Mesoblast Ltd

ASX:MSB

Earnings Call Transcript 2019-Q4

[Silviu Itescu]

Good morning, good afternoon, everybody, and thank you for joining us at the operational and financial results for the fiscal year ended June 30, 2019. With me is our Chief Financial Officer, Josh Muntner. If we could go straight to Slide 4, please. This is a snapshot of our corporate history. We have over a decade of scientific, manufacturing, clinical development and corporate development experience, which target at bringing to market our allogeneic, off-the-shelf cellular medicines for a raft of very severe inflammatory diseases.Next slide. Our company is underpinned by 3 major factors: we have an innovative technology platform, we have a late-stage pipeline and we have products already commercialized and underway. Our technology platform targets some of the most severe disease states that are currently refractory to conventional therapies. We have well-characterized multimodal mechanism of action which we understand well and position ourselves to tackle these diseases that don't respond well to other therapies. We have already initiated filing with the U.S. FDA for approval of our lead product candidate in the U.S. for steroid-refractory acute graft versus host disease. And we have 2 Phase III product candidates, one in heart failure and one in chronic lower back pain, with near-term U.S. trial readouts, which we look forward to in the short term. In China, our Phase III product candidate for heart failure is partnered with a major cardiovascular partner.With respect to commercialization, we are in the midst of building out our sales force in the U.S. for the potential launch of our graft versus host disease product, if approved. We have industrial-scale manufacturing to meet our commercial demand. We already have the first approved products commercialized by our licensees in Japan and in Europe that I'll tell you more about, and we have -- very pleased to see continued growth in royalty revenues from our strategic partnerships. And you'll hear more about those from Josh.The next slide is a snapshot of our commercial and rich late-stage product pipeline. As you can see, 2 products are already marketed, one with JCR Pharmaceuticals in Japan; and one with Takeda in Europe. In addition, our pipeline consists of a number of Phase III and Phase II assets using the Mesenchymal Stem Cell technology platform. Beyond graft versus host disease, we're developing products for Crohn's disease and osteoarthritis and using our Mesenchymal Precursor platform technology for cardiovascular disease, chronic low back pain and inflammatory conditions such as rheumatoid arthritis and diabetic nephropathy. What links all of these products is a common mechanism of action, which sees our powerful immunomodulatory cells responding to and targeting the severe inflammation that is central to all of these disease states. The next slide summarizes our partnerships and license agreements that are in place. JCR Pharmaceuticals has rights to develop and use our Mesenchymal Stem Cell technology to treat acute graft versus host disease in Japan. Now they are seeking to extend the product label for the treatment of additional diseases such as epidermolysis bullosa, a very debilitating and sometimes lethal skin disease; and hypoxic-ischemic encephalopathy, or HIE, in newborns, sometimes called blue babies, with a clinical trial that has been initiated. In Europe, Takeda is marketing Alofisel for fistulizing Crohn's disease, a severe complication. And in China, our partner Tasly is seeking to bring to market our heart failure product, Revascor. Now I'm going to take you through our recent corporate highlights, Slide 8. Remestemcel-L for steroid-refractory acute versus host disease is our lead product and a very exciting progress as we prepare for U.S. launch. The -- as you will hear very shortly from Josh, we are very pleased by the continued growth in revenues from royalties on sales of TEMCELL, the MSC product for graft versus host disease in Japan. The evident product adoption seen in the Japan market for TEMCELL informs Mesoblast on our U.S. commercial strategy for remestemcel in acute graft versus host disease.Importantly, the U.S. addressable market for this disease in children and adults is expected to be approximately 8x larger than that in Japan. And that's due to the greater patient numbers, the greater incidence and the pharmacoeconomics -- the differences in pharmacoeconomics between the U.S. and Japan. We have initiated a rolling BLA submission to the FDA, which is now underway, and we expect to complete the filing during CY 2019.In line with expected time lines for potential U.S. launch of remestemcel, our spend has increased on the activities that are necessary on commercial manufacturing and on commercial team ramp-up in parallel with our FDA filing so that we are ready for the appropriate launch time lines. After the FDA filing, we intend to expand the clinical program into the adult graft versus host disease segment. Beyond that, an investigator-initiated study evaluating remestemcel in children is planned in the U.S. for chronic graft versus host disease, which is an independent market opportunity.I'll remind you that we have the right to use all safety and efficacy data generated by our partner, JCR, in Japan for TEMCELL to support the life cycle strategy of our product, remestemcel, in the U.S. and in other major health care markets, and that will include wound healing in patients with EB and HIE in newborns.Moving on to our other advanced products, Revascor, for advanced and end-stage heart failure. Our Phase III trial in advanced heart failure patients is the largest trial of cell therapy in heart failure. This trial has completed patient enrollment with 566 patients randomized to receive either Revascor or placebo across 55 centers in North America. The trial's