollment has now been complete, and we're anticipating readouts in calendar 2020.Also, in this quarter, we saw an increase in finance costs largely due to our loan arrangement with Hercules having grown during fiscal 2019, which resulted in higher interest expense. Overall, the amount shown on Slide 12 resulted in an after-tax loss of $5.5 million, a 72% reduction compared to the after-tax loss of $19.5 million in the year prior period.Moving to Slide 13. We're pleased to report a strengthened cash position. At September 30, 2019, we had $34.5 million of cash on hand. On October 1, we received $15 million from Grünenthal as an upfront milestone payment. Also, in early October, we received gross proceeds of $50.5 million, the equivalent of AUD 75 million from a capital raise, in which we issued 37.5 million new ordinary shares at a price of AUD 2 per share. These 2 items, Grünenthal and the cap raise, bring our pro forma cash on hand to $100 million, which is adequate funding through several near-term milestones. In addition to the strengthened cash position over the next 12 months, we may receive up to an additional $30 million in milestone payments under the strategic partnership with Grünenthal and a further $35 million of nondilutive financing under the arrangements with Hercules and NovaQuest, subject to achievement of certain milestones. That concludes the financial portion of the presentation. For more information on our financial results, please see our filed reports with the ASX, SEC or on our website. I’d like to hand the call back to Silviu.

[Silviu Itescu]

