Mesoblast Ltd

ASX:MSB

Earnings Call Transcript 2019-Q3

[Operator]

Hello, and welcome to Mesoblast's financial update and operational highlights webcast for the third quarter ended March 31, 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 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 such as 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.

[Silviu Itescu]

Thank you, and welcome, everybody, to this call. On the call with me is our Chief Financial Officer, Josh Muntner.If we could go straight to Slide 5, please. Our recent corporate highlights. We're very excited to be able to say that we've initiated our BLA filing, which is a rolling submission for our product, remestemcel-L, in the treatment of steroid-refractory acute graft-versus-host disease. This follows the agreement with the FDA for a rolling Biologics License Application and their agreement to review the submission on a rolling basis. This process will provide the opportunity for ongoing communication with the FDA, and during the process, we expect to be able to adequately address any substantial matters that may be raised.In addition to the importance, and this is really a historical importance of having filed our first BLA, we accomplished some significant advancements with our product candidate, Revascor, in advanced and end-stage heart failure. We entered into a Memorandum of Understanding with our collaborators from the National Institute of Health at the InCHOIR center in Mount Sinai to conduct the confirmatory clinical trial using our product candidate, Revascor, for reduction of major gastrointestinal bleeding in end-stage heart failure patients who've received a left ventricular assist device.The same product candidate is currently in a Phase III trial for advanced heart failure. It's completed patient enrollment. 566 patients in total have been randomized to receive either Revascor or placebo. That study, conducted across 55 centers in North America, continues to accrue primary endpoints and will complete when the full amount of primary endpoints have been collected.Regarding our back pain program, MPC-06-ID, that Phase III trial also completed enrollment more than 12 months ago, 404 patients randomized to receive a single injection intra-discally or placebo. All assessable patients have now completed at least 12 months of safety and efficacy follow-up. We continued to extend our license agreement with JCR Pharmaceuticals in Japan for the use of TEMCELL beyond graft-versus-host disease now in patients with epidermolysis bullosa. And we look forward to potentially extending further into new indications. JCR has now filed to extend their marketing approval for this indication.The other important corporate milestone that we achieved was to welcome the appointment of our new Chairman, Joe Swedish, in April of this year. Joe brings deep healthcare expertise and a track record in healthcare resource allocation and reimbursement metrics, which are critical skill sets as our company now enters our commercial stage.Slide 7 gives a snapshot of the corporate history of Mesoblast, with over a decade of scientific, manufacturing, clinical development and corporate transactions to bring, we hope, significant products to market. This snapshot identifies our partnerships and our progress over time and the more recent transactions that we've entered into.Slide 8 summarizes those transactions, including our partnership with JCR, Takeda and Tasly. If we can move to Slide #9. This slide is a summary of our commercial and late-stage product pipeline. Just to remind folks that our product -- our licensee, JCR, sells and markets TEMCELL in Japan, which has been approved for acute graft-versus-host disease. This was the first allogeneic regenerative medicine product approved in Japan. Through a license arrangement with Takeda, Alofisel, approved for perianal fistula, was the first allogeneic regenerative medicine product approved in Europe. And below that, you can see our broad-based late-stage platform, which, the way we look at it now, those indications being developed through our platform for Mesenchymal Stem Cells, the MSC suite of indications, and those late-stage programs developed using the MPC suite platform. And they include, of course, acute graft-versus-host disease, Crohn's disease, repair of cartilage, cardiovascular disease, low back pain, rheumatoid arthritis and diabetic nephropathy. And what all of these indications really have in common at the heart is severe inflammation with relationship between progressive inflammatory disease and progressive disease refractory to conventional therapies.With that, I'd like to now switch to our financials. And Josh, if you could take everybody through the financials on Slide 11, please.

