Mesoblast Limited (MSB) Earnings Call Transcript & Summary

Hello and welcome to the corporate update from Mesoblast. An announcement and presentation have been lodged with the ASX 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 in such forward-looking statements. In addition, any forward-looking statements represents the company's views only as of this 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.

Good morning. Good afternoon. Thank you for joining us. This morning, we would like to provide top line results of Mesoblast DREAM heart failure Phase III trial of rexlemestrocel-L in patients with chronic advanced heart failure. On the line with me today is Dr. Fred Grossman, our Chief Medical Officer; Mr. Ken Borow, our Head of Cardiovascular Medicine; and Dr. Emerson Perin, Medical Director and Head of Scientific Research at Texas Heart Institute. Mesoblast is developing 2 distinct therapeutic products: remestemcel-L and rexlemestrocel-L, 2 different product candidates for different distinct indications. Remestemcel-L is being developed for inflammatory conditions, severe clinical conditions such as graft-versus-host disease and acute respiratory distress syndrome, ARDS, while rexlemestrocel-L is being developed for more chronic conditions and for local delivery into the myocardium and chronic advanced heart failure and to the intervertebral disc for patients with chronic -- severe chronic low back pain. Today, we'll be talking about our Phase III trial in chronic advanced heart failure. 537 patients were recruited -- randomized and recruited in the Phase III trial out of a total of 565 patients. These 537 patients went on to either receive therapy or sham. They were evaluated for primary endpoint of recurrent hospitalization or key secondary endpoints of mortality and ischemic MACE, defined as heart attacks or strokes. The unmet medical need in the field continues to be severe mortality, where up to 50% of patients with chronic heart failure die over a 5-year period of follow-up. Despite a number of new agents that have been approved recently in chronic heart failure, these agents improve recurrent hospitalizations from decompensated heart failure, but have not materially impacted mortality to these diseases. We've evaluated in the Phase III trial, specifically, whether rexlemestrocel-L can impact both morbidity and mortality in these very high-risk patient populations. The primary endpoint of the trial was a reduction in recurring hospitalizations. We did not see a difference between treated and controlled patients in this endpoint. In contrast, the key endpoint of ischemic major adverse cardiac event, defined as a stroke or a heart attack, was significantly reduced in the overall patient population by 60%, which was highly significant compared with sham-controlled patients. This reduction in ischemic MACE events was seen irrespective of Class II or Class III patients and irrespective of whether the patients had an ischemic or nonischemic etiology in their heart failure. Moreover, we saw a very significant 60% reduction in cardiovascular death in patients with Class II heart failure, who represented 206 patients randomized, controlled out of the 537 total patients. Importantly, in Class II heart failure patients, both the treated and the controlled patients, for a mean period of 20 months demonstrated relatively stable disease. However, after that 20 months, controlled Class II patients deteriorated and developed a -- what appeared to be progressive disease that resembled very much Class III disease, with mortality rates that were identical to Class III patients. In contrast, Class II patients who received a single injection of rexlemestrocel-L were prevented from progression to mortality rates associated with the Class III disease, and this was highly significant and equal 001. This suggests that rexlemestrocel-L reduces mortality, particularly in patients with earlier-stage disease, but nonetheless, advanced forms of heart failure defined by high levels of NT-proBNP and a recent heart failure hospitalization within the previous 9 months by mechanisms that are distinct from those of existing drugs that otherwise reduce hospitalization rates but do not significantly impact cardiac mortality. Recent studies in several of those agents that include agents that are combination therapies with diuretics or agents that inhibit SGLT2 have demonstrated significant benefits on recurrent hospitalization rates, but minimal to very low levels of improvement in overall mortality. The dramatic reduction in mortality that we've seen, 60% in patients with relatively stable disease, suggests that this therapy may change the paradigm of how patients with advanced chronic heart failure may be treated. I think I'll stop there. And we'd be open to having questions addressed to any of the members on the call right now. Thank you.

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

Congratulations on the data. So first question I had for you is, how do you think the FDA will view your data on the mortality benefit but not the production in hospitalization? Is this something that you can file with? Or what do you anticipate here? And then why do you think it didn't show a reduction in hospitalization? Do you have any theories as to why that may be the case? And then if this drug is approved, where do you see it fitting into the treatment paradigm? And will you need a partner to market such a large opportunity?

