Mesoblast Limited (MSB) Earnings Call Transcript & Summary

Hello, and welcome to the first episode of the Mesoblast Key Opinion Leader event series for investors and analysts. The event today is focused on chronic low back pain associated with degenerative disc disease. My name is Tim McCarthy, Managing Director of LifeSci Advisors, and I will be the moderator for the event. [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 such forward-looking statements. In addition, any forward-looking statements represent the company's views only as of the date of this webcast and should not be relied upon as representing the company's views as of any subsequent date. The company specifically disclaims any obligations to update such statements. We have an hour scheduled for today's webinar, and we're working our way through the following agenda, which aligns my introduction, followed by doctors, Itescu, Beall and Bae, who will each speak for around 10 minutes. We should then have 20 to 30 minutes for Q&A. As I mentioned, the focus of today's webinar is CLBP. However, for those that may be less familiar with Mesoblast, I will provide a brief overview. Mesoblast is a world leader in developing allogeneic or off-the-shelf cellular medicines for the treatment of severe and life-threatening inflammatory conditions. The company has leveraged its proprietary mesenchymal lineage cell therapy technology platform to establish a broad portfolio of late-stage product candidates, which respond to severe inflammation by releasing anti-inflammatory factors that counter and modulate multiple effector arms of the immune system, resulting in significant reduction of the damaging inflammatory process. Mesoblast has strong and extensive global intellectual property portfolio with protection extending through to at least 2041 in all major markets. The company's proprietary manufacturing processes yield industrial scale, cryopreserved, off-the-shelf cellular medicines. Mesoblast is developing product candidates for distinct indications based on remestemcel-L and rexlemestrocel-L allogenic stromal cell technology platforms. Remestemcel-L is being developed for inflammatory diseases in children and adults, including steroid refractory acute graft versus hosts disease, biologic-resistant inflammatory bowel disease and acute respiratory distress syndrome. Rexlemestrocel-L is in development for advanced chronic heart failure and chronic low back pain, the focus of today's session. Two products have been commercialized in Japan and Europe by Mesoblast licensees and the company has established commercial partnerships in Europe and China for certain Phase III assets. Mesoblast's locations in Australia, the United States and Singapore and is listed on the Australian Securities Exchange and on NASDAQ. I would now like to introduce Chief Executive of Mesoblast. Dr. Silviu Itescu. Go ahead, Silviu.