[Josh Muntner, Chief Financial Officer]

Thanks, Silviu, and thanks to everyone for joining the call today. This is an exciting time for Mesoblast as we've now achieved an important milestone with the initiation of our rolling BLA submission for remestemcel-L for the treatment of steroid-refractory acute graft-versus-host disease. We're looking forward to providing updates to the market as we make progress with the FDA.So the information found on Slide 11, we'll start with for the 9-month period ending March 31, 2019. We were able to report a 29% reduction in net operating cash outflow. This significant decrease was largely driven by an increase in milestone payments in the current period relative to the prior period. We completed the quarter ending March 31 with just over $70 million of cash. I want to remind everyone that if I'm meeting certain milestones, we may be able to access additional cash through our non-dilutive capital arrangements with Hercules and NovaQuest.Taking a look at Slide 12, we'll now review our revenue. Total revenues were $14.8 million for the 9 months ended March 31, 2019, compared to $15.6 million from the prior period. Of note is that our commercialization revenue, which is primarily composed of royalties from JCR, continued to show strong growth, increasing 28% in the recent 9-month period compared to the prior period. As we discussed when we reviewed last quarter's results, the current period contains a milestone payment of $10 million related to our partnering transaction with Tasly. The prior period includes $11.8 million of milestone revenue from our licensing transaction with TiGenix, now part of Takeda.Moving on to Slide 13, I'll now walk through the remainder of the P&L line items. You'll notice for the 9-month period of fiscal 2019, we incurred a higher after-tax loss relative to the year-prior period. As we discussed last quarter, much of the difference in tax -- after-tax losses between the 2 periods was due to 2 large noncash items during the prior period. The first was a large onetime noncash income tax benefit due to changes in U.S. tax law. The other was a noncash gain due to a revaluation of our contingent consideration based on a reduction in expected future payments owed to a third party. Other drivers of the differences of the net loss, one of them to point out is an increase in finance cost when comparing the 2 periods as we recorded interest expense in the current period related to our non-dilutive capital inflows from Hercules and NovaQuest. Finally, a portion of the loss was due to an increase in investment in commercial manufacturing. This is being done to support the regulatory filing and potential launch of our aGVHD product. We expect to continue to invest in manufacturing in order to build inventory to support a potential commercial launch. We believe this will position us well as we execute on our upcoming milestones.For more information on the financial results, please see our recently filed reports with the SEC or on our website.I'd like to turn the call back to you now, Silviu.

[Silviu Itescu]

