Mesoblast Ltd

ASX:MSB

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Hello, and welcome to Mesoblast's Financial Results for the Period Ended December 31, 2023. An announcement and presentation have been lodged with the AXS and are also 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 that such forward-looking statements. In addition, any forward-looking statements represent the company's views only as the date of this webcast and should not be relied upon as represented in the company's views at 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, executive]

Thank you, operator. Good morning, good afternoon to Mesoblast's financial results and operational update for the half year ended December 31, 2023.

With me on this call are: Chief Medical Officer, Dr. Eric Rose, Interim Chief Financial Officer, Andrew Chaponnel; and one of our Mesoblast Board members, Dr. Philip Krause.

We could go to Slide 4, please. A snapshot of the investment highlights in Mesoblast are on this slide. We're developing a novel allogeneic cell therapy technology platform to enable treatment without the need for donor matching or immunosuppression. The lead indications of our 2 platforms, Remestemcel and Rexlemestrocel is being developed in both pediatric and adult steroid-refractory acute graft versus host disease. For the pediatric indication, we've completed a single-arm pivotal Phase III trial, which successfully met its primary endpoint. Long-term survival data shows durability of survival benefit for more than 4 years.

New data from a second potency assay has been provided to the FDA, and we have an upcoming meeting scheduled during March. For adult steroid-refractory acute GVHD, we are collaborating with the bone marrow -- blood and bone marrow transplant clinical trials network, and body responsible for approximately 80% of all U.S. transplants to conduct a pivotal trial in adults with this condition in patients who have failed second-line therapies and have no approved therapeutics.

This potential market is 5x larger than for pediatric. Rexlemestrocel, our second-generation immuno selective product is being developed for heart disease and inflammatory back pain in the field of inflammatory heart failure with low ejection fraction. We've completed the Phase III trial. We have an FDA designated regenerative medicine advanced therapeutic designation for the product in the treatment of the most severe end-stage patients with ejection fraction -- low ejection fraction heart failure and left ventricular assist device. And under that RMAT, we had a very encouraging meeting with the FDA during this month that I will update you on further in this presentation.

Results from a randomized controlled trial in pediatric and general heart disease have also been published. And for that indication with received a rare pediatric disease designation as well as an orphan drug designation by the FDA.

For chronic inflammatory low back pain, Rexlemestrocel has completed first Phase III trial. We've received RMAT designation from the FDA for this indication as well for discogenic back pain. An agreement is in place for a confirmatory Phase III trial with a 12-month endpoint being pain reduction was potentially acceptable for FDA approval and a pivotal trial with its activities have now commenced.

The next Slide 5 is a summary of the global intellectual property estate. We are the leaders in intellectual property for mesenchymal stromal cell sector. We have over 1,100 patents and patent applications across all the major jurisdictions covering compositions of matter, manufacturing and therapeutic applications.

And we've had a very strong track record of managing our intellectual property in terms of out-licensing, working with partners, with collaborators and in protecting our territories when that's required.

Next slide, please, Slide 6. We have a commercial scale manufacturing process that is highly scalable. It's allogeneic, it's off the shelf that allows us to deliver end-to-end products, frozen shipped through distribution hubs ultimately to the end user. The manufacturing process meets stringent criteria of various international regulatory agencies. The FDA has inspected our manufacturing process at the Lonza facility in Singapore and founded that process was acceptable. We have robust quality assurance processes in place to ensure the final product meets batch-to-batch consistency and reproducibility. And we've got substantial innovations that are under our own patents to meet the future increasing capacity requirements, improvement in yields, reductions in cost of goods. And these step-ups in technology include 3D bioreactors for high-volume indications.

Moving on to Slide 7. This slide is a cartoon of the mechanism of action by which our stromal cells deliver the clinical outcomes that we've talked about across various product indications. The cells that we've developed in mesenchymal precursor and stromal cell populations first and second generations have been optimized to express a variety of surface receptors that bind inflammatory cytokines and when they specifically are engaged by these inflammatory cytokines that are activated and release a variety of very well-characterized mediators that orchestrate the anti-inflammatory responses that are necessary to turn off immune mediated diseases in various tissues. And these mechanisms are now well characterized and underpin the clinical data that we've published, we generated, and which I can tell you more about in the coming slides.