Thank you, Tim and Life Science Advisors (sic) [ LifeSci Advisors ] for organizing and hosting this event. Good morning, good evening, wherever you are around the world. Welcome to this key opinion leader event on chronic low back pain associated with degenerative disc disease. Thank you for choosing to participate. My name is Silviu Itescu. I'm the Chief Executive at Mesoblast, and alongside me is Roger Brown, Head of our musculoskeletal program. Today, we have 2 highly credentialed clinicians joining us both of whom have immense experience in treating patients with chronic low back pain, Dr. Douglas Beall and Dr. Hyun Bae. Dr. Beall is currently Chief of Services for comprehensive specialty care in Oklahoma City as well as Division Head of Interventional Spine Care, Director of Pain Management at the Spine Factory Institute in the Comprehensive Care Surgical Center. Dr. Bae is currently Professor of Surgery in the Department of Orthopedic Surgery at Cedars-Sinai in Los Angeles Medical Center and Director of Education and the fellowship program. The plan today is that I'll provide a short overview of Mesoblast's chronic low back pain program, appreciating that some listeners will know the background while others may be hearing it for the first time. Then Dr. Beall and Dr. Bae will speak on the subject for about 10 to 15 minutes each, and we will finish with questions and answers. It's now well recognized that inflammation plays a key role in the development of chronic low back pain, accompanying degenerative disc disease. Key to the mechanism of action of our product candidate rexlemestrocel is its ability to be activated through specific receptors by severe inflammatory signals within the affected disc and the ability to counter this inflammatory process by modulating the pro-inflammatory cytokines that are present at the site. A number of years ago, following extensive studies in animal models, we undertook a randomized placebo-controlled Phase II trial of 100 patients with chronic low back pain associated with discogenic degenerative disc disease. Patients were randomized to receive a unit dose of either 6 million or 18 million allogeneic mesenchymal precursor cells together with hyaluronic acid as a carrier. The 2 control arms were either hyaluronic acid alone or saline control. The primary objective of the trial was to evaluate safety and tolerability, but secondary endpoints looked at reduction in pain, improvement in function for a follow-up period of over 36 months. The study overall demonstrated no safety or tolerability issues, and that both of the treatment doses were well tolerated and both gave very similar outcomes in terms of reduction in pain and improvement in function. And on that basis, we moved forward the lowest effective dose into the Phase III program. In addition, the use of hyaluronic acid on its own did not demonstrate any evidence of efficacy that was significantly different from the saline control. And on that basis, we concluded as did the agency that hyaluronic acid did -- in and of itself not require or be justified to move forward into the Phase III program. I think it's important to understand the role of why we use HA at all in these studies. And that's because it's been established that as a carrier for mesenchymal unit cells, it increases the migratory ability of the cells to get to the site of inflammation. And as such, we moved into Phase III with a program that evaluated whether adding hyaluronic acid at all to cells demonstrated any beneficial additive effects. And we'll talk about those results in a moment. Based on these Phase II outcomes as well as the fact that FDA has previously used an endpoint of pain reduction, mean change in pain score, to approve small molecule pain modulators. We sought FDA's agreement to initiate a Phase III study, demonstrating pain reduction over 12 months. However, at that time, FDA viewed the program more akin to an implantable device for disc replacement or a permanent spinal fusion outcome based on spinal implant regulations, and request that a 2-year primary endpoint focusing on the traditional composites of pain and function responder analyses that are commonly used for these device clinical trials. While the randomized blinded Phase III study in 404 patients did not meet the primary endpoint using a responder composite analysis, as I said, which is more commonly used in device implantable studies. We were pleased to see that actually pain reduction at 12 months and at 24 months was indeed achieved across the entirety of the 404-patient trial. In particular, maximal pain reduction was seen in a prespecified group whose duration of pain was shorter than the median for the entire enrolled patients being up to 68 months or approximately 5 years. Why is this the case? We believe that after -- and it has been established in various studies that after years of inflammation, the tissue is destroyed by the inflammatory process and a fibrotic process ultimately ensues. And in this study as well as in other studies, we have seen that ourselves are best used when there is active inflammation and when viable tissue is present before fibrosis sets in. So we believe that the major learning from this study was in fact that the cells are most likely to be effective when used as soon as possible when there is substantial inflammation and before fibrosis has taken over. As you will hear from the treating physicians, whilst it's most important to address pain reduction, it is also important to determine whether other outcomes affected by disc degeneration, including function and quality of life measures, such as the ability to work, socialize and undertake activities of data living are also modified. Indeed, in this target population in the Phase III trial, rexlemestrocel improved each of these measurable outcomes in addition to reducing pain. Armed with the results from this trial, we now have agreement with the FDA that the second Phase III study will use the primary endpoint of pain reduction at 12 months in patients with discogenic pain for less than 5 years. If the primary endpoint is met, the 2 trials should provide a data set that supports a label for pain reduction due to degenerative disc disease. While we already have a strategic partner in Europe, Mesoblast currently retains 100% of the economics in the largest market, the United States. In order to maximize shareholder return on this asset, we are currently in discussions with third parties who could fund development and commercialization through either strategic partnering or royalty sharing structures. We anticipate having external financing in place to be able to commence the pivotal trial towards the end of the year or early 2023 with the objective of obtaining U.S. marketing approval. If this trial is positive and the data support additional European approval, that would support our potential strategic launch by our partner in Europe. And that would mean that we are entitled to milestones as well as future royalties on European product sales. With that as a background to our program, I'm delighted to hand you over now to our key opinion leaders who I know are also keen to get going on a next study. Thank you very much. Dr. Beall?