Thanks, Josh.If we can move to Slide 15, please. Acute graft-versus-host disease is a significant market opportunity for Mesoblast and for our product candidate, remestemcel-L. The burden of illness for this disease is very significant, with mortality rates as high as 90% in that 50% of patients who have Grade C/D disease.There's only one approved treatment for steroid-refractory disease in Japan, and there are no approved treatments particularly for children outside of Japan. In Japan, our licensee, JCR, has received the only product for approval in both children and adults, and their ability to sell and market this product and the adoption by the physician community in Japan gives us very good insight as to how this product would be accepted in the United States.Globally, there are more than 30,000 allogeneic bone marrow transplants, and steroid-refractory GVHD in children and adults represents a very significant market opportunity, driven primarily from the U.S. market.Slide 16 provides the significant burden of illness assessment of children with this very bad disease, and I think I would simply point out that this is, I think, a very conservative road map of the costs incurred by a large medical center in the U.S. for a child with severe graft-versus-host disease, particularly given the extensive in-hospital intensive care requirements.So based on our own qualitative U.S. market research on Slide 17, we believe we've got very significant value drivers for this product, which include an excellent day 28 overall response rate, particularly in those hardest-to-treat Grade C/D disease patients. We have excellent day 100 and day 180 survival rates. Very importantly, we have no evidence of any kind of major adverse events, including infections or other complications typically seen with a whole range of immunosuppressive drugs. And we have a very large clinical data set that supports what I'm saying in both in terms of safety and efficacy. And finally, the ability to administer the drug both intravenously, where there's no problems with oral uptake in patients who have severe gastrointestinal diseases, and the ability to deliver the agent as an outpatient procedure are major advantages to the hospital administrations.And when you go to Slide 18 and you see the typical product reimbursement that is being seen for both biologics on the one hand, on the left side, biologics that are branded global immunosuppressants in a variety of inflammatory conditions, and on the right-hand side, innovative drugs taking advantage of advances in cellular immunotherapy, you can see that we believe that the value proposition by the results with remestemcel-L are substantial.We'll now go to Slide 19. I'd like to summarize some of the clinical data that has been generated to-date. This slide summarizes the data from 241 children receiving remestemcel-L as salvage therapy following the failure of steroids and various immunosuppressive drugs under an expanded access program. The experience in these children was between 2007 and 2014 across North America and Europe, age range from 2 months to 17 years. The grading was Grade B to D, but as you can see below, about 2/3 of the patients were Grade C and D disease, the most severe forms. And what is immediately evident is that the response rate to an induction course of therapy over a 4-week period was somewhere between 61% and 73% across all grades and with an overall 65% mean responder rate in all grades.Now, Slide 20 shows you the relationship between day 28 overall response and survival through at least 100 days. And what you can see, as predicted from the outset, early response predicts a high degree of survival, and survival of day 100 correlates with good survival beyond that to 6 months. And if you're alive through 6 months, then you've got a great chance of being alive for many years.Now, that study was using remestemcel-L as salvage therapy. And important to the physicians, to the agency and to us was the key question of, given the safety of these sales relative to global immunosuppressants, would they be as effective when used as first-line after steroids failed? And that was the whole hypotheses and basis of the 55-patient Phase III trial.So on Slide 21 is the protocol design for the Phase III trial. It was a multicenter, single-arm, open-label study evaluating safety and efficacy of an induction protocol of multi-dosing of remestemcel-L over 4 weeks with a primary endpoint of day 28 to overall response and key survival endpoints at day 100 and day 180. The study enrolled 55 children from 2 months to 17 years. And you can see the disposition on Slide 21.Slide 22 is a summary of demographics of these children. The majority had been treated with chemotherapy for an underlying malignancy and, as a result of the chemotherapy, required an allogeneic bone marrow transplant to rebuild their immune systems.Slide 23 shows further disease characteristics reflecting the severity of the graft-versus-host disease. And I think what's most important here is that almost 90% of patients had Grade C/D disease at baseline. 