Mesoblast Limited (MSB) Earnings Call Transcript & Summary

Hello, and welcome to the Mesoblast financial results for the full year ended June 30, 2024. An announcement and presentation have been lodged with the ASX and are available on the home and investor pages at www.mesoblast.com. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. 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 represent the company's views only as of the date of this webcast and should not be relied upon as representing the company's views of any subsequent date. The company specifically disclaims any obligations to update such statements. With that, I would like to turn the call over to Dr. Silviu Itescu, Chief Executive of Mesoblast. Please go ahead.

Thank you, operator. And I'm very pleased to welcome everybody to the financial results and operational update for the year ended June 30, 2024. With me today are Chief Financial Officer, Andrew Chaponnel; and one of our members of the Board, Dr. Philip Krause, formerly Deputy Director of the Vaccines division of FDA/CBER. I'm very pleased to report that in the past 6 months, Mesoblast has made tremendous progress, and we've built great momentum in our relationships with the FDA on each of our 3 lead products. We are now in a strong position to have our first potential product approved by the FDA and planning for a go-to-market strategy for our first commercial launch. We could go to now to the slide deck, please. Starting with slide 4. We're a global leader in allogeneic cellular medicines for inflammatory diseases and have established a leading position with intellectual capital with over 1,000 patents granted or filed across all the major jurisdictions. Slide 5. Our platform technology demonstrates a shared mechanism of action across all of our products. The mesenchymal precursor in stromal cells that we are working with respond to and are activated by multiple inflammatory cytokines through surface receptors, resulting in orchestration of an anti-inflammatory cascade all of which is central to the mechanism of which these cells turn off damaging inflammation in each of the diseases that we are aiming to get products approved for. Next slide, please, slide 6. U.S. patent exclusivity for these cells to "Composition of matter" and "method of treatment" patents have been granted for RYONCIL as well as for our other stromal cell products out to at least 2037 and beyond in certain indications. "Method of treatment" and "manufacturing" go out to as far as 2043, and they include mesenchymal cells from different sources, including iPS for a range of indications that we'll be talking about in the next few slides. Slide #7 is a snapshot of the late-stage clinical pipeline of our proprietary allogeneic cell therapy platform. And you can see in blue products that are being developed using the remestemcel platform, branded name is RYONCIL. And in green, the products being developed through our second-generation pipeline product called rexlemestrocel-L which is STRO3+ cell line generated through immunoselection with monoclonal antibodies. The remestemcel platform is the more advanced. Our lead product is RYONCIL for pediatric steroid-refractory graft-versus-host disease. It's currently under review by the FDA for potential BLA approval. The adult indication will be a label extension for the product, and it's also being developed for Inflammatory Bowel Disease. Rexlemestrocel-L for cardiovascular disease is being developed for pediatric congenital heart disease for adult patients with end-stage heart failure with low ejection fraction and for adults with Class II to IV heart failure with low ejection fraction. And finally, Rexlemestrocel-L is also being developed for inflammatory low back pain currently in the midst of the final Phase 3 program. Next slide. In the coming 12 months, we expect to substantially advance multiple product pipelines toward FDA approvals in the following context. RYONCIL its BLA has already been resubmitted. We have a PDUFA date in January 7, 2025. And we expect to then initiate a study in adult patients beyond post-approval for label extension. Rexlemestrocel-L for chronic low back pain has completed 1 Phase 3 trial and the second Phase 3 trial to confirm the 12-month pain reduction, primary endpoint for potential approval is actively enrolling across multiple sites in the U.S. And the third product is REVASCOR, which is developed -- being developed for heart failure in children with congenital heart disease in adults with low ejection heart failure is being prepared for potential accelerated approval. More about that in the next few slides. Now I'd like to turn over to Andrew, who will take us through the financial results for the year.