Thank you, Dr. Itescu. Great to be with you. I'm Doug Beall, I'm an interventional radiologist specializing in spine. I practice out of Oklahoma city and I'd like to talk to you about the unmet need, and we'll talk about this and the scope and scale of the problem. And next, Dr. Bae will give you some results of the trial. So the next slide, please. Huge problem is low back pain. So this affects about 1/3 of the population. It disables about 10% of the population globally. Worldwide, it's a single greatest cause of disability worldwide. It's the second next to the common cold in terms of doctor visits, the reason for the doctor visit. And it affects a lot of workers and people in the prime of their life because this is primarily -- discogenic back pain is primarily a disorder of young healthy people. This is not a disorder of the aged or the elderly, and this hits people right in the middle of their work life. Next slide, please. So it's common and is the most common thing that we see in terms of low back pain, discogenic, low back pain degenerative disc disease is even more common than other common things like spinal stenosis or disc herniations. And as a primary diagnosis, this is going to be the most common segment of back pain than any practitioner sees in their practice. Next slide. So instead of getting better, it's getting worse. This is a global burden of disease compared to 1990 with 2015. So not only in the United States, but worldwide, it's getting worse. The problem is people have increasing rates of obesity, also increasing athletic injuries. And so there's -- it's multifactorial, but the trend is instead of getting better, it's getting worse over time. Next slide. One of the things I commonly hear is we can't really accurately diagnose the reason of back pain, especially discogenic or anterior column low back pain. And that's just simply isn't true. So I borrowed some information here from Dr. DePalma, a colleague, and he's performing the sustained hip collection. So this is a physical examination. On the lower right is somebody with isolated lumbar degenerative disc disease at 4-5. And what this means in somebody that -- remember, I said this was a problem of young people. So somebody that has positive sustained hip flection physical exam that you can see an abnormality in the MRI that's less than 55 years and has midline low back pain, the positive predictive value of that person and having discogenic back pain is 94%. So not only is it accurate, it's very accurate just with typical characteristics, and those characteristics that I mentioned, midline back pain, less than 55, and positive physical examination sign and MRI, puts you at a very high rate of accuracy for diagnosing discogenic back pain. Next slide. The issue is, after you have a diagnosis of discogenic back pain, what do you do? Well, you start off bracing, rest, analgesics. Analgesic include nonsteroidal anti-inflammatories, sometimes opioids. You could try epidural injections. But even the best epidural injection paper doesn't even record good relief for discogenic low back pain that's primarily for radicular pain or sciatica things like physical therapy, chiropractic, acupuncture is tried but all of these are minimally to marginally effective for discogenic low back pain, then you have a huge gap. And the surgical treatments in the end are things like fusions and disc arthroplasty to carry a significant amount of morbidity associated with them and a certain amount of adjacent segment disease, which we'll talk about here in a second. Next slide. But if you go and focus really on just after the analgesics, the pain medications are designed to give you a relief. You find that they don't give a whole lot of relief. These are kind of marginally effective for treating patients with chronic low back pain. So adjusted to the VAS scale, which is 0 to 100 scale, the effectiveness ranges from about 1.2 to 9 points on that scale, that large scale. So you can do something like give a person nonsteroidal anti-antiflammatories but these are not risk-free therapy. There is -- along with nonsteroidal anti-inflammatory therapy, chronically, you have things like problems with hemorrhage, bleeding or GI internal -- some ulcer formation. So also strong opioids have been tried for this. I don't know about some of my colleagues, but I think this is a terrible idea. Strong opioids for chronic nonmalignant pain is just a bad idea and ends up ending in opioid crisis and ruins lots of people's lives. Even Cymbalta, other medications are just marginally effective for this. Next slide. And moving on, jumping that gap to surgical treatment. The surgical treatment, this is for fusion, is about effective 50% to 60% of the time. And let's just arbitrarily say it's effective in the small patient sub-selected population, 100% at a time. Well, even if it is, it's associated with rates of what's called adjacent segment disease breakdown above or below or adjacent to the area of fusion surgery at a rate of about 3% to 14%, depending on who you read. This is data from [ Harrop and Park ]. But this is 3% to 14% per year in the graph in the lower right corner. If you're young, there's a lot of per years left, and this continuous, the graph does not come down, it continues to go up. And so there's lots of per years left for adjacent segment disease. And this is one of those issues when dealing with patients that are younger in the patient population scale, that's a lot of per years left, if you're young. And data from [ Irmola, this is a Finnish ] registry says that about 1 in 5 patients will have to have repeat surgery after lumber instrumentation within 4 years. And so this is kind of all comers, and that's a good ballpark for a patient after fusion surgery. Next slide. And this is data from Fritzell. This is a Swedish registry. I have picked this because these patients are very -- followed very fastidiously, very good and accurate treatment. And about 63% of them have a good, excellent surgical outcome. But in this study, that good to excellent surgical outcome was a reduction of 33% in pain. So I don't know the perception commonly what one would perceive as a good to excellent surgical outcome, but reduction of pain by 1/3 is not my definition of good to excellent surgical outcomes. This would be reducing it from 9 to 3, for example. Next slide. So the bottom line here is that discogenic back pain and chronic low back pain are very common -- is a very common issue. It's actually a large segment of the patient population. It's very expensive to deal with, and it has treatments for conservative or nonsurgical management that are minimally to marginally effective. And the issue is when this fails, there's not a lot of good treatment options, you jump a huge gap all the way to disc arthroplasty, disc replacement surgery and at least in the lumbar spine that's not done very commonly at all -- not done at all in many of the places I work and disc artho -- and disc fusion that's associated with the higher rate of additional issues on down the road. And also now there are new minimally invasive treatments that are proving to be affected, not only in terms of pain reduction, but pain function, quality of life improvements that are seen in magnitude that are much greater than what we were able to attain with some of the more invasive surgeries. Next slide. With that, I'd have to say thank you. Appreciate your attention. And I will turn this over to Dr. Bae for his outcome discussion.