47% of patients had Grade D disease. And these are the most severe forms that typically fail all therapies.If you look at Slide 24, this is data from the CIBMTR, the registry in the United States, published in blood. And whilst more recent data have somewhat improved outcomes, pretty much the survival outcomes in Grade C and D disease continue to be as bad as you see here on this slide. So really, Grade A and B or Stages 1 and 2, which are very similar, have long-term survival rates of about 90%. And really, whilst they're diseases involving predominantly the skin, they don't seem to be severe diseases that impact on survival. However, you can see Grade C disease has a 12-month survival of about 30% and Grade D disease has a 12-month survival of as low as 10%. And I think those are the diseases that we are focusing our therapy on and where really patients, physicians and payers are looking for something that really works.Now, moving to Slide 25, what we are extremely excited about is that in these very, very advanced disease patients, we have seen a 69% overall response rate. And in particular, as you can see here, Grade C and D disease are even more likely to respond to our therapy than Grade B disease. Now that's not surprising because we know that the greater the inflammatory stimulant, the greater the response to our cell. So this is exactly what we were hoping to see, and we're very pleased with this outcome. The prespecified controls -- protocol-defined control was 45%. And so an overall response rate of day 28 of 69% was significant at a p=0.0003 level, very significant.Moving to Slide 26. Importantly, we looked at how did day 28 response predict survival through 6 months. And day 100 survival was overall 75%, with 87% surviving if you are a responder at day 28. Day 180 overall survival was 69%, with 79% overall survival if you're an early responder. So clearly, early response predicts long-term survival and great outcome. Importantly also, we -- treatment with remestemcel-L was very well tolerated with no evidence of cell-related infections or complications similarly to what may often be seen with global immunosuppressants. So we were very pleased about that. And importantly, the findings in this Phase III trial were very consistent to the findings previously reported in the 241-patient study where the drug was used as a salvage therapy.Slide 27 shows the Kaplan-Meier survival curves, which I've just talked to. We're very pleased about it and are highly significant between responders and nonresponders.And on Slide 28 is our overall regulatory and commercial strategy overview that allows to take these data forward to the agency and beyond. The FDA agreed to a rolling review of our BLA submission using those clinical data. We have a Fast Track designation that provides eligibility for a priority review of our BLA filing by the FDA. We are currently ramping up our inventory build. Our commercialization strategy is in place and continues to -- our team is continuing to grow in place for product launch. We're building out an efficient, targeted sales force, which has to cater for about 15 centers which account for 50% of all patient transplants. And we are using the TEMCELL experience in Japan to inform our commercial strategy as we prepare for a potential approval and launch in the U.S.And Slide 29 is a summary of the way we see a comprehensive global program for remestemcel-L. And you can see here that we have a plan for filing on the base of our pediatric data for a pediatric approval. We have a confirmatory program planned for adults to expand the indication into the adult GVHD space. We have plans to move into the chronic GVHD market, which is an overlapping but perhaps almost as large opportunity as for acute GVHD. And then we have the opportunity for label extension for other indications in the U.S. market in parallel with our partner in Japan. As they continue to expand in the Japanese market, we will work closely with them to take cue and use as much data as we have, as they have, and new data for potential label extensions.Now, I'd like to switch gears and talk about some of our other large programs in Phase III. On Page 30 is a summary of our cardiovascular opportunity, and we have presented this slide previously. This is the way we see the evolving heart failure market and where we believe we fit into the terrain.Heart failure is a progressive disease of vascular endothelial dysfunction as well as loss of muscle tissue and loss of cardiac function. Many drugs, generics and otherwise, target endothelial dysfunction, particularly in early-stage disease Class I, Class II. We believe that our product candidate, MPC-150-IM or Revascor, has a unique mechanism of action to reduce the severe inflammation and endothelial dysfunction that is present in Class III and Class IV and end-stage patients. And we have focused in that segment of patient disease.Now, heart failure is clearly a major epidemic in the western world. As many as 8 million patients today suffer with heart failure. We're targeting that sickest 15% to 20% segment where all existing therapies have failed.Slide 32 is a reminder to everybody about our Phase II data published in Circulation Research, which allowed us to identify an optimal therapeutic dose in patients with advanced heart failure and left ventricular dilatation. We identified the 150 million dose as being the most effective in terms of reducing left ventricular systolic volume and left ventricular end diastolic volume over 6 months.On Slide 33, importantly, we were able to stratify patients on the basis of large systolic volumes at baseline. And matched in this way, we showed that our cells were even more effective in terms of reducing systolic volume and reducing diastolic volume and improving ejection fraction or rather preventing the further loss of ejection fractions. This allowed us to identify that greatest benefit of our cells was most likely to be in patients with the most severe form of the disease with the largest systolic volume.On that -- and these data were supported, Slide 34, by Kaplan-Meier statistics, looking at overall heart failure, major adverse cardiac events, hospitalizations and deaths, where, again, you see that over a 3-year period, a single injection of the 150 million dose significantly protected or reduced or prevented these adverse events over 3 years compared to placebo. And in particular, this protective effect was maximal in those patients with systolic volumes of more than 100 ml of baseline. So on that basis, we progressed into Phase III with what we have felt is the appropriate dose and have identified patients who we think are at greatest risk and most likely to respond to this dose.Slide 35 gives a summary of where