Slide 8 is a snapshot of our late-stage clinical pipeline. Where stem cell, our first-generation product, as I said, is being developed with pediatric and adult sero-refractory graft-versus-host disease as well as inflammatory bowel disease. The pediatric indication is in the regulatory filing. The adult indication is -- has a pivotal trial being planned to commence next quarter.

Rexlemestrocel which is our second-generation monoclonal antibody-based, selected culture-expanded stromal has generated substantial body of clinical data in 2 major indications associated with inflammation. Heart failure with reduced ejection fraction and chronic inflammatory low back pain. Both of those have completed initial Phase III trials in both of them are in final stages of development.

Slide 9 is a summary of the clinical program milestones that have been achieved and are continuing to plan for it to be delivered on during the coming months. As you can see here, these milestones are linked to each product by indication. And we set out a number of deliverables that were laid out at our AGM. And I'm pleased to say that we've achieved all of the deliverables during the first quarter of this year, and we have a number of plant activities for the rest of -- for the next quarter and the rest of the year. And as you can see, in particular, with respect to [ Remy ] stem cell for adult and pediatric GVHD, we achieved the expected delivery of additional potency assay data, which was provided to the FDA. We have scheduled an upcoming meeting with the FDA that will be held in March. We've achieved completion and submission of a protocol for the adult program, and we plan to initiate enrollment in the next quarter for this adult trial.

With respect to the cardiovascular program, we achieved very encouraging meeting with the FDA under our RMAT regarding the potential pathway to approval in adults based on our LVAD and DREAM heart failure trials. And we further plan to meet with the FDA in the next quarter regarding our congenital heart disease program following results of the randomized controlled trial that have been published.

Regarding back pain, we achieved the start-up of activities with investigators, trial sites and the contract research organization for our pivotal trial. And the trial is active and we'll be screening and enrolling patients throughout the coming years.

Slide 10. The regulatory status for Remestemcel in pediatric patients with steroid-refractory GVHD. We have an upcoming meeting scheduled for March with the FDA, we have provided the agency with new data from a second potency assay for Remestemcel providing the additional product characterization as requested by the FDA. The new data show that the Remestemcel product made with the current manufacturing process, which has undergone successful inspection by the FDA demonstrates greater potency than the earlier generation product and provides providing context to its greater impact that we've observed on survival.

Next slide, 11. About the pathway to approval for Remestemcel in adults with steroid-refractory acute GVHD. So vital adults with this terrible disease who at least 1 additional agent beyond steroids and the only approved agent for this disease is ruxolitinib. If you fail ruxolitinib and other agents, survival remains as low as 20% to 30% by Day 100.

This patient population has no other approved therapies, and this dismal outcome needs improvement. In contrast, the use of our improved remestemcel product [indiscernible], has shown a 100-day survival of 67% when used under expanded access in 51 adults in children with steroid-refractory GVHD, who otherwise fail to respond to at least 1 additional agent on steroids, including ruxolitinib. We intend to commence a Phase III trial of [indiscernible] in adults and adolescents, the refractory to steroids and to a second-line agent such as ruxolitinib where there is no other approved therapy.

Mesoblast is collaborating with the blood and Marrow Transplant clinical trials network, a body responsible for approximately 80% of all U.S. transplant to conduct this trial. We expect to initiate the program next quarter Slide 12. What is our plan for pathway to approval now in patients? With [indiscernible] reduced ejection fraction, including in-stage patients with a left ventricular assist device based on multiple elements of data for VASCO, which has shown the potential to reduce major adverse cardiac events or MACE such as heart attack and cardiovascular mortality in high-risk patients with this disease, heart failure with reduced ejection fraction and with inflammation.

Revascor has also shown the potential to improve major outcomes in high-risk patients with the most severe end-stage disease, where there's excessive inflammation and the presence of left ventricular assist devices. We met with the FDA this quarter addressing potential pathways to bring this product to approval under our Regenerative Medicine Advance therapies designation. The discussion covered both the Class II/III for ischemic patients with inflammation from the 565 patient agree trial as well as those patients with end-stage disease and an L-band plant with inflammation from the 159 patients of that study. We've discussed with FDA the mechanism of action by which Revascor is able to improve the major outcomes, including mortality across the continuum of heart failure and inflammation. And in follow-up to the encouraging meeting, we expect to receive the minutes of the meeting from the FDA in the coming months.