Great. Thanks, Doug. Just want to make sure you guys hear me. That was a great presentation. Obviously, back pain is kind of the crux of what we have to deal with. As the surgeon, we just don't really have good treatments for them. And I think a lot of the effort is being placed on this active patient population and what to do. And so I've been involved with Mesoblast, gosh, I think now for probably over 10 years, even starting with their fusion trial. So I'm happy to share the results. I was a participant in their Phase II clinical trial as well as the Phase III clinical trial. Next slide. So this is the disclaimer that we -- obviously, I have to press this has not been approved by any authority for sale. Next slide. So just to give you a background of the Phase III trial and the results. It started with a Phase II trial, it's 100 patients. It demonstrated that 6 million MPCs or mesenchymal progenitor cells with an HA carrier was the lowest effective dose for improvement in pain and function. And that HA alone was not significantly different from the saving control. At that time, we proposed -- Mesoblast proposed that a mean change in pain intensity at 12 months as a primary endpoint. This is often used for analgesic products, which probably is the primary mode that we're looking for in treating our patients who want pain relief. However, the FDA at that time, looking at this. They really thought it was more of a spinal implant device and therefore, gave their kind of device guidance, which does require a 2-year composite follow-up with a composite endpoint, which demonstrates significant improvement in both pain and function. So fortunately or unfortunately, Mesoblast followed FDA's guideline regarding the primary efficacy endpoint for the Phase III trial but it also explored endpoints consistent with the FDA evaluation of analgesics. So going back to what would it be if we're really interested in relieving pain. And in accordance with the combination of product rule, MPCs with and without HA would be evaluated in the Phase III study to determine if HA enhanced any observed benefit of MPCs. Next slide. So this was the Phase III trial design. It was 3 arms. It was double blinded. So investigators that injected the, I would say, the therapeutic device or the drug versus saline control and did not see the patient afterwards. And so it was a very well trial. It was 120 subject patients each. It was MPCs alone at a 6 million low dose, MPCs with hyaluronic acid to extend the benefits of the cellular precursor cells and then the saline control. And you can see that the visits were not only done after 2 months, which was the primary analysis, but also long-term safety follow-up was done at 3 years. So It's 44 centers, mostly in the U.S., center was in Australia and the 404 subjects were enrolled and 398 subjects received treatment. Next slide. So this is the summary of adverse events. And surely, the adverse events were equivalent really throughout both the low dose with and without HA compared to placebo. So very standard diverse events. They were truly all comparative across the board. Really nothing differential that we saw with the cells versus placebo. Next slide. So this is the primary efficacy end point. And like we've discussed before, the FDA used a 24-month composite endpoint, which is typically used for the evaluation of spinal devices, such as fusion devices and artificial disc. Analgesics evaluating the earlier-stage patients with chronic low back typically use a primary endpoint of mean change in pain. Now after this trial, the new trial that we are about to embark on, the FDA has agreed that the second Phase III trial will focus on earlier-stage patients and that can use -- we can use a primary endpoint of mean change in pain at 12 months. So I think that that's a big difference. It's really recognition that should have been done prior that this is not a device trial. This is not a spinal device. This is really all about analgesia and providing pain relief and function improvement for patients with chronic low back pain. Next slide. So these are the results from our Phase III clinical trial. And the green is placebo. This is a mean change from baseline of low back pain. This is what we will be measuring in the new trial. And as you can see, green is placebo, blue is cells alone and red is cells with HA. The 2 treatment groups had 143 patients; in the MPCs alone, 129 patients. In the MPCs with HA and the placebo, 133 patients. And you can see that at 12 and 24 months across the entire study population, that the red line or the cells with HA demonstrated a significant improvement in mean change of baseline pain. And I think this is very, very promising. Next slide. So this is looking at a prespecified subgroup of subjects. This is really trying to focus on the duration of low back pain. I think Silviu alluded to that if you really get out too far, if the patients had pain for too long, the disc may become too fibrotic and really probably pass the treatment paradigm for possibly a treatment like a cellular therapy that is an anti-inflammatory that hopefully can modify that environment to improve function and pain. And so this is eliminating that group that's beyond 68 months. So really focusing on 68 months, which still is quite a long time. So chronic low back pain up to 68 months. I actually think that, that's a long time to have chronic low back pain. But when you look at that subgroup, you can see the