the Phase III trial is at. It's a 1:1 randomized, controlled, double-blind trial conducted over 55 sites across North America testing the 150 million cell dose versus control. It's an events-driven Phase III trial. It's enrolled 566 patients. The primary endpoint is a reduction in heart failure-related major cardiac adverse events such as hospitalizations and deaths. Secondary endpoint is a reduction in terminal cardiac events. We have achieved about 85% of the targeted major cardiac events, and we continue to accrue these primary endpoints and we will update the market when all events have been completed.Now, end-stage heart failure, Slide 36, represents a unique potential opportunity for an accelerated entry point of our product into those patients with heart failure who are the sickest at -- the extreme end of the disease, who have a potential 50% mortality at 12 months on medical therapy and who are being kept alive on an artificial heart called a left ventricular assisted device, an LVAD. Approximately 4,500 to 5,500 patients a year are implanted annually in the United States. And really, the potential growth of this market is, in large part, dependent on the ability to control adverse events such as infections and major gastrointestinal bleeding, which is seen in up to 40% of these patients.If you go to Slide 37, we have now reported that in 2 placebo-controlled randomized studies, one, a 30-patient pilot, the second, a 159-patient study, we have seen that a single injection of our cells into the left ventricle at the time of a device implant significantly prevents these major gastrointestinal bleeds and recurrent hospitalizations. And you can see how similar the reduction in GI bleeding rates has been between these 2 studies, where both demonstrated something like a 70% to 76% reduction in recurrent major GI bleeding events over a 6-month period of time.And on Slide 38, you could see that in the recently reported 159-patient trial, this reduction in GI bleeding events was accompanied by a 70% reduction in hospitalizations from GI bleeding. And we think that's a very important outcome in terms of hospitalization use -- usage and the pharmacoeconomic benefits potentially of a single injection into these patients.On the basis of the data from the pilot trial, we received what's called a Regenerative Medicine Advanced Therapy designation from the FDA, an RMAT designation, with very clear guidance that achievement of reduction in gastrointestinal bleeding in these patients was a clinically meaningful outcome that the FDA would see as important in terms of potential for approval. We have had a Memorandum of Understanding that we've entered into with our colleagues at InCHOIR, an NIH-funded administrative body, that we have an understanding that there will be a further trial put in place by the Cardiothoracic Network with -- using gastrointestinal bleeding as the primary endpoint to confirm the observations we have to-date. And we intend to meet with the FDA midyear to put all the data in front of them that has been generated in the recent 159-patient trial and discuss the potential approval pathway for this product.Finally, if we can move to Slide 40, a summary of our other asset in Phase III, MPC-06-ID, for severe chronic low back pain. Again, this is a tremendous market opportunity for Mesoblast given the severity of the condition, given the large volume of patients who are suffering out there and given the terrible opioid epidemic that has engulfed western countries, including the U.S. and Australia. The burden of illness is substantial. The options for these patients are limited. And the market potential for us is very large.To remind folks, Slide 41, on the excellent Phase II data we achieved, these were post-op data that provided the target endpoints for our current Phase III trial. And just to remind you, the bar here is very high, showing you that we achieved a threefold improvement in responders who received a single injection of our cells into the disc compared to a placebo injection. And responders were defined as at least a 50% improvement in pain and at list -- at least a 15-point improvement in function concomitantly within the same patient. Those endpoints for responders are the same as endpoints required by device manufacturers for spinal fusion and other disc replacement strategies from the FDA. So we were very pleased by those data at both 12 months and at 24 months. And the -- these are the endpoints that we're targeting in our current Phase III trial.Slide 42 summarizes this Phase III trial. It's a 3-arm study comparing saline injection against our MPCs with or without hyaluronic acid. All assessable patients have now been assessed at 12 months for pain and function, and we continue to collect data on these patients for 24 months. Needless to say that at least 50% of the patients, they had already achieved -- have already completed 24 months of follow-up. So the risk of the patients will be assessed and continue to follow up during the remainder of this year.And finally, Slide 43 are the anticipated milestones that are coming up in the calendar year. As discussed, we'll -- of course, we'll complete the BLA filing for remestemcel-L in GVHD. With respect to Revascor, we seek to complete the accrual of primary endpoints as quickly as possible. We are meeting with the FDA midyear to discuss the potential approvable pathway for the product in end-stage heart failure patients using GI bleeding as the primary endpoint. And our cardiovascular partner in China, Tasly, continues to work towards the Phase III program in China, with potential guidance from the local regulatory authorities. Our back pain asset will continue to accrue -- to follow their patients out through 24 months. And we're continuing discussions and expect to have additional partnerships globally or regionally.Thank you. And I think with that, I would like to open to questions.