Thank you, Silviu. Please turn to the financial highlights for the year on slide 10. At June 30, our cash balance was USD 63.3 million, with an additional $10 million from an existing facility on FDA approval of RYONCIL. We are pleased to report reductions in our net operating cash usage. There's a 23% reduction of $14.8 million for FY 2024 compared to FY '23. And our full year net operating cash usage was $48.5 million for FY 2024 compared to $63.3 million in FY '23. And we recorded a 37% reduction of $6.1 million for Q4 in FY '24 compared to the prior comparative quarter. So our Q4 spend was down to $10.2 million compared to $16.3 million in the prior comparative quarter. These impressive reductions in cash usage were predominantly driven by reduced manufacturing activities and lower payroll, which I'll explain in more detail on the next slide. We will continue our focus on prudent cash management for all operating activities as we undertake targeted commercial rollout and supply chain activities for remestemcel-L. Now turning to Slide 11. We can report that we achieved the headcount and payroll cost containment targets we set for FY 2024. And I confirm that these initiatives will continue in FY 2025 as we continue our focus on cost control. Our 23% reduction in net operating cash burn in FY '24 was largely in part due to the successful execution of our payroll reduction strategy. The table below outlines the initiatives in more detail. So firstly, our CEO and CMO voluntarily reduced their base salaries by 30% in FY '24. And this reduction is also in place for FY 2025. They will receive non-cash LTIs in place of the base salary reductions. And additionally, management have also participated in that voluntary base salary reduction program and can continue and will do so in the coming year FY '25. Cash payment of STI earned during FY '23 and FY '24 is deferred until FDA BLA approval for steroid-refractory acute GVHD for all employees. And further to that, management will be offered non-cash LTIs, if they'd like to replace the cash payment of the FY '23 and FY '24 STIs. And we continue to defer 100% of the cash payment of any non-executive director fees until an FDA decision on the BLA. Turning to slide 12. On slide 12, you'll see a summary of the profit and loss statement for FY '24. Notably, our manufacturing expenditure reduced by $12 million, a significant 43% due to decreased inventory build and one-off FY '23 expenditure on FDA pre-license inspection activities. Our finance cost includes $17.3 million of non-cash expenditure, comprising accruing interest and borrowing costs. Notably also, there's been a significant [ being ] in the revaluation of contingent consideration between FY '23 and FY '24. And that's due to the valuation being updated in FY 2024 for a greater probability of GVHD approval compared to the FY '23 valuation, which reflected the 2023 CRL. Our loss after tax for FY '24 is $88 million. After adjusting for that revaluation of contingent consideration, given that there was a large swing in that valuation from year-to-year, our loss after tax for FY '24 is $78.3 million, a $12.4 million improvement on FY 2023. I'll now hand the call back to Silviu for the remainder of the presentation.

Thanks, Andrew. If we can go now to slide #14. This is a snapshot of the clinical development programs for RYONCIL steroid-refractory acute GVHD for children and adults. Slide 15. GVHD is a potentially fatal complication of an allogeneic bone marrow transplant. It's essentially a Cytokine Storm by T-cells in the donor graft that attacked the gut, the liver, and the skin of the recipient seeing those tissues as form, and the cytokines that are produced result in tissue destruction and ultimately, the death of the patient. Slide 16. The potential unmet need exists in 30,000 patients who undergo allogeneic bone marrow transplants globally, of whom about 20% are pediatric. In the U.S. alone, about 10,000 patients undergo allogeneic bone marrow transplant. And so there continues to be a growing unmet need given that about 50% of patients will develop graft versus host disease. Next slide, slide 17. This slide updates on where we are with potential FDA approval of RYONCIL for pediatric patients with steroid-refractory GVHD. We resubmitted our BLA for approval of RYONCIL on July 8 of this year, addressing the remaining CMC items in the August 23 Complete Response Letter. FDA during this year has informed Mesoblast that the available clinical data from our Phase 3 study appears sufficient to support resubmission of the BLA. Hence, the BLA contains only items relating to the CMC that are new and responsive to the CRL. The FDA accepted the BLA resubmission within 2 weeks, considering it to be a complete response. We are in ongoing interactions and dialogue with the FDA in relation to the active BLA review. We anticipate the decision prior to or on the FDA's PDUFA goal date of January 7. Our strategy is to first gain pediatric approval for RYONCIL, followed by label extension in the larger adult population. Next slide, 18. Concurrently with the review process, we have reinstituted prelaunch activities for our go-to-market strategy for RYONCIL in pediatric patients. We've commenced hiring of select senior positions to build out our targeted commercial team. The key activities that were active last year and are now being picked up, include market access to initiate payer outreach, medical affairs to provide education, corporate leadership to initiate engagement with the top 15 transplant centers, which perform 50% of the pediatric transplants across the U.S., and the initiation of sales directors to lead center