primary endpoint seeks to reduce heart failure-related hospitalizations, and the key secondary endpoint is reduction in terminal cardiac events, which is death, transplants or implantation of a left ventricular assist device.I'll remind you that in 2017, this trial of Revascor was successful in a prespecified futility analysis of the Phase III trial's primary efficacy endpoint after the first 270 patients were enrolled. That gives us great confidence. At this point, approximately 90% of the primary endpoint events in the Phase III trial have been accrued and fully validated. The trial will complete when sufficient primary endpoint events have been accrued, likely by the end of this calendar year.Moving on to the second indication, Revascor, which is for end-stage heart failure patients. We announced very recently that we had a positive FDA meeting. The key outcomes of which were as follows: The FDA reiterated that a reduction in major gastrointestinal bleeding events and epistaxis, collectively termed major mucosal bleeding events, is an important clinical outcome in patients implanted with left ventricular assist device, and indeed, up to 40% of patients have these major complications that require transfusions and hospitalizations. The FDA confirmed that the data obtained from the recently completed 159-patient placebo-controlled trial can support product marketing authorization through a BLA submission with confirmatory clinical data.I'd like to remind everyone that we saw a significant reduction in these bleeding events of approximately 76% in cell-treated patients and a 65% reduction relative to placebo in the associated hospitalizations. And in this trial, these data very closely merit similar data seen with Revascor in an earlier 30-patient pilot trial. The FDA further agreed on the basis of a confirmatory Phase III trial with a primary endpoint of reduction in major mucosal bleeding events and key secondary endpoints demonstrating improvement in various parameters of cardiovascular function. Revascor is being developed in these patients under an existing FDA regenerative medicine advanced therapy designation and recently under an orphan drug designation. The confirmatory Phase III trial is planned to be conducted together with our colleagues at InCHOIR under an existing Memorandum of Understanding.And over the page, to the next slide, our third Phase III program, MPC-06-ID for chronic low back pain. This remains a major unmet medical need, particularly given the existing opioid crisis and the lack of alternatives in patients with remitting -- with unremitting severe chronic low back pain. Based on successful outcomes in a prior 100-patient Phase II trial, we entered into a Phase III program evaluating MPC-06-ID in 404 patients with a primary endpoint of significant reduction in pain and improvement in function over a 24-month period. All patients have now completed at least 12 months of safety and efficacy follow-up, and the follow-up continues through the trial's 24-month endpoint of assessment of safety and efficacy, which we expect to occur during the first quarter of CY 2020 with results, which we look forward to, planned by mid-next year.Now move on to the more recent Board and senior executive appointments, which are in line with our commercialization plans. In April 2019, the Board appointed Joe Swedish as our Chairman. Joe brings deep health care expertise and a track record in health care resource allocation and reimbursement metrics as the former CEO of Anthem, the second largest health insurance company in the United States. In addition, Shawn Tomasello was appointed as a non-Executive Director. She brings substantial commercial and transactional experience as the former Chief Commercial Officer at Kite and Pharmacyclics and previously as President of the Americas in Hematology and Oncology at Celgene. Most recently, Dr. Fred Grossman joined as our Chief Medical Officer. He brings a wealth of commercial experience gained from numerous leadership roles at Eli Lilly, Johnson & Johnson, Bristol-Myers, Sunovion, and most recently Glenmark. This appointment aligns closely with our near-term commercial objectives for our lead products and beyond to label extensions and the like.Slide 11 highlights our commercial-scale manufacturing capabilities. We have a scalable allogeneic off-the-shelf cellular medicine platform. Our manufacturing capabilities meet stringent criteria set by international regulatory agencies, including the FDA and the European Medicines Agency. We have robust quality assurance processes that ensure final product with batch-to-batch consistency and reproducibility. These are critical attributes for any large-scale product that targets high-volume indications. In addition, our culture expansion is scalable for our near-term commercial needs, and we have developed proprietary xeno-free technologies that will enable sufficient yields for our longer-term planned global commercial supply. Finally, we have next-generation processes using 3D bioreactors that will reduce labor and will drive down the cost of goods significantly over time.Intellectual property. This is the cornerstone of the value of any biotech company, and we have a substantial global advantage here. We have over 995 patents and patent applications across 68 patent families in all the major jurisdictions. These patents cover compositions of matter, manufacturing, therapeutic applications of mesenchymal lineage cells. They enable us to license to third parties various indications, particularly when those indications are in alignment with our corporate strategy; and they provide strong global protection against competitors seeking to develop competitive products in the areas that are core to our commercial focus.I think I'll stop there, and now, our Chief Financial Officer, Josh Muntner, will take you through the detailed financials. Josh?