[Operator]

[Operator Instructions] Your first question today comes from Mark Breidenbach with Oppenheimer.

[Mark Alan Breidenbach, Executive Director & Senior Analyst]

Congrats on getting the rolling BLA submission process started. Just a couple of questions on the graft-versus-host disease program. Given that ruxolitinib was recently approved here in steroid-refractory GVHD at least in adolescents and adults and there's obviously going to be a, to some degree, an overlapping label in the future if remestemcel-L is approved, can you just comment on what you think will primarily be driving physicians' choice if they have multiple new options to choose from in steroid-refractory Graft Versus Host?

[Silviu Itescu]

Thank you very much. I think it's a very important question. So I think I'd like to point out again that 89% of our Phase III trial was in Grade C/D disease, and we achieved a 69% day 28 overall response. Grade C/D disease continues to be the area where there is a high mortality and where there is a need for effective treatment. In the public presentations for ruxolitinib, the responder rates for Grade C/D disease, we believe, were of the order of 41% to 43%, so substantially lower than what we've achieved in our Phase III result.About 50% of patients, children and adults, have Grade C/D disease, and I think that is the important area that Mesoblast will be focusing, particularly in adults where we believe that we will be first line after steroids in patients with sub-severe disease given not just the efficacy, but the very, very good safety record of the drug.In terms of children, in particular, safety is paramount. And the great experience that we've had with children and the safety dossier, together with the efficacy that I just showed you, I think means that children, in particular, will receive these cells as first line after steroids.But look, we have on the line a world expert in this field, Prof. Joanne Kurtzberg. And I'd really like -- Joanne, would you provide us with your view of -- from a clinician's perspective?

[Joanne Kurtzberg]

Sure. Hi guys, I'm happy to be here. Yes, as a clinician who treats these children regularly, we would definitely go to MSC as the first line therapy after [ treating ] steroid-refractory [ in this ] for multiple reasons. First of all, there is no overlapping toxicity with other agents we're using. And with the Jakafi product, there's myelosuppression, [indiscernible], thrombocythemia. And these are children who just had a transplant, so recovering their blood count, and they have unstable blood counts. So if you give them a drug that's suppressing their blood count at that critical stage, it's risky.In addition, children, particularly the children who are having diarrhea, they don't want to take oral medication and they don't absorb oral medication. So when you're in that critical stage, the Grade C/D disease, you really want to give them a therapy [ via IV ] that you know got into their body and has a chance to have an effect. These children are generally in the hospitals where giving IV medication is preferred. And they're at a critical point where you've got to get control so the child won't die. So the MSCs really provide better vehicles of administration, more guarantee that the therapy will get delivered appropriately, a good -- an excellent safety profile, no overlapping toxicity because they don't suppress blood counts, they don't suppress the immune system, they don't cause kidney toxicity, which is another critical problem in these kids because of the other drugs they receive for the transplant. So I think there is no question that the doctors who are familiar with MSCs and have seen them work will go to MSCs first and maybe go to Jakafi if there is no response, but that's going to be a much less likely situation to occur.

[Mark Alan Breidenbach, Executive Director & Senior Analyst]

Okay, okay. That's actually very helpful. And to my -- as far as I understand it, ruxolitinib is administered on top of a backbone of steroid therapy. Is the activity you're seeing with remestemcel-L as a single agent therapy? Or is this also on top of steroids in the steroid-refractory pediatrics?

