Mesoblast Ltd

ASX:MSB

Earnings Call Transcript 2023-Q1

[Operator]

Hello, everyone, and welcome to the Mesoblast financial results for the period ended September 30, 2022. An announcement and presentation have been lodged with the ASX and will also be available on the home and investor pages 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 and 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 floor over to Dr. Silviu Itescu, Chief Executive of Mesoblast. Please go ahead.

[Silviu Itescu, executive]

Good morning, good afternoon to the operational highlights and financial results for the quarter ended September 30, 2022, as well as our upcoming Annual General Meeting. Apologies for the slight delay due to technical difficulties; beyond our control.

Joining me here today is Dr. Eric Rose, our Chief Medical Officer; and Andrew Chaponnel, our Interim Chief Financial Officer.

If we could go to the first slide. If we go to Slide #4, please. Survival outcomes have not improved over the past 2 decades, for children or adults with the most severe forms of steroid-refractory acute graft-versus-host disease. In particular, the lack of any approved treatment for children under 12 means that there's an urgent need for a therapy that improves the dismal survival outcomes in children.

In light of the unmet need, remestemcel-L has been granted fast track designation and BLA priority review from the FDA. A major milestone in the company's complete response to the FDA was our submission at the end of the last quarter of substantial new information on clinical and potency assay items to the IND file for remestemcel in the treatment of children with steroid-refractory acute GVHD as has been guided by the FDA.

Mesoblast has optimized the potency assay that was in place at the time of the Phase III trial and which demonstrates a relationship between the products activity in vitro and its effect on survival in the Phase III trial. Additionally, Mesoblast has now generated data from the expanded access program, EAP 275 in 241 children, which confirmed the ability of the in vitro potency assay to measure product activity relevant to survival outcomes.

Next slide, please. Today, Mesoblast provided new results from a 4-year observational survival study performed by the Center for International Blood and Marrow Transplant Research, CIBMTR, on 51 evaluable patients, with steroid-refractory acute GVHD, who are enrolled in Mesoblast Phase III clinical trial of remestemcel-L.

Overall survival in the remestemcel cohort was 63% at 1 year, 51% at 2 years and 49% at 4 years. Across 4 recently published studies of children or adults with steroid-refractory acute GVHD, one-year survival of just 40% to 49% and 2-year survival of just 25% to 38% was seen after best available therapy or the only FDA-approved agent for adults, ruxolitinib.

The new long-term survival data provide assurance that the short-term day 28 responses and early survival for 180 days in the 54 patient Phase III trial in children with acute GVHD previously presented to the FDA in the original BLA submission are unlikely to have arisen by chance. These long-term survival outcomes are a cornerstone of the BLA resubmission.

Next slide, please. This slide is a snapshot of our late-stage clinical pipeline. As you can see, we have 2 platform technologies. In red is our lead technology platform, remestemcel-L. And in blue is our second-generation technology platform, rexlemestrocel using immunoselection to isolate stromal cells. Our remestemcel platform is more advanced and our lead product is currently in the approval phase for acute graft versus host disease in children.

I will be talking more about this product shortly, as well as updating on rexlemestrocel for chronic low back pain and chronic heart failure from reduced ejection fraction, both conditions due to severe inflammation.

Now we move to the financial results for the quarter for the period ended September 30, 2022. Andrew, over to you, please.

[Andrew Chaponnel, executive]

Thanks, Silviu. Now turning to Slide 8. We have the financial highlights for the quarter. As at September 30, 2022, cash on hand was $85 million, up to an additional $40 million may be drawn from existing financing facilities subject to certain milestones with current discussions to extend the period for the drawdown option.

Net cash usage for operating activities in the quarter was $14.3 million. This represented a 22% reduction of $3.9 million on the comparative quarter in FY 2022, and a 47% reduction of $12.5 million on the comparative quarter in FY 2021.

Revenue from royalty on sales of TEMCELL in Japan for the quarter were $1.4 million and $1.8 million on a constant currency basis. For the 12-month period ended September 30, 2022, royalties were $7.7 million, and on a constant currency basis $9 million, which was a 9% increase on the comparative period.

Turning to the next slide, which is Slide 9, please. We can see the P&L results for the 3 months ended September 30. Within revenue, the majority of the change was due to one-off licensing milestone in the prior period and the impact of currency movements. There is a reduction in expenditure for R&D, manufacturing and management administration, totaling a decrease of 23% or $5.2 million for the period ended September 30, 2022, on the comparative quarter.