[Josh Muntner, Chief Financial Officer]

Thanks, Silviu, and thanks to everyone for joining our call today. I'm pleased to provide some highlights of our year-end financial results. As Silviu mentioned, we are today -- on Slide 14. As Silviu mentioned, we are today reporting record royalty revenue received from JCR Pharma on sales of TEMCELL to treat GVHD in Japan.As shown on Slide 14, royalties from TEMCELL increased to $5 million for FY '19, a 37% increase over the prior year. We're most excited by the growth that we've seen in the recent quarter, which led to a 54% increase in royalties for the most recent quarter to $1.7 million in royalties received. We think the continued growth we are seeing in -- from JCR with TEMCELL in Japan is an important guidepost for how we may be able to perform if our product, remestemcel-L, is approved in the same indication in the U.S.Even though we had witnessed strong initial uptake in 2018 for TEMCELL, it appears to be the sort of product that has legs as it continues its upward trajectory. In addition to TEMCELL's approved indication of steroid-refractory GVHD, as Silviu mentioned, JCR is already looking for label extensions in 2 more settings, EB and HIE. We would also plan on exploring such uses in our future. We maintain a very positive outlook for the future of TEMCELL. Moving to Slide 15. We're happy to share our overall revenue, which, in addition to the royalties, include some significant upfront payments we've received in strategic partnerships. In 2019, we established a partnership with Tasly Pharmaceuticals in China for our cardiac product, which brought in $20 million of cash. As noted here, we recognized $10 million from the Tasly deal, and we expect to recognize the remaining amount later this fiscal year.On Slide 16, I'll walk through the remainder of the income statement. You'll notice that in 2018, our statutory after-tax loss was lower than for the current period. As we've discussed on prior calls, 2018 had a low after-tax loss due to a one-off noncash income tax benefit of $30 million due to a revaluation of tax liabilities because of changes in U.S. tax law. Also, in 2018, we had a noncash $10.5 million gain on contingent consideration for reduction of future payments to third parties. These are some of the reasons for the difference in losses between 2019 and 2018.In addition, in 2019, we continue to increase our commercial spend. As Silviu mentioned, in advance of potential commercialization of remestemcel-L in the U.S., we have increased spending on commercial manufacturing activities and equally important, on the ramp-up of our commercial team. We spent a total of $15.5 million on commercial manufacturing in fiscal 2019, an increase of $9.9 million. Another area where spending went up is our finance costs. In 2019, we recognized just over $11 million of finance costs. I'd like to note that under the terms of our arrangements, with NovaQuest, a portion of this was not paid in cash. Only $4.6 million of the $11 million was paid in cash.Moving to Slide 17. For fiscal 2019, we're reporting a significantly reduced amount of net operating cash outflow. This is due to increased payments from our strategic partners in 2019 versus the prior year. Of course, we're looking forward to being able to report additional such payments from our current and planned strategic partners as this is the core strategy of funding our company. We completed the year ended June 30 with just over $50 million of cash, using just $19 million in the prior quarter.I want to remind everyone that upon meeting certain milestones, we may be able to draw up to an extra $35 million of non-dilutive capital under our relationships with Hercules and NovaQuest. We've also entered into a Subscription Commitment Letter with our largest institutional shareholder, M&G Investment Management, for $15 million of Mesoblast ordinary shares exercisable by the company on or before December 31, 2019, subject to customary diligence and with pricing to be agreed at the time Mesoblast gives notice. We're very appreciative of the ongoing support from M&G.For more information on our financial results, please see our filed reports with the ASX, SEC or on our website.I'd like to now hand the call back to Silviu.