profiling. We have ongoing key opinion leader engagement with those KOLs that have the greatest experience with RYONCIL at the centers that have the highest volume of transplants. And we've reinitiated non-promotional activities including profiling the high-volume centers, educational and disease awareness, and payer engagement. Next slide, 19. We will plan to have post-launch activities for our go-to-market strategy that will be staged based on the onboarding of centers with the highest volume and experience with our product. We will bring on a very targeted sales force with experience in bone marrow transplant centers. As I've mentioned, 15 centers to 50% of the volume. The key activities in the post-launch period will be to initiate commercial onboarding and logistics to engage – to have our medical science liaisons engaged with the medical and scientific needs of the transplant centers and the leadership at those centers, logistical and reimbursement support offered as needed, and center certification for remestemcel-L administration. Moving on Slide 20 is our label extension strategy for RYONCIL in adult patients. There is a continued unmet need in adults with steroid-refractory GVHD, who felt the only approved drug in adults ruxolitinib, and that accounts for about 40% of ruxolitinib-treated patients. Survival in these patients remains an additional 20% to 30% by 100 days. This patient population continues to have no approved therapies. In contrast, 100-day survival in these patients treated with RYONCIL is 67% under expanded access. 51 adults and children have been treated in this way. Following approval in pediatric patients, we intend to commence a Phase 3 trial of RYONCIL in adults and adolescents with this disease who are refractory to second-line agents such as ruxolitinib. We're collaborating on this trial with the blood and marrow transplant clinical trials network, the BMT CTN, an NIH-funded body responsible for approximately 80% of all U.S. transplants that will be conducting the trial. Moving on now to the indications being developed for rexlemestrocel-L, our second-generation STRO3-selected product. Slide 22 is a snapshot of the focus on chronic low back pain for this product, and this has completed one Phase 3 and is currently in a second confirmatory Phase 3 trial for the indication. Slide 23. The burden of illness is great, and the treatment options are very limited for patients with inflammatory discogenic chronic back pain. 50% of opioid prescriptions across the U.S. after this very indication and the opioid epidemic continues. Over 7 million patients are estimated to suffer from chronic low back pain due to inflammatory degenerative disc disease in each of the U.S. as well as the E.U.5. Go to the next slide, please, 24. This is the patient journey for patients with this debilitating condition. Conservative treatments include, of course, non-steroid anti-inflammatory drugs, a variety of physical therapy approaches. But really, when these modalities fail, the only approaches that are non-interventional and non-surgical are opioids. And there are both weak and strong opioid analgesics. And as I've mentioned, this has fueled the excess opioid usage in the opioid epidemic across Western societies, particularly the U.S. Beyond this, there is spinal cord stimulation and radio frequency ablation, and other end-stage surgical procedures. We intend to be used as early as possible when conservative treatments have failed. And one major objective, of course, is to help avoid opioid analgesics altogether. Next slide, please, slide 25. In our first Phase 3 trial of approximately 400 patients randomized to a single injection of rexlemestrocel-L versus single injection. What we saw was as early as 12 months after a single injection, there was a very significant separation in terms of pain reduction from baseline in those patients who received a single injection of cells together with hyaluronic acid as a carrier. And this separation red in this slide versus green was maintained for at least 3 years of follow-up. So a long, durable, substantial reduction in pain from a single injection of rexlemestrocel-L. Next slide, please, slide 26. And so the summary of our ongoing program is that we have regulatory alignment with the FDA on the second Phase 3 trial. The primary endpoint being an approvable endpoint is reduction in pain. These secondary endpoints look at improvement in function and quality of life measures, which were also substantially improved in the first Phase 3 trial. And this program is now underway across multiple sites in the U.S. actively enrolling. Importantly, 40% of the first Phase 3 trial were patients who were on opioids at baseline. And that group of patients demonstrated not only a substantial reduction in pain that was durable for at least 3 years but also a significant cessation of opioids compared to control patients. Those results are particularly important, and we will be having further discussions with the FDA focusing specifically on the opioid-using population in this program. Moving forward to the other major indication for the rexlemestrocel-L product pipeline, heart failure. Slide 28 focuses on a snapshot of the clinical indications being developed for the STRO3+ rexlemestrocel-L product that has a branded name of REVASCOR being developed for children with congenital heart disease called hypoplastic left heart syndrome, being developed for adults with end-stage heart failure with low ejection fraction and it's being developed for adults with ischemic heart failure with low ejection fraction at stages 2 to 4. Next slide, Slide 29. REVASCOR has a potential treatment