During the quarter, we continued prelaunch manufacturing activities and product testing for remestemcel to support the potential commercial launch. On FDA approval, remestemcel inventory will be recognized on the balance sheet, currently valued at $28 million. Within finance costs, we include actual cash interest paid of $1.2 million for the quarter ended September 30, 2021, and also quarter ended 2022. The increase in our reported finance costs was primarily due to the recognition of a noncash gain on the revaluation of our borrowings in the comparative year. And turning to the last finance slide, Slide 10. This slide highlights our reduction in burden, which has reduced 33% or $30 million on a rolling 12-month basis. Now I'd like to turn the call back to Silviu.

[Silviu Itescu, executive]

Thank you, Andrew. If we can now go to Slide 12, which is our pipeline slide. And I'll focus on the updates to our product candidate remestemcel for acute graft versus host disease in children. This continues -- if we go to Slide 13, please. This continues to be a significant unmet need with high mortality in children under 12, there are no approved therapies.

The disease burden remains very high, and mortality can be as high as 90% with significant extended hospital stay costs.

Slide 14, please. Slide 14 summarizes the data that has been generated over a number of years with remestemcel on improvement in early survival in children with steroid-refractory graft-versus-host disease. The data highlighted on this slide come from 4 distinct studies, 27 children who are randomized in a controlled Phase III trial of 260 patients mostly adults with steroid-refractory graft-versus-host disease. A second study of in a Phase III trial of 54 children, open-label, 89% of whom had grade C/D disease who were compared with 30 propensity controlled children in the magic cohort.

An expanded access protocol, overall survival of which has been analyzed in 241 children where remestemcel was used as salvage therapy after failure of steroids and other biologic agents. And finally, a subset of that study and expanded access protocol around a controlled study against propensity controlled children in the CIBMTR database.

As you can see, in each of these studies, short-term survival of day 100 was high in all of the remestemcel-treated cohorts, including just the Grade D patients in the expanded access protocol. And you can see that in the matched controls, propensity matched controls, as outlined, the short-term survival was substantially less than with the remestemcel.

If we go to the next slide, please, Slide 15. This slide now is a summary of the long-term survival outcomes of children with steroid-refractory graft versus host disease from our open-label single-arm study Phase III trial in 54 children, where remestemcel was used as first line after steroid failure, 89% of whom had grade C-D disease. Overall survival for 4 years in the 51 children who are available for follow-up, 1-year survival was 63%, 2-year survival 51%, 3-year survival 49% and 4-year survival 49%. And what you can see in this table is an analysis of the survival outcomes at 1 and 2 years in this remestemcel-L cohort in light blue and survival outcomes in 4 recent studies from 2019 and 2020 of children or adults with steroid-refractory acute graft-versus-host disease.

The McMillan study covered 128 children, 22% of whom were Grade 3/4. The Rashidi study; 203 adults, 54% of them were grade 3/4. And then the REACH2 study comparing ruxolitinib against best available therapy, where approximately 63% had Grade 3/4 disease. In addition to that the open-label study of ruxolitinib that supported product approval of 71 adults with 68% of whom were grade 3/4. And you can see the overall 1- and 2-year survivals in these studies.

If we go to the next slide, please, Slide 16. This compares the Kaplan-Meier results on the left-hand side in 2-year survival outcomes of children with steroid-refractory acute graft versus host disease treated with best available therapy.

And you can see the 6-month survival with best available therapy is 49% and the 24 months is 35%. In contrast, the Kepler-Meier curve on the right shows that the 6-month survival in the remestemcel cohort was 69% and at 24 months, survival was 51%, substantially higher.

We can go to the next slide now, please. Slide 17. These data published in bone marrow transplantation last year further show that in the most severe patients in the remestemcel cohort, those with high MAP scores, MAP biomarker score above 0.29, a validated threshold for very severe disease, a very high mortality that in this group and focus on the right-hand figure, in this group of patients, we see a particularly striking difference in survival against propensity matched controls, matched for the same biomarker severity score.

Here, we see a 64% survival in the remestemcel cohort versus 10% survival in those treated with best available therapy. So evidence now both short term and long term that remestemcel-L therapy resulted in substantial survival benefit against best available care in a subject population which continues to have abysmal survival outcomes and for whom there are no approved therapies. This becomes the cornerstone of our BLA resubmission.

Next slide, please. Let's move on to the rest of our late-stage pipeline, and I'd like to just focus on now some of our other advanced indications that we think are going to be value propositions for the company going forward. Rexlemestrocel is our second-generation product based on immuno-selected STRO-3 stromal cells. And let me just focus a little bit on the leading indication for chronic low back pain in patients with inflammatory degenerative disc disease. This is also a very large unmet need and in fact, inflammatory back pain is a cause of progressive severe unremitting pain is the #1 cause of opioid prescriptions across the U.S. with 50% of opioid prescriptions being for discogenic back pain.