Thanks, Josh. If we can move to Slide 15, we'll begin with our operational highlights. Very much focused on the acute graft versus host disease market because it's a significant market opportunity for our lead product candidate, remestemcel-L and is a substantial medical unmet need.Steroid-refractory graft versus host disease is associated with mortality rates as high as 90% particularly in those patients who have severe disease, so-called Grade C/D disease involving the gut and liver. Treatment options are very, very limited. Only one drug is approved for treatment with steroid-refractory graft versus host disease. And not -- it is not approved -- nothing is approved in children under 12 years old outside of Japan.In Japan, the only product approved children and adults is the product TEMCELL marketed by our licensee, JCR. Market opportunity is large. There are more than 30,000 bone marrow transplant, allogeneic transplants performed globally. About 20% of these to 25% are in children. And we believe the steroid-refractory GVHD in the U.S. market, in particular, represents a substantial commercial market opportunity.Slide 16 speaks to the U.S. regulatory and commercial strategy for our product candidate, remestemcel-L. First and foremost, the U.S. strategy is informed by the outcomes that we're seeing with TEMCELL in Japan. The sales, the uptake, the adoption are all, for us, very informative with respect to the potential that we see in the U.S. market. We are in the midst to concluding our rolling BLA submission to the FDA, and that's obviously the #1 focus for us as a company. We already have a fast track designation for the product, which then provides eligibility or priority review by the FDA. And we have a commercial strategy already in place for product launch that involves both ramp-up for inventory build and building out an efficient, targeted sales force. And the reason for us maintaining control of the sales and launch capabilities here have an impact, particularly for the pediatric launch, 15 centers in the U.S. account for about 50% of all patients with this disease and already under the expanded access program that we have in place. Many of these centers already are very comfortable and already use our product under compassionate use.Now the burden of illness is associated with -- it is very significant, particularly in children in the United States. And you can see that on Slide 17. About 50% of children develop steroid -- develop graft versus host disease and about half of these develop steroid-refractory disease not responsive to steroids. The average additional all-cause cost of treating a child in the United States with steroid-refractory graft versus host disease is about USD 500,000 on top of the reimbursed cost of a bone marrow transplant. It's very, very substantial. And that's primarily because children with this severe form of the disease are in extended periods of stay in the intensive care setting for as long as potentially an extra 3 months of ICU care.And Slide 18 speaks to the clinical and pharmacoeconomic advantages that we have seen to date in our clinical trials with remestemcel-L and the input that we've received from key opinion leaders as well as the payers for such treatments in the U.S. market. The most significant value drivers for remestemcel-L is the very good day 28 overall response rate that has been observed in Phase III, particularly in those children with Grade C/D disease, where as I've said previously, response rates are low and mortality rates are very high.Linked to the very good day 28 response rates are the very -- are the excellent day 100 and day 180 survival rates that we've seen. You would expect to see that, but having demonstrated that, I think, puts us in a very strong position. Equally as important is the excellent safety profile of the treatment. We have not seen any increase in infections despite a very strong immunomodulatory effect of the cells on the immune system, and we now have a very large body of clinical data to support what we're saying around safety and efficacy.In addition to that, the ability to get these children rapidly out of the intensive care setting and out of the hospital altogether and our ability to administer the therapy in the outpatient setting is a very attractive and important part of the overall treatment equation. And that is correlated with a significant reduction in intensive care stay as we have recently published in terms of pharmacoeconomic benefits.Slide 19 speaks to beyond graft versus host disease, our strategy, the life cycle management of the product itself. As you can see, we expect to -- and we are targeting initial launch of remestemcel in the U.S. in 2020 for pediatrics. We then would expand beyond the pediatric launch into adults with severe disease predominantly Grade C/Ds, which is where there is -- continues to be a very high unmet need with high mortality. And we already have evidence in adult in product studies and expect to get additional data that demonstrates that our cells are most effective in those with Grade C/D disease in both children and adults.Beyond that, we would expect to expand the label into patients with an overlapping disease called chronic graft versus host disease. And then the product will seek to get -- garner other label extensions in areas such as Crohn's disease and osteoarthritis of the knee for which we already have preliminary data demonstrating safety and early evidence of efficacy. So there is a whole strategy that is being put in place for growth of remestemcel-L in the U.S. market. And the recent highlights and key milestones for the product candidate are on Slide 20. As you heard from Josh, there continues to be growth in revenues from royalties on sales of TEMCELL in Japan. The product adoption and reimbursement seen in the Japan market focus very well and informs our strategy for remestemcel in GVHD in the United States. We expect and believe that the addressable market in the U.S. is approximately eightfold larger than in Japan given both the numbers of patients with the disease, the greater incidence of GVHD in the U.S. heterogeneous population and the pharmacoeconomic benefits that are greater in the U.S. health care market than in Japan.In association with the way we're seeing things evolve with GVHD, we've entered into an agreement with Lonza for commercial product manufacturing line with our strategy to facilitate appropriate inventory build ahead of the planned launch of the product next year. So the key milestones, therefore, are the upcoming filing of the completed BLA submission to the FDA. Then within a maximum of 60 days after receipt of the complete application, we will be informed by the FDA of acceptance of the filing and whether the BLA has received priority review under the existing fast track designation. If approved, the launch of remestemcel is expected to occur during next year.Let's move on to our heart failure product indication, Slide 21. This slide provides an overview of the treatment pathway for progressive heart failure from Class I on the left to Class IV on the right. For Class I and Class II heart failure, there are many generic drugs, such as ACE inhibitors or beta blockers. More recently, there's -- there are some new -- newer type of drugs that are using Class II disease, such as the combination of the ACE inhibitor and ARB sacubitril/valsartan, ENTRESTO. And now there are a new class of drugs that are used in diabetes that seem to also have good effect in early-stage Class II heart failure. However, at a certain point, patients become effectively refractory to these drugs. They move into Class III heart failure and then Class IV, and there's a very strong and progressive deterioration with recurrent hospitalization and ultimately death. And in fact, mortality in Class III and Class IV disease approximates the kind of mortality outcomes seen in many cancers.At Mesoblast, we're specifically targeting those patients with Class III and IV disease who are refractory to all existing standard of care therapies. And those are the type of patients that are now being evaluated in our Phase III trial and where we have previously seen good efficacy outcomes in Phase II. This market is a very large market, and I don't want to belabor the point, very large unmet need. And even 15% or so of patients in Class III and IV disease represent a multibillion-dollar commercial opportunity for us. Slide 23 speaks to this -- where we are with our Phase III program in advanced