[Silviu Itescu]

Thanks, Josh. Now I'm going to spend some additional time on our commercialization plans for our lead product candidate, remestemcel-L, for acute graft versus host disease.On Slide 19, you see the significant market opportunity for this product candidate. Acute GVHD is a life-threatening complication that occurs in about 50% of patients receiving an allogeneic bone marrow transplant, and there are over 30,000 allogeneic bone marrow transplants performed globally. Steroid-refractory disease is associated with very high mortality rates, up to 90%, in those patients with Grade C/D disease where, in fact, we have the greatest efficacy we've observed in all of our studies to date. This opportunity, steroid-refractory graft versus host disease, particularly in the most severe patients across the U.S. and Europe, we believe, represents a $700 million opportunity for the company.Now the next slide shows the patient journey in the U.S. market, particularly in children. And as you can see, the development of graft versus host disease in children is not only a terrible clinical and emotional problem, but it also has a terrific pharmacoeconomic impact on health care economics and, in fact, costs up to $500,000 in additional all-cost costs of treating such patients on top of the cost of a bone marrow transplant. We've performed results from studies with providers and payers that indicate that our product, remestemcel-L, receives near maximal rating on the following product attributes: the effect at day 28 overall response rate, particularly in Grade C/D disease patients that excellent day 100 and day 180 survival rates, again, especially in these severe patients where typically survival rates are abysmal; the safety product -- the safety profile of the product with no increase in infections; the large clinical data set to date; the ability to administer the drug, both as an outpatient and intravenously, avoiding the problems with oral malabsorption; and the significant reductions that we have observed with stays in the intensive care units, which are the major drivers of the spend on these patients.So our commercial and regulatory strategy is now defined on the next slide, and it's informed very strongly by the existing experience by our partner, JCR, with TEMCELL in Japan. As I've mentioned earlier, our rolling BLA submission has been initiated, and we expect to complete during the course of this calendar year. We have a fast-track designation that then provides eligibility for an FDA priority review. We have ramp-up for inventory build underway. We have commercialization strategy in place for the launch, and we're building out an efficient, targeted sales force to target those centers where at least 50% of patients are seen.And on Slide 23, you can see the global graft versus host disease life cycle for the program. And step-wise, this is -- our focus is on the initial pediatric launch in the U.S., the expansion into the adult market, the parallel expansion to Europe and then label extension to other indications, such as chronic graft versus host disease, epidermolysis bullosa and HIE or blue babies in children.And finally, our outlook, Slide 25. Based on each of the products we've talked about, remestemcel-L, we intend to complete BLA filing in -- during the fourth quarter of this coming year. Revascor for advanced heart failure, is a Phase III trial that is an events-driven trial, which will complete when sufficient primary endpoints have accrued, likely by the end of this calendar year. Revascor for end-stage heart failure and the initiation of a confirmatory Phase III trial for reduction of mucosal bleeding in end-stage heart failure patients implanted with the left ventricular assist device should initiate by the end of this year. And the back pain product for chronic low back pain follow-up continues through the 24-month primary endpoint, which will read out in the first half of next year.And on an ongoing basis, we seek and plan to establish global or regional partnerships and are in advanced discussions with a number of potential partners on our blockbuster indications.And on that note, I think I'd like to open this up for questions from anybody. Thank you.