[Silviu Itescu]

I think -- go ahead, Joanne.

[Joanne Kurtzberg]

No. I had trouble hearing the whole question. Could you repeat it?

[Silviu Itescu]

The question was whether MSCs are given in conjunction with steroids or after steroids have failed without steroids being onboard.

[Joanne Kurtzberg]

Now, the usual scenario is [indiscernible] GVHD, you give a few days of steroids. They either respond or they're getting worse or not responding. And at that point, you add the MSCs because it's safer than steroids because the steroids have a whole set of adverse reactions that make them not an ideal choice to continue. So these steroids are weaned as the MSCs are given.

[Mark Alan Breidenbach, Executive Director & Senior Analyst]

Okay. Understood. And maybe one last one for Silviu. And it might be too early to comment on pricing and reimbursement issues, but would you expect remestemcel-L reimbursement to be bundled with transplant cost in the U.S.? Or would you expect this to be reimbursed separately?

[Silviu Itescu]

Yes. I mean, clearly, that's -- it's a little bit early for us to address that with full information at hand, but given that we can get patients out of the hospital relatively fast and certainly well ahead of completing the 4-week induction therapy, that we would expect that it could be a combination of both bundling as well as out of hospital add-on costs that would support the overall pricing.

[Operator]

The next question comes from Jason McCarthy with Maxim Group.

[Jason Wesly McCarthy, Senior Managing Director]

Congratulations on the progress. So for remestemcel-L, I'd like to see if you could give us a bit more color on how long we could expect the rolling BLA submission to take. And then if you could remind us of the path towards expanding the label into the adult population.

[Silviu Itescu]

Yes. So we expect to complete the filing process second half of this year. And then we have a Fast Track designation which enables us, and we will seek a priority review, which then if accepted by the FDA, means that there's a maximum of a 6-month review process. The advantage of a rolling review is that as these modules go in, there's an interaction with the agency that allows for ongoing dialogue and questions and answers that hopefully will further shorten the review process.What was the second question, Jason?

[Jason Wesly McCarthy, Senior Managing Director]

Just if you could give us an overview of the path to expand the label to include adults.

[Silviu Itescu]

Sure. Well, we're now pleased that there is at least one product that's available as an approved product, an immunosuppressive product in adults. I've said to you that the -- our outcomes in Grade C/D disease, where there is a real need for survival benefit, we believe, is excellent. And a relatively small trial comparing against any approved standard of care would be focusing on Grade C/D disease day 28 overall survival, showing, we hope, a superior outcome both on response -- day 28 response and overall survival of day 100, day 180. And we will be focusing on starting that program as soon as practicable.

[Jason Wesly McCarthy, Senior Managing Director]

And then on Revascor and end-stage heart failure, you guys reduced GI bleed-related hospitalizations by 65%. So my question is, how does that transfer to total reduction in hospitalizations due to heart failure-related events? As in like how large is the burden placed on patients by GI bleeding in stage 4 heart failure?

[Silviu Itescu]

Yes. Well, look, it's not stage 4 heart failure, right? It's stage 4 heart failure -- it's end-stage heart failure with an LVAD in place. So these patients have a very unique trajectory. They don't have heart failure. They are being kept alive by a pump that maintains pressures and takes all the load off their existing heart. Their causes for hospitalization are not at all to do with cardiac. Their hospitalization causes are due to primarily 2 major things: infections and GI bleeding. GI bleeding occurs in about, as I've said, up to 40% of patients or perhaps a little bit less than that with some improved new devices, but it is a major component of the hospitalization. We did not impact infection rates at all. That's not -- that is outside of the mechanism of action of the cell, but we did impact hospitalizations by about 65% from GI bleeding.And so the cost implications of hospitalization from bleeding are significant. But beyond that, they're also a barrier to the agreement of families and their patients to take on these devices. I mean, it's a significant challenge when you're in and out of hospital with major bleeding and intensive care requiring transfusions. To ask people to be agreeable to taking on that kind of lifestyle problem is a major barrier to the growth of this industry. And I think if we can impact that through reduction of bleeding, reduction in hospitalizations, we will have a significant market opportunity.