heart failure. Trial design is a one-to-one randomized Phase III controlled, double-blinded trial conducted across 55 sites. It's an events-driven trial. It's completed enrollment of 566 patients earlier this year. The primary endpoint is a reduction in total heart failure-related major adverse cardiac events such as hospitalizations. The key secondary endpoint is reduction in terminal cardiac events, which includes death from cardiovascular disease, the requirement for a heart transplant or the requirement for left ventricular assist device. And importantly, the target patient population has been enriched for those patients at greatest risk for recurrent hospitalizations and death and where we have seen in Phase II, those patients were most likely to respond to Revascor therapies.The key milestones that are upcoming in this program. Full accrual of the primary endpoint events in this Phase III trial is expected around the end of this year. Data readout for this Phase III trial is planned during the first half of next year. And the results will be considered pivotal to support regulatory approval in the U.S. as well as in China through our Tasly partnership. Moving on to end-stage heart failure, Slide 25. This is an orphan indication but a very high unmet need. And it's at the -- at that end of the spectrum where patients have no other alternatives. In the absence of having an artificial heart put in or left ventricular assist device, these patients who are bed-bound over 50% 1-year mortality. To date, there are about 4,500 to 5,500 LVADs put in, in the United States alone. And there could be more because there are at least 60,000 patients with end-stage heart failure every year, of whom half die without a transplant or an LVAD. But really, what limits the uptake of these ventricular assist devices are continued complication rates associated with the device itself. Surgery or inflammation, which is a major complication of the foreign body and inflammation result in gastrointestinal bleeding that severe causes recurrent hospitalization rates that requires transfusions. We are targeting the severe bleeding from the gastrointestinal tract because we believe that is due to severe inflammation, and we have evidence that demonstrate that our cells can reduce the inflammatory-related vascular abnormalities in the gut. And as you can see on Slide 26, in 2 randomized, placebo-controlled trials funded by the National Institutes of Health, a single injection of Revascor into the left ventricle at the time of implanting of ventricular assist device resulted in approximately 70% reduction in major gastrointestinal bleeding associated with the requirement for hospitalizations. The results of these 2 trials have been almost identical, and that gives us very strong confidence that we understand the mechanism by which the cells are giving us these kind of outcomes and the ability to demonstrate in a further pivotal trial that we can make -- that we can achieve the same primary endpoint of reduction in gastrointestinal bleeding. Slide 27 speaks to the highlights of this program. We've entered into and have agreed with our colleagues at InCHOIR at New York -- at Mount Sinai School of Medicine in New York on the protocol for a confirmatory Phase III trial in this patient population. And in line with FDA guidance, the primary endpoint will be reduction in major mucosal bleeding events, gastrointestinal bleeding, and key secondary endpoints will be improvement in various parameters of cardiovascular function that demonstrate that the 2 are interlinked. Revascor is being developed for these patients under the existing FDA regenerative medicine advanced therapy designation as well as under the orphan drug designation, and a key upcoming milestone will be initiation of this confirmatory Phase III trial. We believe that the results will be considered pivotal to support regulatory approval in the United States.Moving on to Slide 28 for our back pain candidate MPC-06-ID. Chronic inflammatory -- chronic low back pain due to inflammatory intervertebral disc disease is a major, major problem, continues to be a major problem for which there are no adequate treatments. Once you've failed to respond to nonsteroidal drugs or even epidural steroids, there is nothing else out there that provides long-lasting, durable outcomes that modifies the disease. And other than masking pain through opioids and the risks, of course, of continued escalation of opioid usage, there's nothing that can change and modify the natural history of this disease. There are as many as 4 million patients in the U.S. and 3.2 million patients in Europe that could benefit from our therapy, and we have embarked on a very well-considered Phase III program to target this very large unmet need. The development strategy for U.S. and Europe is outlined on Slide 29. The Phase III trial in chronic low back pain completed enrollment in March 2018 with 404 patients randomized to receive MPC-06-ID or placebo. This trial is to recruit patients across the U.S. And together with our partner, Grünenthal, we've initiate -- we plan to initiate a confirmatory Phase III trial in Europe. Together with Grünenthal, we are completing commercial manufacturing that will support both the European and U.S. product launches. And the results of the confirmatory Phase III trials across the U.S. and Europe, together with an effect -- commercial manufacturing, was expected to support regulatory approvals in both jurisdictions. I'd like to just highlight a little bit of our -- of the key terms of the strategic partnership with Grünenthal, which we entered into very recently. Slide 30 summarizes those key terms. Grünenthal has obtained an exclusive license for Europe and Latin America to develop and commercialize MPC-06-ID for the treatment of chronic low back pain due to degenerative disc disease, an inflammatory condition which we believe is well addressed by the immunomodulatory capabilities of our cells.In consideration, Mesoblast will receive up to $150 million upfront in milestone payments prior to product launch as well as further commercialization milestone payments. Payments include commitments of up to $45 million within the first year, comprising $50 million on signing, which we've received, $20 million on receiving regulatory approval to begin a confirmatory Phase III trial in Europe and $10 million on certain additional clinical and manufacturing outcomes. Cumulative milestone payments could exceed $1 billion depending on the final outcome of Phase III studies and patient adoption. Mesoblast will also receive double-digit royalties on product sales and retain the rights for the rest of the world, including U.S. and Japan markets. This transaction has many benefits to Mesoblast, including a very strong commercial partner, delivers commercialization, distribution, sales and marketing with a field force comprising around 1,600 people across Europe and Latin America. Our partner provides knowledge and know-how, not just in sales and commercialization, but also in manufacturing and regulatory affairs, particularly in Europe, where the market is very segmented and requires a lot of specialization. The partnership also provides funding for confirmatory Phase III trial in Europe, which reduces Mesoblast's cash outflow and allows the partners to collaborate on the study design and on the commercial manufacturing expected to support the regulatory approval across both Europe and the U.S. In addition, Mesoblast maintains rights to other geographic markets, enabling us to maximize shareholder return. Finally, this transaction with Grünenthal provides third-party endorsement and validation of our entire technology platform. So where are we in terms of the upcoming milestones for this product? Last patient last visit at 24 months of follow-up in the Phase III trial for chronic low back pain will occur during the first half of the upcoming year, with the primary endpoint being a composite outcome of pain and function being durable through 12 and 24 months. During this coming calendar year, we are aiming to obtain clearance from European regulatory authorities to begin the European Phase III trial that triggers an important milestone in our partnership with Grünenthal, and the results from each trial will be considered pivotal to support regulatory approval in the U.S. as well as Europe with the Grünenthal partnership.And on that note, I think I'll stop, and Josh and I would be happy to take questions from anybody on the line.