enhancement of treatment. So when you look at the mean difference and change of low back pain, you can see that statistically significant of the group with the MPCs and the HA and the red line, you also see a dramatic response in the group with just the HA. But I think this clearly demonstrates that the HA does have an enhanced impact of the cellular activity. Now the Phase II trial, we did not see any effect of HA alone with saline. But it does seem a combination with cells has a beneficial effect. And you can see the significance of this subgroup of patients at a p-value of less than 0.001. So this is what the FDA has agreed upon on our next Phase III trial, treating this more like an analgesic instead of advice. Next slide. So this is another way to look at kind of pain relief. It's a responder analysis. So it's the amount or percentage of patients that have a 30% reduction of pain. And when you look at the subgroup of those patients, we have less than 68 months of chronic low back pain, and that is a long time to have chronic low back pain. That's 70% or almost 71% of the MPC with HA subjects had a 30% reduction in pain as opposed to 43% in the placebo control. And that's at 12 months. And again, the FDA has agreed to this enriched patient population for the second Phase III clinical trial. Next slide. This is interesting. This was something that was looked at. It's really looking at opioid use. Obviously, this is a hot topic right now. And at the time of the trial, we instructed our patients not to decrease their pain meds or increase their pain meds. We didn't want opioids or pain analgesic to be one of the compounding factors. But even though we told the patients to stay on their current pain regimen, it was found that many of our patients discontinued opiates. And if you look at this graph, you can see at 36 months. This is 3 years that we had a dramatic response of patients receiving the MPC and the HA, actually 27% or 28% of opioid users were no longer using opioids compared to 7.8% or almost 8% of the placebo controlled subjects. So close to 28% stopped using opioids at 36 months, where it's only 7% or 8% of placebo group. And this is a dramatic difference that we weren't really sure what we were going to find. Next slide. I think it does show that this is really an analgesic agent. So this is the EQ-5D analysis. This is more of a functional analysis. It typically used for quality of life, especially when you're looking at quality of life per cost unit when you're looking for reimbursement. But also, you can clearly see here that the cells with HA demonstrated a 2 to 3x improvement in quality of life assessment measured by this EQ-5D index score compared to control. So this is pretty -- this is definitely telling them you get a dramatic improvement in EQ-5D 2 to 3x. And also, this also has been agreed as one of our quality measures for the Phase III trial -- the new Phase III trial. Next slide. So I just want to tell you about this patient population. It really is kind of the albatross for spine surgeons -- for spinal [ curiets ]. We have a large group of very, very active patients who developed low back pain almost to the point where it's so common that we just sometimes you just have to ignore it, okay? But these patients typically go through physical therapy, NSAIDs, the chiropractic treatment, acupuncture, which is something that typically they do before they even see us. And really, there's a huge group that are, unfortunately, on analgesics, strong analgesics, whether they're on nonsteroidals, they obviously have issues. We completely understand the opioid issue. If you look at the opioid crisis, one of the main -- actually the main reason that people prescribe opioids was low back pain, okay? So you can see what a problem this is. And then certainly, there are tons of interventional therapies, such as epidural injections, intrathecal pain pump, other therapies that have been used. But the problem is that a lot of these things do fail. And I don't think even treating someone with opioids, I would consider success. But when their option is surgery, spinal fusion surgery is often fraught with complications and morbidity and downtime. And the worst part about it is that it has moderate success, okay? And so I think that's why the spine surgeon we really tried to ignore this population because we don't really think that surgery is a reliable outcome for a vast majority of these patients. And that's why I think that's -- my research is in biologics. And I do think a more biologic regenerative therapy for this patient population that has a great analgesic effect as far as decreasing their pain through this time period and restoring their function would definitely be a benefit. And then you have to see what does that require? And and even physical therapy takes a long time. That's a time commitment. I think all these other therapies are time commitment. Certainly, surgery is an incredible time commitment. And what I see with therapy like this where you can have an injection that can be done in the morning and the patient who can take the day off and return back to work the next day with a long lasting and durable analgesic effect is something that I think will be -- it will be an inflection point in the treatment of low back pain. That's all I have. I think we're -- I'm sure Doug is still on, and we can certainly happy to answer any questions. and I'll turn it over to Silviu and Tara at this point.