The market opportunity is very large, about 6 million to 7 million patients suffer from inflammatory chronic low back pain due to degenerative disc disease in each of the U.S. and the EU5. Other than opioids or nonsteroidal anti-inflammatory drugs, there are no other therapeutics that have made the difference in this space. And if we go to Slide 20, this is a slide that shows the patient journey once conservative treatments have failed other than opioids, really, you're left with interventional therapies and ultimately, potentially surgery. We believe that rexlemestrocel targets the moderate to severe patient population before anybody would consider to use opioids.

Next slide, please, Slide 21. In our first Phase III trial, we demonstrated that in the subset of patients with relatively early disease or severe debilitating pain for up to 5 years. In a randomized controlled trial, you see in red, our sales delivered with a hyaluronic acid carrier, giving a substantial reduction in pain at 12 months relative to controls to receive the saline injection in green. And that difference, which is of the order of something like 20 points on a VAS score of 0 to 100 is very substantial and remains separated at every time point during the duration of follow-up through 36 months. These results were highly significant and they were concordant with a number of other secondary endpoints, including quality of life and functional improvement.

If we go to the next slide, Slide 22. This provides the pricing points for various agents that are currently used in the treatment of pain and back pain in more particular, including on the left-hand side, a variety of abuse-deterrent opioids. And on the right-hand side, various biologic agents, including Humira for the treatment of ankylosing spondylitis in the back. We believe that a biologic that treats inflammatory discogenic back pain will be favorably seen assuming that we can replicate the data on reduction in pain for 12 months and improvement in function.

Next slide, please, Slide 23. So we've met with the FDA. We had a very good meeting and alignment on how this product can be taken to market. The OTAT agreed with Mesoblast proposal that the primary endpoint for a confirmatory, second trial would be 12 months reduction in pain, and that would be an approvable indication for the product. I mean functional improvement and potentially reduction in opioid use would be secondary outcome measurements. The planned upcoming trial in the U.S. is aimed to also include 20% of subjects in the EU to support submissions to both the FDA and EMA and we're in the process of completing our final protocol design with our key investigators, and we'll be submitting -- we'll be waiting for clearance from the FDA in short order to begin this trial.

Moving on to the last indication in our pipeline. Slide 24, is Rexlemestrocel for chronic heart failure with reduced ejection fraction, another very large unmet medical need.

Go to Slide 25, please. Cardiovascular disease remains the leading cause of death in the U.S. Heart failure affects as many as 6.5 million to 7 million patients annually across the U.S. And despite the fact that there are a number of new drugs that improve the symptoms of heart failure and reduced hospitalizations due to symptomatic shortness of breath, they do not reduce the major complications of cardiovascular mortality and other complications such as heart attacks and strokes.

And we think that this is where our product can be differentiated from the competitive landscape. The next slide, 26, shows the continuum of heart failure across Class 2, 3 and 4 and a single intervention with our cells, we believe, can change the natural progression of this disease.

Slide 27. So where -- what did the data show to date? We completed a 537 patient study in patients with low ejection fraction heart failure. And at 12 months, we saw a 50% greater increase in left ventricular ejection fraction in those who received a single injection of rexlemestrocel than in controls.

While both groups had similar ejection fractions at baseline, the difference was substantial at 12 months for those who had cells versus sham. And that resulted, in particular, in those patients with evidence of inflammation as measured by simple CRP measurement, an 86% greater increase in ejection fraction from baseline 12 months relative to controls.

If we can go to the next slide. Those short-term 12-month changes in ejection fraction and systolic volume appear to be predictive of long-term outcomes in this disease as evidenced by on the left-hand side, time to first event for 3-point MACE as measured by a reduction in cardiovascular death or nonfatal heart attack or nonfatal stroke and even more striking on the right-hand side in the presence of inflammation, you see an overall 45% reduction long term in the 3-point MACE in rexlemestrocel patients compared to control.

So that's our last slide. And I think we're very excited today about, in particular, the status of our long-term survival data in our acute graft-versus-host-disease study, which becomes the cornerstone, of course, of our BLA resubmission. We'd like to take some questions and happy to address questions by the 3 folks who are on the call today. Thank you.

[Operator]

[Operator Instructions] Our first question today comes from Louise Chen from Cantor.

[Carvey Leung, analyst]

This is Carvey on for Louise on Cantor. Congrats on the progress. First, on remestemcel-L commercial front, can you comment how quickly you could launch the product after approval in acute GVHD? And when do you expect a potential approval? What are the remaining steps to get there? I have a follow-up question after this.