[Operator]

[Operator Instructions] Your first question comes from Louise Chen with Cantor.

[Louise Alesandra Chen, Senior Research Analyst & MD]

So ahead of the launch of remestemcel here in the U.S., assuming approval, just curious how we should think about launch costs in 2020. The uptake will occur, will be fast or slow in your opinion? And anything else that we need to think about as you prepare for this?

[Silviu Itescu]

Thanks, Louise. The -- so we've obviously budgeted the cost of both inventory build and a relatively small targeted sales force of up to 15 people. The specific cost of that, of course, are confidential. But I think what we've been in great pains to say is that given the success of our expanded access program, where the cells continued to be used in the hands of many of the key opinion leaders across the transplant sites. Given that 50% of pediatric transplants are done at 15 hospitals, we think that a targeted sales force will be sufficient to meet the commercial needs for rapid adoption. And we say that because we've seen how our EAP continues to perform, and we are seeing continued increase in royalties from sales of TEMCELL in Japan. So we're able to use those 2 observations to model out our likely adoption rates, et cetera, in the U.S. market. Does that answer your question?

[Louise Alesandra Chen, Senior Research Analyst & MD]

Yes, it does. I don't know if you're able to comment on pricing at all for your products or what you're thinking there.

[Silviu Itescu]

So let me answer it in this way. We know what the pricing for the product is in Japan, and I think it's around USD 165,000 per 4-week treatment course. And it's based on weight, which is why I say that it's a mean, right? So on a price per unit vial or unit bag for a 4-week course, you come to that as an average reimbursement.The way that the Japanese pricing has been set is really a bottom-up approach, which is based on a cost of goods plus certain margins, plus in the innovation component, very different way of developing a cost structure than in the U.S., where the cost per 4-week course of therapy will be very much linked to the pharmacoeconomic benefit. And as I've said earlier, the average cost of treating a steroid-refractory child with graft versus host disease approximates $500,000 on top of the reimbursement for a bone marrow transplant. That's a very expensive cost in the U.S.And so the way to look at this is really to say, how much benefit do we give to the health care, to the payer, to the hospitals, et cetera. And we've analyzed this, and we believe that we can save approximately 60 days of intensive care stay in the child with severe disease. And you can use that as an indicator of the cost savings and how that would be looked at in terms of pharmacoeconomics. But certainly, we would expect that the reimbursement will be significantly higher than is currently being seen in Japan because the metrics are different, and the health care utilization costs in the U.S. are much higher.In that sense, our new Chairman, Joe Swedish, is extremely experienced in reimbursement. He was previously the CEO of Anthem, one of the U.S.' largest health care insurance companies. And Joe is working very closely with our commercial team in work -- in helping us set the strategy, in working with both payers and end users, hospitals, et cetera, to set the scene for what would be an appropriate reimbursement.