Slide 13. What about pediatric and general heart disease, in particular, a rare disease called hypoplastic left hard syndrome. During the quarter, FDA granted Mesoblast product Revascor both rare pediatric disease designation and orphan drug status. This followed submission of the results from a randomized controlled trial in children with hypoplastic left heart syndrome, which is a potentially life-threatening and general heart condition. The results from this investigator-initiated study from surgeons at Boston Children's Hospital. -- was a blinded randomized placebo-controlled study were published in the December 2023 issue of the peer-reviewed journal with thoracic cardiovascular surgery open. As noted in this publication that there appears to be an increase in the proportion of children following treatment with Revascor who have an enhancement in the growth of the left ventricle at least by size and are able to better tolerate so-called recruitment surgery.

We intend to have a discussion with the FDA in the next quarter around the potential regulatory path for vascular disease children. Now let's move to the financial results for the half. Andrew, would you please take the next few slides?

[Andrew Chaponnel, executive]

Yes. Thanks, Silviu. Please turn to the financial highlights for the half year on Slide 15. As at December 31, 2023, cash reserves were USD 77.6 million after completion of an institutional placement and entitlement offer of AUD 60.3 million in the period. During the period, we also delivered on our planned cost containment strategies, which reduced our cash burn for operating activities. In the 3-month period ended December 2023, our cash burn for operating activities was USD 12.3 million, which is a 25% reduction on the comparative 3-month period in FY 2023.

In the 6-month period ended December 2023, the cash burn was reduced by 14% on the comparative 6-month period in FY 2020. we are also pleased to report the 21% reduction in our loss after tax of USD 32.5 million.

Turning to Slide 16. You'll see we are reporting a reduction in all our key categories of expenditure and improved loss after tax for the half year ended December 2023. Our revenue of USD 3.4 million is predominantly from royalties on sales of TEMCELL in Japan and our manufacturing expenditure reduced by USD 6 million or 47% for the 6 months ended December 2023. The cost being incurred in the current period for manufacturing related to generating new potency and characterization data through our Remestemcel-L product for children acute graft versus host disease. This data has been submitted ahead of our upcoming meeting with the FDA next month. Our finance costs include USD 6.9 million of noncash expenditure for the 6 months ended December 2023. I'll now hand the call back to Silviu for the presentation. Thanks, Silviu.

[Silviu Itescu, executive]

Thank you, Andrew. Let's continue with our operational update. Slide 19, please. Through refractory acute graft as host disease is a devastating complication of a bone marrow transplant. More than 30,000 allogeneic bone marrow transplants performed globally, per year, of which approximately 10,000 are performed in the U.S. 1,500 of these 10,000 are in children. And for children, there are no approved therapies at all. for adults, adolescents and adults over the age of 12. -- ruxolitinib is the only approved therapy and 45% of those who receive ruxolitinib and nonresponders for the nonresponders, there are no approved therapies.

If we go to Slide 20, please. This slide summarizes the 3 studies. -- that have been provided to the FDA on the outcomes for Remestemcel in children with steroid-refractory through GvHD. And in these 3 studies, you'll note that day 100 survival ranged from 66% in the most severe conditions under an expanded access to 74% and 79% in both the randomized controlled study and in the open-label study, 001, with a grade CD disease accounted for 89%. In contrast in each of these last 2 studies, control arms, either a randomized control arm or an external control arm matched patients demonstrated substantially lower survival outcomes of 54% and 57%, respectively.

If we go to the next slide, this graphically shows a comparison of survival on the right-hand side in our Phase III trial 001, where at 6 months, we see 69% survival. And by 2 years, 51% survival of children where, as I mentioned earlier, almost 90% have the worst form of disease grade CD disease.

In contrast, on the left-hand side, we see 2-year survival outcomes in 128 children with steroid-refractory GVHD treated at major center across the U.S., and you see a dismal 35% survival at 2 years in this patient population.

Next slide. Slide 22 shows the long-term survival outcomes from the children in our pivotal study 001. Of these 51 children of whom almost 90% were Grade D disease. You can see that by -- through the end of the fourth year into year 5, almost 50% of children maintained survival. And really survival through year 5 indicates curative outcomes. And those children arrived at your 5 are really leaving normalizes. And we have children who are now medical students, for example, thriving in the community. In contrast to this long-term outcome with Remestemcel, you see the outcomes in 5 publications in children and adults treated with alternative therapies, including ruxolitinib. And you see that across the board in each of these studies, date year 1 survival is in the 40% range. Year 2 survival is in the 20% to 30% range, and there are no reports of survival outcomes beyond year 2.