[Silviu Itescu, executive]

Sure. Thank you. So of course, we have a priority review designation for the product. We are working towards a complete response the FDA that addresses their issues around the clinical survival data, potency assays and relationship between potency and survival. And all of those data have been provided in a submission to the IND to the FDA about 6 weeks ago, and these new survival data will fall now the cornerstone of the rest of the documentation to the FDA. We would expect that somewhere between the statutory requirement is to complete the review between 2 to 6 months. And we are building out our commercial capabilities putting in place with the team that will lead the interactions with the payers and with the key opinion leaders at the end users to the hospital, and we should be in a position [indiscernible] if we get approval to launch the product immediately after approval.

[Carvey Leung, analyst]

Got it. Awesome. Our second question is on your heart failure opportunity. What is the pathway to approval look like in this opportunity?

[Silviu Itescu, executive]

We expect to be meeting with the agency over the next couple of months. And the data before them is the totality of data in patients in Class II, III heart failure from the DREAM trial, as well as in patients with end-stage heart failure that previously generated in patients with LVADs. What we're seeing is a continuum of improvement in systolic function in patients with inflammation, whether they're last 2, 3 or 4 disease. So I think that's the basis of the discussion. We already have an RMAT in place that focuses on the LVAD population. So we will be having a discussion around it. The continuum of the data set, not just in the LVAD population, but in the broader class [Indiscernible] patients with high CRP.

[Operator]

[Operator Instructions] Our next question comes from Edward Tenthoff from Piper Sandler.

[Edward Tenthoff, analyst]

Great. Thank you very much. So Silviu I'll not split hairs, but I really want to just understand the exact process under the new survival data that you included in the IND, does that constitute the response to the CRL? And does this 2- to 6-month clock kind of start ticking from October 3. And then I have a follow-up there.

[Silviu Itescu, executive]

No. The survival data we've just provided today has just become available to us. So today's announcement is the new data that has been generated by CIBMTR completely independently. That has not yet been provided to the FDA and will now be filed with the FDA. So the clock is not [Indiscernible] until these data are in the hands of the FDA.

[Edward Tenthoff, analyst]

And how long that will take weeks or something like that pretty short term.

[Silviu Itescu, executive]

Very short term.

[Edward Tenthoff, analyst]

Okay. Excellent. Just with respect to launching the lower back pain study. What are plans to advance that into Phase III? And kind of, I guess, similar question for heart failure. Is the goal still to partner heart failure and develop quite a lower back pain on your own? Or what's the kind of latest on that.

[Silviu Itescu, executive]

So I'll take -- I'll give the question on heart failure, and then I'll have -- I'll ask Eric Rose to talk about the back pain program. So with respect to the heart failure, you're quite correct. As soon as we've had our meetings with the FDA and pathways clarified. We intend to work with partners to complete the commercialization of the heart failure program. Eric, do you want to talk about our plans for confirmatory Phase III trial in back pain?

[Edward Tenthoff, analyst]

Silviu. Sorry to interrupt, Eric, sorry to interrupt before you start on lower back pain. But Silviu, have the FDA meetings regarding FRAP in scheduled phase.

[Silviu Itescu, executive]

We're waiting for specific dates.

[Edward Tenthoff, analyst]

Got you. And Eric? Yes, go ahead, sorry.

[Eric Rose, executive]

With regard to back pain, our expectation is to do 2 trials, which we will begin -- we hope in the second quarter, the third quarter of '23. We're finalizing that trial design with pain as the primary endpoint at a year. As a secondary, we'll be using a scale and quality of life, but it will not be a co-primary. It will be secondary endpoint. We believe that we will show a quality of life benefit using this scale as well. It's a scale which we have familiarity with, and we expect to finalize the design with the agency in the next few weeks, actually. So the final trial design will be submitted to them in accordance with the discussion that we had on what it should be in the past. But again, with that, we expect to start that trial in the second quarter of 2023.

[Silviu Itescu, executive]

I might -- Ted, I might add. So the U.S. trial will start rapidly. A second trial is likely to be a European-focused study so that we can get potentially in front of both FDA and EMA concurrently.

[Operator]

And with that, that brings us to the end of today's call. I'd now like to turn the floor back over to Dr. Silviu Itescu for closing remarks.

[Silviu Itescu, executive]

Great. Again, thank you to everybody for joining us this morning. We're extremely excited by the long-term survival data, which really are unparalleled, and we'll have a lot more to say at our upcoming AGM. Thank you very much.

[Operator]

And with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.