Great. Thank you, Dr. Bae. At this time, we'll be conducting our question-and-answer session. [Operator Instructions] or by e-mailing your questions to [email protected]. Please hold for a brief moment while we pull for questions. So our first question comes from Louise Chen from Cantor Fitzgerald.

Thank you for the presentation. So I had a few. First, what I wanted to ask you was, what percentage of chronic low back pain sufferers have been having this problem for less than 68 months. And is this enough time to motivate them to try something more, I would say, invasive like a cell therapy versus just continuing to try different types of analgesics, which seem to be the first-line opportunity despite some of the issues they have. And then a second question I want to ask you is, how does Mesoblast think about building a cell therapy platform in chronic low back pain because that's obviously a disruptive technology and not something that has been done on a wild scale yet before even though there's a large unmet need here. And then last question, I just want to make sure I understand clearly was that whether or not you actually have the funds to pursue the second Phase III study or you're getting that in place now?

So I guess I'll answer the first question and have Doug -- the other 2, I think, maybe Silviu or the Mesoblast team would be better off answering. But 68 months as far as the spine surgeon is a lot of time. It's -- I actually think if you could last 68 months, it's pretty incredible. So for an active individual that starts having low back pain, I mean even 6 months can be quite a long time because it can be pretty disabling. What's amazing is, is that if you look at surgical requirements, so if you said, okay, I want to fuse this patient for low back pain. The insurance companies who tightly regulate this, obviously, because they know the problems with surgery for this problem. It's actually only typically 6 months. So they require 6 months of conservative management before a Blue Cross or a United will consider a spinal fusion for their patients. So we're talking 68 months. So I think that is an incredible long time to wait even for -- I mean, 6 months is typically the wait for surgery. So I would think if you're just doing a biologic intervention that is at an outpatient day procedure that, that paradigm would be shifted much, much earlier on. And if we had a therapy like this, I'm not sure if we would have patients out 68 months.

Yes. So that's a really interesting comment because I agree 100% with -- I just -- I hardly see patients out that far for 5 years, 8 months. That's forever. And 1 of the problems we have in investigating trials associated with chronic low back pain is to first personalize this a little bit. You come in and you have a 7 or 8 out of pain, you're a previously active person. You've done something to hurt your disc and you can't sit, you can't bend over, very hard to drive in the car. It bothers you all the time, especially when you're trying to sit and get some work done. And it's a moderate to high level of pain. And so we do things that are marginally effective. And then after that, it's on to surgery. And in fact, most of the fusion surgeries done now are stable discogenic back pain or stable back pain, about roughly 35% to 40% are due to scoliosis and unstable spine, the rest of them are due to stable back pain. And that's an example of how desperate these people get. And we do -- most of my practice is focused on the anterior column pain, discogenic back pain because this is a huge issue. And if you have something like this, and the last time I talked to Roger and Silviu, I complain that we don't have an ongoing trial because I need to have something give to my patients with back pain. So the fact that people live with more than 68 months, I mean -- and that was kind of the dividing point I still consider that forever in terms of living with low back pain.

Maybe I can address the other 2 questions that Louise posed. So the first question was, how do we -- how does Mesoblast think about building a commercialization capability for such a product? And I think the second question was around funding. And they're intertwined, right? As you know, we're in the process of building out a very targeted biologic sales force to support the potential approval of our GVHD product. And we would hope that, that biologic sales force would be in a position to then start to consider getting involved with the delivery of this biologic product to the end users, to the pain clinics and the orthopedic centers. However, to be more realistic, I think we will be working with strategic partners who have in place commercial channels, existing commercial channels for products in the pain space. And we are in very active discussions with several of those strategic potential partners. And when it comes to the funds required to bring this product to market, you want to think between development costs and commercialization costs, and those discussions with strategic partners are focusing on both of those. But the alternative for us is to fund development through to completion through very different approaches, such as financial organizations that, for example, have royalty sharing structures in place. And I think we're pursuing both of those approaches for funding both the clinical and commercial development of the program simultaneously.

Our next question comes from Ted Tenthoff from Piper Sandler.

I'm really trying to get a sense back to some of the points on the next trial design, really how large that study would have to be? And then also, how long will the follow-up have to be? Would that be a full 3-year follow-up as well? Or would there be able to be looked earlier or separation?

Maybe I might ask our head of musculoskeletal program at Mesoblast, Roger Brown to comment on both of those questions, Roger?

Yes. We look at this next trial. Obviously, we wanted to be successful and show very demonstrably the improvement in pain we saw. If you remember the data that Dr. Bae showed, we were showing statistical improvement of 0.001 with 65 patients. So we don't expect that the trial will be -- need to be very large. Could probably be right around the same size of the last trial around 400 patients that would give us a very high likelihood of success, given what we saw in the first study. And the endpoint would be the -- primary endpoint to declare success would be at 12 months rather than 24 or even 36. So we'd be getting a look fairly early.

Our next question comes from Michael Okunewitch from Maxim Group.

Thanks for putting this whole thing together. So I guess to start off, I'd just like to ask and see if you could discuss a bit about what the level of durability and improvement that you've seen suggests about the mechanism of action and the impact to the disc at the cellular level? Would you expect to see this level of durability from something that's just addressing the information or is -- are there other things going on that you would need to see to justify the results after 3 years?