We think the long-term survival outcomes with remestemcel from a pivotal Phase III trial is unparalleled with other therapies that are available today.

Slide 23. So what is the regulatory status and pathway for RYONCIL in children. As I've mentioned earlier, we have an FDA meeting scheduled and upcoming for March with the FDA where we have provided the agency with a substantial amount of new data from a second potency assay for our product RYONCIL, providing additional product categorization as requested by the FDA. The new data show that the RYONCIL product, optimized and improved RYONCIL product made with the current manufacturing process that has undergone successful inspection by the FDA demonstrates greater potency than the earlier generation products. It used to be called the early generation product, what's called Prochymal, which provides context to the greater impact on survival of our improved product RYONCIL.

And for adults, as I've mentioned earlier, our commercial strategy is to progress as rapidly as possible to adults who failed both steroids and a first-line agent such as ruxolitinib, which accounts for about 45% of all patients currently on ruxolitinib. For these patients' mortalities is dismal, only 20% to 30% are alive by 100 days and we've seen a 67% survival in this patient population with RYONCIL. We are collaborating with the BMT CPN to initiate and conduct a pivotal trial in this patient population in the second half of this year. Let's move to heart failure.

Slide 26. Congested heart failure remains a major cause of mortality in the Western world with 50% patients dead at 5 years after diagnosis. We have a substantial amount of promising initial data including data from over 500 patients in the Dream heart failure Phase III trial, which demonstrated early strengthening in the left ventricle by measurement of left ventricular ejection fraction. And more importantly, long-term reduction in major adverse cardiac events, including heart attacks, strokes and mortality.

The key finding is that inflammation, which is seen in about 50% of these patients is both a predictor of severe outcomes and a predictor of therapeutic benefit in response to Rexlemestrocel. We met with the FDA very recently and had a very encouraging meeting under our existing RMAT designation to discuss the potential pathway to approval for patients with complication. And we expect to have FDA for more minutes in June later in March. But I think -- if you look at Slide 27, the message is we're targeting the continuum of disease of patients with the most severe forms of inflammatory heart failure, low ejection fraction. It is these patients who are Class III, Class IV as well as end stage who ultimately end up on artificial heart devices or requiring transplants or die. And the continuum of this disease reflects, in large part, ongoing severe inflammation. And we've identified precisely those patients who are most likely to respond our therapy based on a mechanism of action that we think is critical to the ability of these cells to make a difference in the lives and outcomes of this patient population.

And just as a reminder on Slide 28 of some of these outcomes that have been published. This slide is from a paper in general oncologic cardiology published last year. You can see on the right-hand side across the 301 patients out of the 560 patients who had severe inflammation. The impact on heart attacks demonstrated an 88% reduction in the incidence of heart attacks, almost a flat line in blue in patients who received a single injection of Rexlemestrocel compared to in red, progressively increasing incidence of heart attacks. And of course, having heart attacks on top of severe heart failure is a recipe for progression, and ultimately, death. And if we can move on to Slide 29, which brings the same mechanism of action as by which injection of our cells has the potential to reduce inflammation, to improve blood vessels and prevent scarring, that same mechanism was the impetus for a study of these cells in little children with congenital heart disease, in this case, hyperplastic left heart syndrome.

This was an initiated study by investigators at Boston Children's Hospital, with the hypothesis that the injection of these cells might increase the size and the pump function of the left ventricle that was congenitally small and the results were very encouraging and were published by the investigators in December in Journal of Cardiothoracic Surgery.

The results showed if we can go to Slide 30, that a single injection into the left ventricle of these children at the time of surgical anatomy restructuring improved over 12 months, the size of the left ventricle and it improved the ability of the surgeon to perform a definitive procedure that allows the heart to pump more effectively blood around the entire circulatory system.

On the basis of these results, we filed with the FDA for a pediatric rare disease designation and orphan drug designation and receive both of those and we will continue to interest with the FDA over the coming months to discuss the potential pathway to approval for this ultra-rare orphan indication. It's important to note that the benefits of having a pediatric rare disease designation is that on FDA approval, the VAS score of vascular the indication, we may be eligible to receive a priority review voucher that can be redeemed for any subsequent marketing application or may be sold or transferred to a third party.