Those are great questions. Thank you. The first question regarding the FDA and regulatory pathway. We've had multiple meetings with the FDA previously, and it is clear that the primary objective for having a product approved with the FDA is reduction in mortality. We will be meeting again shortly with the FDA, putting these data in front of them. This is a very surprising finding and quite dramatic. And I think that any therapy that has this degree of reduction in mortality in a well-conducted, randomized placebo-controlled study of this size has to be taken seriously in terms of its ability to completely change the natural course of disease. So we will be having those discussions. I think there are clear pathways toward accelerated approval that exists through the 21st Century Cures Act, through potential breakthrough designations, et cetera, but we will be having those discussions in short order. I think the second question was how do we explain the mechanism that we see as resulting in decreased mortality but not decreased recurrent hospitalizations. The hospitalizations for patients with chronic heart failure are really about their ability to handle volume load. And patients who are brittle are not able to handle volume load very well, and they're hospitalized in order to be diuresed in order to be stabilized. It appears that our therapy does not have an impact on those type of outcomes. The question then goes to why do we have this major benefit on mortality? And if we go back to a lot of the science that underlies all this, when we first started this program, the hypothesis was that our cells are uniquely equipped to reduce the severe inflammation that occurs in advanced heart failure and to induce a small vessel network within the myocardium that protects heart muscle against hypoxia and prevents death of heart muscle cells that then becomes scar tissue which is the hallmark of heart failure. That was the hypothesis going in. And I think the data that we've seen here, where we've seen this dramatic reduction in mortality in patients who are at an advanced stage of disease, but not yet so advanced that they're not able to be rescued, suggest that this mechanism may be actually playing a key role. The ability to protect viable but at-risk heart muscle cells against death through both anti-inflammatory and provascular mechanism, which would be unique to our cells, suggest that, that's why we're seeing a reduction in mortality, specifically in a way that other small molecules have not been able to demonstrate in this patient population. We're talking about a 60% reduction in mortality in patients who have a high risk of death, whereas other drugs recently published in this patient population have demonstrated either no mortality benefit or less than 20% mortality benefits. So we're really talking about a completely different paradigm here. In terms of the question of where would this treatment be used, clearly, all heart failure patients progress at some point from Phase -- from Class II to Class III and beyond. So we believe that the target population now is in that sweet spot when a patient demonstrates advanced stage of disease despite being on maximal oral therapy, which we can now identify in terms of high level of NT-proBNP as a mark -- a biomarker of disease severity. And in this patient population, clearly at a stage of Class II, that would be our target market in the patient's journey. In terms of that being a very large market opportunity, clearly, we will be looking for a strategic commercial partner that has strength and commitment in the commercial channels that will be required to make this product available to these large numbers of patients. We have ongoing discussions with a number of large pharmaceuticals in this space. But I think over the next few months, that will be the direction, to identify a partner that's aligned with us in terms of the commercial opportunity and the resources that need to be put behind, the ability to make this product developed to these large numbers of patients.

[Operator Instructions] Your next question comes from Kennen MacKay with RBC Capital Markets.

Maybe just as it relates to the potential path to market that you were referring to, just given the trial missed its primary endpoint, can you help us sort of understand what your prior conversations with the FDA had been around mortality? Obviously, the gold standard there as well as cardiac events. And then If there are further trials that are required, what your thinking is around what the ideal trial to run might be and whether this would be a market where you would think about going in alone or potentially partnering?

Sure. Thank you. Our discussions with the FDA have been potentially a -- meeting a mortality reduction outcome suffice for a single trial approval in a patient population with a high mortality risk. This result certainly supports that thesis. These patients have a very high mortality risk. And whilst mortality was a secondary endpoint, not a primary endpoint, achieving it in this order of magnitude is a very important observation that I think we will be sitting down and discussing with the agency in close order. Hospitalizations, traditionally, have been considered to be surrogates for mortality, and primarily that's because drugs that have been approved for heart failure have not been able to achieve mortality outcomes. I think our studies suggest even more than that. It raises the possibility that heart failure hospitalizations may not be even be appropriate surrogates for mortality since we've had such a strong mortality effect here. I think that is what I mean when I say this potentially changes the paradigm of how heart failure should be considered in terms of its treatment characteristics. I think the point that you asked about partnership structures is clearly the next step we need to consider. The market opportunity is huge. And really, we're not talking about a treatment that would displace other therapies. We're talking about an add-on -- a single delivery of a therapeutic that gives 3 to 4 years, at least, of mortality benefit and reductions in major vascular events, like heart attacks and strokes. That would be complementary to all existing small molecule approaches in heart failure patients. So we're talking about a single deliverable procedure as a one-off. Nonetheless, the large numbers of patients who could benefit from this would mandate a commercial organizational structure that, today, is outside of Mesoblast's capability, but we would certainly be considering how best to handle a commercial partnership structure, where we may want to retain something like a co-development, co-marketing capabilities. But I think in the short term, the relationship with an organization that has a shared vision and a capability to deliver this product most broadly will be the way to go.

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

Congratulations on the data. Two questions from me. The first one, previously, you've seen across various indications that your cell therapy seems to work in like really severe disease. So I think just looking at the data, where, obviously, we've seen a lot of significant benefit in Class II population versus Class III population, can you comment on that, please?

Well, I think the key here is to identify the optimal time to intervene. And so there is a transitional period when a patient with advanced heart failure moves from symptomatic Class II to symptomatic Class III. And that is a reflection of cardiac muscle loss and fibrotic replacement. And so there is a point at which presumably intervening with our cell therapy is not effective. And so what we've identified here in this largest of cell therapy trials ever performed is precisely when we should be intervening, precisely when a patient is most likely to respond and where we can have a real benefit in mortality. Look, I'd like to ask Dr. Perin to comment, who really is at the coalface and understands the natural history of these patients and how they progress from Class II to Class III, and how he would view when is the optimal time potential to intervene. Dr. Perin?