So perhaps I'll take that question. What is striking actually is that we see durable outcomes across each of our programs. Whether we look at the chronic low back pain, whether we look at inflammatory heart disease, heart failure, whether we look at the graft-versus-host disease program. And so that appears to be a very unique mechanism to these cells. In other words, whilst they're anti-inflammatory, whilst they're immunomodulatory, they're not -- their effects are not short-lived. They're very, very long-term and durable. And the explanation for that has to be that they so-called license other cells, immune cells that are long lived within the tissues because the cells that we put in disappear after about 2 months. So they're gone. The durable effects have to be due to some type of long-lived memory within the tissue. The most likely candidates are the tissue macrophages, which are present within the disc. They're present in the heart. They're present within the lung. Those are long-lived cells that have half -- short -- long slow turnover and very long half-lives and they're present for as long as 2 years within a particular tissue. It's well established that the tissue macrophage is the key pro-inflammatory cell that is responsible for the degenerative process in these various tissue types. And the mesenchymal lineage cells is able when interacting with these macrophages to so-called polarize them to an anti-inflammatory phenotype with the anti-inflammatory cytokines being present for the duration of the survival of those macrophages and other cells like them. So that's, we think, a central mechanism to why these cells provide durable outcomes irrespective of the diseases that we've targeted to date.

All right. And then just 1 follow-up, I'd like for Dr. Beall. Could you please talk a bit about -- a bit more about the adjacent segment disease? How do you treat this? Do these patients have to go for successive surgeries. And then as a physician, how would having something like rexlemestrocel assuming that the second Phase III provides comparable data to the first one. How would that change your approach to these patients?

Yes. So those are great -- that's kind of a great 2-part question. The answer last first is it changes the wholesale dramatically. So now working on the anterior column where some of the sites or site as anti-inflammatory injections into the disc. And that's a little bit controversial to do. The data is not greatly supportive of that, meaning the amount of data. But we do that just to -- because we don't have anything else to do. And then once we follow that, there is definitely a need to do something. We're very reticent to send people to surgery for this. My colleagues are very reticent to do surgery on somebody with stable discogenic back pain, stable actual back pain because of the reasons stated previously. And this is a very large gap that's filled very well with this. So we inject -- part of the -- I've been involved in a number of different trials. We injected saline in the disc and some -- and the saline has a treatment effect. It has high rates of disc, maybe resets the data potential, it washes out the anti-inflammatory mediators, but that fades out in about a year. And the durable effect, as we discussed previously, you just don't get with the injection of saline or injection of anti-inflammatory. Otherwise, we'd be injecting dexamethasone, 4% lidocaine into the disc for durable treatment. So this creates a segment of people, a large segment of people, I alluded to earlier, more people than are optimal by far, getting fusion surgery for stable axial back pain. The reason why there's no other option for a large segment of people. And so they get desperate, have pain and they go off and they have something. So as you saw from the outcomes in terms of pain function, quality of life, this is an absolute no-brainer. And it's a no-brainer for this segment of population that has no other option. It's a big segment, even subdivided, this is a very big segment. So this is something that really changes the way we do things and adjacent segment disease is 3% to 14% in the lumbar spine, it's about 3% per year in the cervical spine, but in the lumbar spine, due to a number of different factors, and it's predictable, you know patients are going to get this, and you want not to try to tip that down and observe it because once you do that, the treatment for adjacent segment disease is going to be the same as the original problem. But you have more stress and strain on it because you have a segment that fused. So you have surgery followed by surgery, followed by surgery, and you really want to try to avoid that. And you want to try to do anything else you can. And so in the future, this is going to be used for stable axial back pain in patients with and without prior surgery and avoid -- attempt to try to avoid something you know as an inevitably suboptimal or mediocre outcome.

Yes. And just to reflect on that, I mean, just like you said, I mean, there are many treatments that are going on right now, new disc therapies that are -- have very little data to support it, but just really are being done since there's no other good option. And I don't want to underscore this, but having good data that supports the therapy that is a treatment that's an intradiscal injection that you can commonly invasive or even noninvasive will be amazing. I mean that in itself is incredible. And I think there's 2 things. One, obviously, you'll get the label that says, hey, you can use this for chronic low pain. But the other is the data. And the data just does not exist right now with any therapy. So I really think that this will be tremendous if it does actually meet its endpoint.

Our next question comes from David Stanton from Jefferies.

Sorry, I didn't have a question, I'm just -- I'm fine. My questions already been answered.

Great. Thank you, David. I'll now turn it over to Tim McCarthy from LifeSci Advisors to read the remainder of the questions.

The first question, the question they were asking, they'd like to know if the company observed the pain trial that indicate potential potency assays, potential patient biomarkers or other ratings that could predict the response to treatment in a similar manner at CRP levels appeared to predict patient response in the CHF trial.