Finally, let's move to the other blockbuster opportunity. The use of Rexlemestrocel for treatment of chronic low back pain due to inflammatory degenerative disc disease. Slide 32. This is another very large unmet opportunity, unmet need, over 7 million patients across the U.S. are estimated to suffer from inflammatory chronic low back pain due to degenerative disc disease.

And really for these patients, if we can go to Slide 33, the patient journey is really very, very limited other than nonsteroidal anti-inflammatory drugs and opioids. The only other options for these unfortunate pressures are interventions that the invasive and that are involved with either implants or surgery. We have alignment with the FDA on the appropriate pivotal Phase III study that if positive, would support and confirm results in the first Phase III trial which is to reduce the substantially reduced pain through a 12-month period.

The 12-month reduction in pain is the primary endpoint of the pivotal trial, and we have agreement with the FDA that, that could support a label pain reduction in these patients. In addition, we've completed manufacturing and potency assays in place with product release. The pivotal trial is now underway across multiple sites with the CRO engaged to recruit patients across the U.S.

We have an RMAT designation can we go to Slide 34. We have an RMAT designation for this indication as well. And given this is not an orphan indication, I think it gives you a sense of the importance of this disease, both in terms of the morbidity that's associated with it, but also with the fact that it's the #1 cause of opioid usage in the west world, 50% of opioid prescriptions are for patients with chronic low back pain. We have shown in the first Phase III trial, a reduction in opioid usage in patients who are responders and we showed a substantial reduction in paying through as long as 36 months of follow-up.

And based on these data, the FDA granted us RMAT, which I think is an indicator of the importance that may place on products that are being developed for this patient population.

Slide 35 shows the data that was generated in the first Phase III trial, which shows in red, the reduction in pain at 12 months, 18 months, 24 months and 36 months, and at all those time points, the substantial difference between a single injection of our cells with the high uronic acid carrier is evident versus in green saline injection. If we can replicate these data in the current pivotal Phase III trial, this is an approval endpoint as early 12 months post an injection.

And I think on that basis, I'll leave it there. And if there are questions, I'd be happy to take them. Andrew will be happy to address any questions related to finance. Our Chief Medical Officer, Dr. Rose, can address any of the clinical questions you may have and any regulatory questions Dr. Kraus would be happy to address as well.

[Operator]

Your first question comes from Louise Chen with Cantor Fitzgerald.

[Louise Chen, analyst]

Congratulations on all the progress. So I wanted to ask you on the pricing for the pediatric opportunity for Remestemcel, I think the last time that I spoke with you with the pricing was potentially better than I had anticipated. So just curious what you're thinking there. And then I also wanted to ask you about cash runway. I know you gave the cash balance, how you're thinking about the push and pulls -- and then lastly, just OpEx for the remainder of the year. Is this first half of the year a good proxy for that? Or is there something else happening in the second half that we should consider? .

[Silviu Itescu, executive]

So with respect to pricing, as you can imagine, we're not able to disclose publicly what we expect to charge for the product for pediatric graft versus disease. But I would point you in the direction of the CAR T cell therapies as precedent for similar patient populations. And you want to look at the totality of the disease in terms of morbidity and mortality and the durability of the effect, we've demonstrated at least 5 years of survival outcomes. And I think when you -- some of the gene therapies that are providing that kind of curative outcomes charge some pretty remarkable prices. I would say that we would see that pricing for this product is somewhere between the CAR-T products and the curative gene therapy products. With respect to burn rate and I think runway. We've indicated that in the last quarter our financial spend and our burn was reduced 25% relative to the comparative period.

And I think we're very comfortable that we're going to maintain that kind of quarterly burn perhaps even tighten our belts further beyond that. So on that -- and that allows us to complete both the adult GVHD program that we are planning to do with the BMT CTM group as well as the pivotal back pain trial. So the current spend anticipates those programs being funded internally. We -- on that basis, we think we've got about at least 12 months of cash, we expect and are currently in discussions with strategic partners for some of these indications where we -- if we enter into strategic partnerships, particularly in the U.S. market, we would expect that our cash flow -- cash balance would be substantially altered and would extend our runway well beyond that. Does that address your question, Louise?

[Operator]

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

[Silviu Itescu, executive]

Great. Well, we hope that we've given a good update on our operational activities, which have been substantial, at least over the past quarter. We will continue to update the market as we deliver on the near term and midterm catalyst as we've laid them out. And thank you very much for participating. .

[Operator]

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