[Operator]

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

[Jeffrey Scott Cohen, Managing Director of Equity Research]

So I've got a handful of questions, I'll just kind of roll through them in no specific order. The end-stage heart failure trial that you're talking about via Mount Sinai, when could that start? That's the confirmatory Phase III that you were speaking about?

[Silviu Itescu]

Yes. So we have a Memorandum of Understanding with InCHOIR, which is the -- it's an NIH-funded organization that manages the surgical network for various trials. It is based at Mount Sinai, and we will be meeting in very short order to complete the agreements to initiate the study. The Phase III trial design is already in place -- it was already provided to the FDA, and I would expect that it will commence over the next few months.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Okay. And how many centers do you expect that to be at in addition to the Mount Sinai?

[Silviu Itescu]

It's very similar to the centers that participated in the 159-patient trial. Mount Sinai is really an administrative site. At least 40 surgical centers are -- have our protocol and have our standard operating procedure and participated in the last trial, and I expect all of those sites to participate in this coming trial. And in fact, the -- putting the trial in place and getting it up and running should be fairly straightforward given the existing relationships.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Okay. Got it. And then moving along to MPC-06 for lower back pain. You talked about results reading out into the public forum in mid-2020. Will there be any other information that we'll see prior to that time period?

[Silviu Itescu]

No. No. We're locked in. We're only able to disclose the full data set as it's collated and reads out.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Okay. Got it. And then moving over to TEMCELL with JCR. So is it -- trying to think about how we should model out royalty revenue for 2020. Maybe this is more appropriate for Josh. Is that, call it, 20%, 30%, 40% is kind of the good range to think about it? And then also, could you talk about potential time lines, the JCR, on these expanded labels for EB and HIE?

[Josh Muntner, Chief Financial Officer]

So the first question was around royalty rates, Jeff?

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Not necessarily rates, but what revenue you expect to receive during 2020?

[Josh Muntner, Chief Financial Officer]

Yes. So we -- it was a product that was introduced a few years ago, had strong uptake, and we're happy to see that uptake continue. Very, very nice growth for the most recent quarter. And we do expect continued growth over the course of the year. So it should be a very nice ramp going forward. I don't know if we could annualize this quarter necessarily right now, but it's something that we -- we'd anticipate that becoming a run rate going forward.

[Silviu Itescu]

Yes. I think the point is that we don't see any evidence of it plateauing. And that's a nice message in the observation. And I think let's see how the next 12 months pan out. It's clear that there is significant market adoption and use of the product in a large unmet medical need. So the...

[Jeffrey Scott Cohen, Managing Director of Equity Research]

And then -- yes, go ahead, sorry.

[Silviu Itescu]

Yes. So these 2 other indications. EB, JCR has already filed for approval in that indication. We don't -- we're not giving, at this time, any sort of guidance on time lines towards approval. But they did get through the Japanese regulatory authorities very, very quickly when they received approval for GVHD.For HIE, they've just begun the clinical trial in July, as we note. Yes, but this is one where we believe that they have some evidence, and that's why they wanted to expand the license agreement. These are orphan indications, and they should be able to be prosecuted with small data sets.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Okay. Got it. So HIE will be in longer time frame. But as far as EB, they filed already, so I guess, we'd be optimistic over the coming quarters to hear about something there?

[Silviu Itescu]

Yes.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Got it. Okay. And then lastly, you were talking about revenue recognition, Josh, as far as the balance or the portion of the Tasly revenue recognition during 2020. Could you give a number? Or is there something that we should expect? I know what the -- is it the whole agreement less what's been received already during 2019?