[Operator]

[Operator Instructions] Your next question comes from Jeffrey Cohen with Ladenburg Thalmann.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Silviu, so if you could -- could you kind of walk us through this thought process about the -- for lower back in this confirmatory trial in Europe, the start, potential win and hypothesize with us about the number of patients as well as partner and secondary endpoints. If you could do that, that would be very helpful.

[Silviu Itescu]

Yes, thanks for asking. So we've previously had guidance from the FDA and from EMA that the 2 trials don't need to have the same endpoint or the same duration, for example. And really, the duration of this second trial may be as short as 12 months, and it very much depends on the results that we see from trial #1.If we see durable results in trial #1 through 24 months, and we see the type of signal at 12 months that we saw in Phase II, our objective would be to work with the European regulators and the FDA, of course, to have a smaller, a shorter Phase III trial that replicates the 12-month data set that we've seen already in Phase II, and then hopefully we'll see in the current Phase III. Does that give you a bit of a sense of the way we see it...

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Yes. I was hoping to get a sense of your 24 months versus 12-month thought process, so that's super helpful. And then one more quick one, Josh. I was expecting the Grünenthal milestone in next quarter, being the December quarter. Any comments on our current thoughts that the second milestone or the $20 million would not occur or occur in, say, the fourth quarter this year? Any kind of thoughts on target from your perspective?

[Josh Muntner, Chief Financial Officer]

Sure. So I missed the first part. But the one that we did record in the first quarter is because we signed the deal and then earned in that quarter even though it's paid down October 1. With respect to the future milestones, we did give some color about some of them will be related to progress and meeting with EMA, and then there's some other milestones as well. We anticipate that we may meet some during this quarter, but we haven't give further guidance on which ones. And I don't think we'll necessarily meet the $20 million one this quarter as the relationship is just getting underway, right?

[Jeffrey Scott Cohen, Managing Director of Equity Research]

No, no. I was referring to calendar 2020. So...

[Josh Muntner, Chief Financial Officer]

Oh, so yes. Oh, yes. Okay. So I think that we did say that in the first 12 months of the deal, we anticipate being able to achieve the $30 million remaining from the initial sort of upfront milestone basket. And so we do foresee -- within calendar 2020, that gives us plenty of time.

[Operator]

Our last question will come from Tanushree Jain with Bell Potter Securities.

[Tanushree Jain, Healthcare and Biotech Analyst]

Just a couple for me. Would you be able to give me some idea around how Takeda's launch with Alofisel is going in Europe and also what their plans are for U.S. and, I guess, the timing for milestones from Takeda for you guys?

[Silviu Itescu]

Yes. Maybe let me take that, Josh. I don't think, at this point, it's too early for us to make any comments on their European sales. I mean obviously, once we have further information, we'll, of course, provide it to the market. But it's too early for us to provide any updates on their product sales. With respect to the U.S. Phase III program, what we know is as much as you know, but it's underway. It's recruiting. It may take some time before they complete. We don't have any further updates other than what is in the public domain, and that is a product local delivery into the fistula of patients with Crohn's disease, remembering that the -- that is the entire focus of their program and the license with us.We at Mesoblast, in parallel, focusing on the use of remestemcel for active Crohn's disease in the setting of refractory resistance to anti-TNF inhibitors. And so they're complementary, if you like, disease states. We're targeting putting patients into remission who have very active disease. They're developing their product for healing of external fistula in this disease.

[Tanushree Jain, Healthcare and Biotech Analyst]

Right. And just another one. On the China pathway for your best course. So I guess, once we have the trial results from our ongoing U.S. trial, what seems to be the likely regulatory pathway in China in terms of trials and your discussions which have taken place there?

[Silviu Itescu]

So we have a very close relationship with Tasly, and we're providing Tasly with a lot of support in their discussions with the Chinese FDA in terms of our clinical data, our manufacturing, et cetera. What we can say -- and again, if we have more information, we'll make it available as soon as it comes to hand. But they are in discussions with the Chinese FDA around what type of bridging study, for example, is needed to obtain approval in China using our U.S. dataset that's been generated for that, and that we'll continue to readout in the coming year using all of those datasets as supporting data for Chinese approval. And I think as soon as we and Tasly have clarity from the Chinese FDA, we will, of course, update the market.

[Operator]

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

[Silviu Itescu]

Thank you, everybody, for joining us. We're very pleased with our financial results during the quarter, and we hope to be updating the market shortly on some additional milestones as they come to hand. Thank you very much.

[Operator]

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