Yes. I'll address that. I think it's a very important question. So what we have learned through, in particular, our GVHD program, but also in our heart failure program, is that we -- there are inflammatory biomarkers that are very, very important to help us predict the most likely patient to respond to our therapy. And in -- in the GVHD program, in particular, that's precisely what the FDA has asked us to provide in addition to the clinical data. And this forms part of our upcoming resubmission to the FDA for potential approval for the GVHD program, established and optimized in vitro potency assay that measures the ability of our product candidate to control an inflammatory response that is known to be critical to the GVHD outcomes, adverse outcomes, including survival. And we've been able to look at how those potency assays in vitro, subsequently predict the activity of the cell in vivo to reduce mortality or to improve survival. And we have those data and those correlative data are critical to the FDA in terms of the progression to approval. Having learned those lessons from the GVHD program, we're applying the teachings to our heart failure program and to our back pain program, and our potency assays that are being established or have already been established for these programs are meant to predict reparative or anti-inflammatory outcomes that correlate with clinical benefits. And we're doing that in heart and we're doing that here in the disc program as well. And so I think this is a very important point to understanding how our allogeneic cell therapies for every indication are going to get over the line and approved by the FDA. They require us to have these potency assays in place, not just to demonstrate a consistent product that gives the same outcome when used in patients but that also allows us to understand the mechanism of action to predict the clinical outcomes, which would allow us to then, over time, continue to optimize and enhance manufacturing processes.

Next question is a trial design question. Will the confirmatory Phase III trial be administering rexlemestrocel alone or in combination with HA. If in combination, where the controller will receive HA, so physicians can decipher if the effects are due to one or the other or it's...

Yes. I might take that question again, and then I'll ask Roger to chime in as well. I think it's -- again, it's -- we've outlined earlier that hyaluronic acid is used here as a carrier because it enhances at least in preclinical studies that enhances the migratory effect of ourselves towards the site of inflammation where they have maximal effect. In the Phase II study, we already demonstrated the hyaluronic acid on its own was not significantly different from saline in terms of outcomes in this patient population. And so as an agent, it serves like a placebo. However, it's not approved. It's a biologic agent, which is unapproved and would be inappropriate to use as a control in any trial. It's just an experimental agent. And has been demonstrated in Phase II to have no benefit over saline. The FDA is very comfortable and has not required HA to be a stand-alone control arm being -- because it's an experimental agent. In the Phase III trial, we will be comparing one-to-one our cells with the hyaluronic acid carrier against the saline control. And if the endpoint is met, the product will be deemed a combination product, where the cells will be the biologic agent. And the combination of the HA carrier is used to enhance the biologic effect of the cells. Roger, would you like to add to that?

Yes. I think in our discussion with the agency, they have been very clear that with the status of HA itself is not the active ingredient here. And in this last study, we showed that while we saw an effect with the cells, without HA, the effect was enhanced with the HA. So the FDA, we've had a discussion with them and they've agreed that the 2 arms in this next trial would be cells with HA versus the control.

Being saline -- control being saline.

True.

Next question is what physical manifestations of therapeutic effect and on MRI scans resulting from the treatment? Can I rephrase. So what physical manifestations and MRI indications are resulting from the treatment? What if the short-term inflammatory cytokine changes would confirm mechanism of action? And a follow-up question is related to the changes in disc height.

I'm going to take the first part of that question. So in terms of the physical manifestations it really -- you kind of Phase III outcome as was reported that pain, function, quality of life improvements are really manifested in that. And of course, most of the disability and functional improvements has pain as a component of that. So what we really focus on is function and quality of life more than pain, although agency tends to really have an unnatural fixation on pain, we really think that the proportion of patients that we see that report themselves subjectively is a lot better, have better functional and quality of life improvements, of course. In my experience in MRI, it's either unchanged or slightly improved in terms of signal, to really get a good height measurement is difficult to use because you'd have to measure 3 consecutive sagittal measurements with each disc, and it would be better to maintain -- measure a disc volume, then it would be a disc height. So these measurements are quite difficult without the use of a special tool like AI or something like this. And so I'll leave that other part of that question for one of our other panelists.

I think that's a really good point. And in fact, in this upcoming study, we intend to have additional imaging tools that would utilize, for example, special dyes or agents that can measure changes in metabolic activity, and these are potentially validated tools that I mean -- we're not available when we first started the last trial but are available now, and I think they will form part of our overall assessment around imaging predictors of clinical outcomes with the cells. Similarly, we have a number of biomarkers that will be followed moving forward, that will also seek to correlate the in vitro to in vivo potency of the cells.

Okay. Unfortunately, we reached the top of the hour and while we do have more questions, we're going to have to pass it over to Silviu for closing remarks.

Look, again, I want to particularly thank our key opinion leaders who really are at the cold phase and are telling us what the unmet need really here is and really the lack of alternatives that can provide a meaningful outcome. We are very, very excited about the results that we've seen and very keen to proceed with a study that will aim to confirm the data that we saw in the first Phase III study in line with guidance provided by the FDA on trial design, endpoints, patient population. And in line with this, I think we look forward to updating everybody shortly on our upcoming plans for this very important program. And thank you again to I guess, key opinion leaders, Dr. Bae and Dr. Beall. Thank you, everybody, for joining us today, and we'll be updating you all shortly. Thank you.