[Josh Muntner, Chief Financial Officer]

Yes. And so of the $20 million received upfront, the cash that came in the door, the accountants had us pull back some of that. And so we have $10 million left to recognize. So we anticipate doing that all within FY 2020.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

And you'd expect recognition comes evenly throughout the quarters?

[Josh Muntner, Chief Financial Officer]

It'll be lump within the year.

[Jeffrey Scott Cohen, Managing Director of Equity Research]

Okay. Got it. And then one more I'm just going to throw out there. No mention or we've seen nothing recently on cartilage repair. Do you expect to do any work there on that front in 2020? Or is that also potentially one of the areas for perhaps a partner to carry forward?

[Silviu Itescu]

Yes. I think we've got a nice Phase II data in the 2 ends of osteoarthritis. In patients with established osteoarthritis and meniscal tears, who are the patients with the most accelerated risk of going on to total knee replacement. In that patient population, a published study showed a single injection of cells, allogeneic cells, into the knee joint reduced pain for at least 2 years significantly.And at the other end, in much younger patients with traumatic knee injuries post an ACL tear, again, our published data showed that a single injection of cells within a short period after surgery protected the knee for at least 2 years in terms of reduction in pain, improvement in function and preservation of cartilage tissue. So we have proof-of-concept that these cells are highly effective in the knee arthritic environment. And yes, we are in discussions and we'll seek to explore appropriate partnership for the product for knee osteoarthritis, which really will require the type of partners who have a major focus and interest in pain, arthritis and tissue repair.

[Operator]

[Operator Instructions] Your next question comes from Matt Biegler with Oppenheimer.

[Kalpit Patel, Associate]

This is Kalpit on for Matt. Congrats on the progress, guys. Just a quick one from me. Could you provide some color on the clinical trial design for chronic GVHD? Perhaps go over the size of the trial, the endpoints and then maybe what you see as the efficacy bar in this setting?

[Silviu Itescu]

Yes. Look, we were very clear that this program will be an investigator-initiated study where the institution and investigator really is the sponsor and builds out the protocol. But I would say that -- and we will provide product. But I would say there's established data and literature that demonstrates that mesenchymal lineage cells have demonstrated efficacy in patients with chronic graft versus host disease, which is really an autoimmune-like disorder and requires likely monthly infusions for a period of, let's say, 6 months or so. So it's a protocol that is still to be developed, and it will be led by our lead investigator, Dr. Joanne Kurtzberg, at Duke.

[Operator]

Your next question comes from Swayampakula Ramakanth with H.C. Wainright.

[Swayampakula Ramakanth]

This is RK from HCW. A couple of quick questions. So regarding the end-stage heart failure with -- been trying to take Revascor in that indication. Is it possible for us to get an idea of what the design could be? Or is it going to be something similar to what we have seen in the earlier-stage study?

[Silviu Itescu]

Yes. I think it's going to be very closely aligned with the recent study. Really, this is about confirming the data that we have shown in the last study. And you've seen the treatment benefits was of the order of, I think, 75% reduction in major bleeding events and 65% reduction in related hospitalizations. The trial will be powered for that type of a treatment effect. And whether it's 1:1 or 2:1 randomization, et cetera, is still to be finalized. But I think those are the endpoints. It -- the numbers of patients are going to be not that dissimilar from the last trial. But again, we'll come back to the market with specifics.

[Swayampakula Ramakanth]

And do you think there will be an interim look in that study? Or we just have to wait for the 1.5 years or 2 years correlated to get the study to be completed?

[Silviu Itescu]

Look, I think it's a little bit early. The most important thing is that there should be a seamless, seamless initiation of this trial. All the sites and investigators pretty much are in place. And so I think recruitment is going to be fast. And then really, it's a question of how long the follow-up needs to be for. And if there is a rationale and a justification for an interim, we'll consider it.

[Swayampakula Ramakanth]

And regarding the advanced heart failure indication, I know you stated that the data -- I mean, the study could end by year-end '19. So can you give us a little bit of color on how we would get to know about the results? And also, what is the current thinking about the regulatory pathway there?