[Jason Wesly McCarthy, Senior Managing Director]

All right. And then just one more quick one on degenerative disc disease. I'd like to know what sort of improvement in the VAS pain score you would need to see in order for you to be comfortable in terms of efficacy to other methods such as opioids or surgery.

[Silviu Itescu]

Yes. Look, the bar that we have put is a 50% improvement in VAS score, right? These patients come in at a VAS score of 0 to 100 where the mean VAS score was around 70. So that's a pretty severe mean pain score. Just to put into context, opioids improved pain scores from meta-analyses of opioid studies by no more than about 10 to 15 points. We are looking at a 50% improvement which, from a mean of 70, means a 35-point improvement. So if we're successful in the study and we reproduce the data from our Phase II results, the data should be significantly superior to anything that's been reported with opioids.But beyond that, we're talking about a very safe technology. We have not seen any accelerated adverse events to-date. There's no risks of long-term abuse, et cetera, et cetera. So -- and the bar around that 50% reduction in pain is as high as any device for total disc replacement or surgery. And we're talking about that very large patient population where maybe, at most, 5% over a 3-year period would even be candidates for surgery. So there's a very, very large patient population segment that is dependent on opioids today that are not candidates for surgery. And given the high risk of opioids, in the very near future, we'll still have no alternatives other than the type of approach that we are providing or other innovative technologies.

[Operator]

Your next question comes from Jeffrey Cohen with Ladenburg Thalmann.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

So I guess I have about 3 questions that I wanted to run through. So I guess I'll start where you left off as far as the Phase III in lower back pain. You talked about the percent of patients that have thus far been completed. What do you maybe expect for the next 2 or 3 quarters as far as data in the public domain? Do you expect any readouts? Or do you expect an increase in patients?

[Silviu Itescu]

Look, I think we want this trial to complete without any interim data readout in order to maintain the integrity of the study as per our discussions with the FDA. We will be putting more of the Phase II data in the public domain both in management form and in presentations. And I think -- we look forward to further disclosures in due course.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Okay. Got it. And then as far as some of the timing on Revascor for advanced heart failure, you indicated about 85% of events were brought out already. When we -- could we expect to see something like that in the public domain the next couple of quarters as far as completion on the events and then perhaps some preliminary data at a conference later in the year?

[Silviu Itescu]

So again, the -- what we're seeing is as patients have -- are now 3, 4 years out from initial enrollment, we're seeing an increase in event rate as patients are progressing over time to end-stage disease. And so we're accelerating our event accrual, which is good. It means that we've got a high-risk population that is having events, and it will mean that we will be able to close out the study in due course and perhaps sooner than we had anticipated. But we'll just have to see how the next few months go.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Okay. And then lastly, a quick one for Josh. On the R&D for the quarter, it seems a little light by a few million based in comparison to our estimates. Is that just a lumpiness in function or general trend or the timing of the -- some of the patients on a few of the trials?

[Josh Muntner, Chief Financial Officer]

Solely due to speed of some of the spend, expenditures that we're making. So I would not necessarily read a trend into it.

[Silviu Itescu]

Although I would add, Josh, that I think a lot of our spend was heavy previously in the ramp-up of the Phase III trials in heart failure and back pain. And those trials are now winding down, so I think that reduction in R&D reflects that. I think what you're going to see over time and have seen is the shift in spend from clinical R&D to manufacturing. And the manufacturing is in building up inventory for our GVHD launch.

[Operator]

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

[Silviu Itescu]

Again, I'd like to thank everybody for today. We are very excited. As I said at the outset, this is historic for Mesoblast. Our first BLA filing has been initiated and we are -- we will update the market in due course as we progress with our submission and plans for rollout. Thank you, everybody.

[Operator]

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