Thank you, Silviu. Well, one important thing to note is, as Silviu alluded to this, is that this is the largest, most rigorous trial ever performed in cell therapy with heart failure. And the prior data that we had, even with the product from Mesoblast, is still in a relatively small number of patients. So it really is hard to draw any hard conclusions on benefits in those patients, although we did see a very strong signal that led us to this Phase III trial. I think now, with this much larger number of patients, now this really points us in the direction of who are the people that really benefit from this, what is the optimal timing to administer the cells, and we see the benefit that we're seeing. So I think we're going to learn an awful lot about cell therapy in general, how it works in heart failure. And this study really is a landmark and sort of turning the corner in our understanding of cell therapy and actually being able to benefit these patients that are severely sick. And I want to point out that all of these patients are on state-of-the-art medical therapy, including everything that is currently available during -- for the duration of the trial. So the cell treatment that they receive is on top of optimal, maximal treatment that we have available.

All right. And then just another question. Your -- Silviu, your latest partner, Novartis, has obviously got a very large presence in heart failure as well, especially with their ENTRESTO drug. Would you be able to comment how you see -- I mean the ENTRESTO therapy, would it be a competing therapy? Or do you think your therapy is complementary to it?

Oh, it's clearly complementary to ENTRESTO. The ENTRESTO Phase III trial for approval was about 8,000 patients, very similar patients to the ones in our Class II population, very similar demographics and baseline characteristics. And whilst they reduced recurrent hospitalizations for volume overload principally, the mortality benefit was relatively low. I think it was less than 20%, something like that. And so we would see both mechanistically, and in terms of significant mortality outcome, the 2 are highly complementary.

Your next question comes from Sean Lee with H.C. Wainwright.

Congratulations on the results. I was just wondering for the hospital -- reduction in hospitalizations, do you guys only look at the number of hospitalizations or events such as the duration of hospital stay and whether it's normal admission or admission to the ICU? Any difference you see in those? And my second question is on the safety and tolerability side, are there any safety concerns you've known, especially once they require additional management?

I think the short answer to your first question is we have not yet reviewed a variety of ways of looking at that hospitalization rates. I think that's still a work in progress that we'll be looking at over the ensuing weeks. Fred, would you like to speak to the safety and adverse event profile?

Yes. Very, very much similar to what we see across our studies, there are no safety issues with the administration of these cells, nothing reported out of the ordinary that goes beyond what would be seen in this patient population. So we're very pleased with the safety profile of these cells.

Yes. This is Ken Borow, the cardiovascular therapeutic area of -- for Mesoblast is, as Silviu had mentioned, it also should be emphasized that over the course of this trial, there were 10 meetings of the Independent Data Monitoring Committee who was unblinded to the therapy. And so they attend meetings. At the end of each meeting, they gave us a recommendation about their trial. And in particular, they gave us a recommendation about any changes in the design or the conduct of the trial that might be related to or required for safety reasons. In no time in the 10 meetings that we had with the IDMC did they have any concerns about safety in this trial.

Your next question comes from Kennen MacKay with RBC Capital Markets.

I just wanted to confirm, the population where the benefit was seen was solely the Class II patients or later-stage patients. And I've just been trying to understand sort of what's seen in the Class III or in the overall sort of intent-to-treat population as it's related to those 2 endpoints?

No. So the 2 key endpoints to think about are MACE events, defined as either heart attacks or strokes, and cardiovascular death. Those are 2 different endpoints. The MACE events, defined as stroke or heart attacks, were reduced by 60% in the entire 537 patient population. It was equally effective in Class II and Class III, equally effective in ischemic and nonischemic patients. So hardly significant across the entire patient population relative to controls. The second major observation is a 60% reduction in cardiac deaths, and that was only seen in the Class II population, not in the Class III. So we're talking about 2 distinct outcomes. One is at the level of large vessel, major thrombotic events. Presumably, the risk reduction is linked to a systemic anti-inflammatory effect and the potential to reduce plaque thrombosis. Plaques, as we know, are related to severe inflammatory implications for macrophage activation. But the second major outcome is a reduction of cardiac death, which was a result of both improvement in cardiac functional reserve, in other words, a reduction in death from pump dysfunction as well as a reduction in death from other causes. And so that implies that the treatment in Class II patients protected the at-risk myocardium from presumably progression to scar formation, and that protected the patients against death that would have resulted in a Class III-like death rate. And so the -- moving forward, the target profile of the product is to be used in -- as early as possible in advanced Class II heart failure patients before they progress to Class III, whilst at the same time, potentially being used in both Class II and Class III to protect against large vascular disease of the coronary arteries and of the cerebrovascular arteries.

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

Great. I'd really like to thank everybody for coming on this call in such a short time, and we're very excited to share with you the top line data of this landmark, Phase III trial of rexlemestrocel-L in advanced chronic heart failure. Thank you all, and we'll talk to you all soon.