[Silviu Itescu]

Look, there's a certain number of primary events that need to be accrued, and that's why we say that we've achieved 90% of them. So we are confident that we will meet the total number of necessary events by year's end. And then we, of course, have to go into data lock, and the trial results will be then announced as soon as we can after that.The key primary endpoint is reduction in heart failure rate or hospitalizations. The key secondary endpoint is a reduction in terminal events, primarily mortality. That -- there are very well-defined regulatory pathways for products that have a benefit on mortality in severe diseases like end-stage or advanced heart failure, just like they are in oncology diseases. So let's see what the results look like, and then the strength of the data will inform on the regulatory pathway.

[Operator]

Your next question comes from Tanushree Jain with Bell Potter Securities.

[Tanushree Jain, Healthcare and Biotech Analyst]

Just a couple from me. Silviu, can you confirm that InCHOIR is funding the confirmatory LVAD trial? And I guess, versus the last time, how much control would we have with regard to the time line for results from this trial?

[Silviu Itescu]

Well, this is a company-sponsored IND. We have the obligation with respect to the FDA and the regulatory documentation to ensure that the trial is run the best possible way to meet our regulatory needs. We've already manufactured product. Product is ready to go for all the patients in the trial. And I think with respect to funding, the NIH -- this is an NIH-sponsored program to date and I think the details of that, we'll have to wait the final contractual arrangements between the parties.

[Tanushree Jain, Healthcare and Biotech Analyst]

Right. And the second question, given that this is essentially the same product, which is in your advanced heart failure trial, and that's -- we're expecting data, as you said, in first quarter 2020, is there any chance, given that the LVAD product could potentially reach the market first, that you could look at the second product as potentially a label extension rather than a separate product approval?

[Silviu Itescu]

Well I think it's very early days, right, to say that. And it really depends on the totality of the outcomes data from both studies. In an ideal world, if the safety data are there in very, very sick patients and if both programs provide the kind of efficacy that we're looking for, both in terms of meeting primary endpoints, and more importantly, I think, reducing mortality, then I think the data sets can absolutely be used to support each other's submissions.

[Operator]

Your next question comes from Nicolette Quinn with Morningstar.

[Nicolette Quinn, Equity Analyst]

My first question is about how -- what your view is of the Jakafi products or indication extension. And how the pricing of that impacts the payers' view in the U.S. market?

[Silviu Itescu]

I think this is a great question and really important. So Jakafi was recently approved for its label extension into patients with acute graft versus host disease on the basis of a relatively small open-label uncontrolled study. In the data set that supported their submission to the FDA, those terrific efficacy seen in Grade B patients, but in fact, in Grade C/D disease, which is the severe disease that's seen in about half the GVHD patients, overall responses were half as good, and survival really was not very different from what has been reported in the literature.In contrast, our entire focus, our pediatric study, for example, 89% of our children were Grade C/D disease, our expanded access program was predominantly Grade C/D disease and efficacy in earlier studies was evident in Grade C/D disease. So our whole focus is in those very severe patients with C/D disease where we've seen responder rates of something of the order of 70% and in those responders, survival rates approaching 85%. So I'll just remind you that in Grade D disease, in fact, survival can be as low as 10%.So these are substantial differences in our treatment versus published data and versus where Jakafi is establishing its market. So we see very segmented markets, early-stage disease, Jakafi will establish its beachhead; severe disease, we believe Mesoblast will be the product of choice, both in adults and of course in children because in children under 12, Jakafi is not approved, and in fact, has a very high toxicity. So we're very clear about where the market potential and opportunity is for us in the U.S. market, both in all children as well as in the severe adult population where there continues to be an unmet need, mortality is high and where reimbursement is likely to remain at a premium.

[Nicolette Quinn, Equity Analyst]

My second question is, I'm just a little unclear on the Revascor time lines. And maybe if you could just expand a little on the market size, not for end stage, but for actually for the addressable market for the advanced heart failure?

[Silviu Itescu]

Sure. Sure. Advanced heart failure represents really predominantly Grade III, Grade IV disease and very sick Grade II -- Class II disease. These patients have very large dilated left ventricles. They represent about 15% of the total heart failure pool, maybe as many as 1.3 million patients in the U.S. So that's who we're targeting, right? We're targeting patients with severe disease. There's large numbers of these patients and they have already fully maxed out on their existing therapy, ACE inhibitors, beta blockers, and even the new drug ENTRESTO from Novartis. These patients are now on the slippery slope where they have mortality rates approaching 20% if they're in Class III/IV; and 50%, 1 year, if they're end stage.These patients need something to address the severe inflammation that happens in their myocardium. The inflammatory process is what, we believe, drives the severe progression of this disease from Class III to Class IV, to end stage, to death. And that this is exactly where we've seen our strong signal of efficacy in Phase II in a previously published manuscript in circulation research, and the patient population that has been recruited in our 566 patients, in fact, demonstrate very severe disease by systolic volume requirements. We believe that's exactly where ourselves are most likely to be effective. We had a positive readout on efficacy in the futility analysis earlier in the first 270 patients. And look, the strongest outcome that we could possibly hope for here is a reduction in mortality. If we see a reduction in mortality in this high mortality risk patient population, this becomes a potential blockbuster product.

[Operator]

Your next question comes from Marc Sinatra with Lodge Partners.

[Marc Sinatra, Analyst, Biotechnology and Life Sciences]

Most of my questions have been asked, so I'm going to ask a fairly specific question and more wholly academic than anything else. In terms of end-stage heart failure, you've been talking relatively about major GI bleeds. And in the most recent announcement, we've switched to talking about mucosal bleeding, which, of course, can occur in a number of areas. Do we see bleeding in other areas other than the GI in all the patients? And how is that likely -- how is the change in sort of that specific view to a macro view of bleeding likely to influence study design and those sorts of things?

[Silviu Itescu]

No -- thanks for that question. No. So the cause of mucosal bleeding in these patients is an abnormal vascular network called angiodysplasia that occurs throughout the entire mucosal gastrointestinal tract, meaning from the nose to the mouth to the throat to the gut. And it's the same process throughout. What's driving these abnormal blood vessels is the inflammation -- systemic inflammation of these patients, the lack of blood flow to these organs. And the response in these places by abnormal blood vessels that have been friable. And because they're heavily anti-coagulated, these patients, these blood vessels bleed heavily. And these patients require transfusions and hospitalization when they bleed. And that's irrespective of whether they bleed in the gastrointestinal tract or in the nose. This is not small-time nosebleeds. This is massive nosebleeds.Now the majority of patients get gastrointestinal bleeds. A small minority get massive nosebleeds. But you combine them all into the term major mucosal bleeding, and I can tell you that in the last trial, the 159-patient trial, there were a handful of patients that had major nosebleeds, but these were major requiring transfusions, and the reduction in hospitalization that was seen was across all aggregated patients. So it is the endpoint that we want to address. It's the endpoint of the FDA that we were already successful in. And it's the endpoint that the FDA sees as an approvable primary endpoint.

[Marc Sinatra, Analyst, Biotechnology and Life Sciences]

Just one last question, I can't remember whether it's been asked, just do you have an expected trial size for this indication yet? Or is that something that's still -- you're still waiting?

[Silviu Itescu]

Yes. I think that's the basis of the final discussions we will have with the InCHOIR group and the NIH. We expect that this trial size will be a little bit larger than the last 159-patient trial, but in the same order of magnitude using appropriate powering based on the treatment effect that we've just seen.

[Operator]

There are no further questions at this time. I'll now hand back to Dr. Itescu for closing remarks.

[Silviu Itescu]

Great. Look, thank you very much, everybody, for attending this call. We are very, very pleased with the financial results and with the strong progress that we've made operationally, and we have some very important upcoming milestones that I think will position the company to deliver tremendous returns and results in the coming fiscal year. Thank you, everybody.