for severe congenital heart disease is outlined here on this slide. The mechanism of action of REVASCOR is that it has the ability to improve vasculature. It has anti-fibrotic effects and reduces inflammation. These are all features that are critical to the progressive defects in hypoplastic left heart syndrome and severe congenital heart disease in children, where the left side of the heart does not develop appropriately and does not pump oxygenated blood to the rest of the body. The entire circulation is dependent on the right side of the heart and ultimately, in the absence of surgery, the right side of the heart enlarges, fails, and this is a fatal disease due to right-sided heart failure. We completed a clinical trial, a randomized controlled trial at Boston Children's Hospital to evaluate whether a single injection of REVASCOR could enhance the left ventricular size of these unfortunate children in order to help the left ventricle support the circulation to the body. The results, if we can go to Slide 30, the results of that study were published last year in a peer-reviewed publication journal Thoracic and Cardiovascular Surgery. The results in these 19 patients showed that a single injection into the left ventricle, into the tiny left ventricle at the time of stage surgery resulted 12 months later in significantly increased volumes of the left ventricle, both diastolic and systolic compared with controls. The increase in volumes of the left ventricle enabled the surgeons to substantially increase the proportion of children who could then undergo a successful biventricular conversion, meaning that more children who received a REVASCOR injection were able to tolerate definitive surgery where the left side of the heart supported the full-body circulation. This means that potentially the improvement in left ventricular volumes associated with REVASCOR may result in more widespread use of this type of definitive procedure, which has great implications for these children since all other procedures that maintain a right-sided functioning ventricle ultimately result in right-sided heart failure, liver failure, liver fibrosis, and ultimately, mortality. We could go to slide #31. Based on the results of this randomized controlled trial, we applied and received from the FDA a Rare Pediatric Disease Designation and Orphan Drug Designation. This is in line with both the severe life-threatening disease that hypoplastic left heart syndrome entails as well as a recognition of the potential benefits that the procedure has resulted in. It's important to emphasize that if REVASCOR gets FDA approval for this indication, Mesoblast may be eligible to receive a Priority Review Voucher that can be redeemed for any subsequent marketing application or may be sold or transferred to a third party. We plan to meet with the FDA to discuss whether the randomized controlled study of just AVALON can be used to obtain regulatory approval for REVASCOR in children with this life-threatening condition. Moving on to Slide 32 and the program for REVASCOR in adults. This is a program that's aiming to develop the product for heart failure with low ejection fraction and underlying ischemia. Heart failure, as we know, is the #1 cause of mortality in the Western world, affecting more than 6.5 million patients in the U.S. alone with an increasing prevalence. Over 60% of heart failure with low ejection fraction have underlying ischemia and it's these patients that are at highest risk of recurrent major adverse cardiac events, including large vessels, such as heart attacks, strokes, and ultimately, death. The next Slide 33 is a summary of the 2 large programs we have performed to date. And if you focus on the right-hand side of this slide, 2 large studies, randomized controlled one that we call DREAM, the DREAM heart failure trial, 537 patients in Class 2 to 4 heart failure and patients in end-stage heart failure being kept alive with ventricular assist device and LVAD in 159 patients. We focused our program on these 2 patient populations because they continue to be the -- despite all drugs that are currently being used, including SGLT2 inhibitors, including the sacubitril / valsartan combination, despite all of those drugs, patients progressively and inexorably proceed to Class 3, 4, and end-stage, and it's this patient population that we're targeting with a single injection of REVASCOR into the left ventricle. Slide 34. In the randomized placebo-controlled 537 patient trial who were followed for a mean follow-up of at least 30 months, we saw an improvement in ejection fraction at 12 months, and we saw a substantial reduction in heart attacks, strokes, cardiovascular death and 3-point MACE as endpoints in the entire trial. And you can see a picture of the substantial reduction in heart attacks or strokes on the right-hand side from the publication last year in Journal of the American College of Cardiology. Slide 35, we've now got a very clear pathway to accelerate approval for REVASCOR in this adult patient population with low ejection fraction heart failure. And that's based on the totality of the data across the 2 trials I've talked about where in the DREAM population in the ischemic patients, there was a very significant reduction in 3-Point MACE heart attack strokes and mortality and in the LVAD study in 70 patients with ischemic end-stage disease, a single injection of REVASCOR successfully weaned patients to a higher degree than placebo, and there was a significant reduction in hospitalizations and mortality. At the Type B meeting early this year in the first quarter, FDA informed us that the totality of the trial results across those 2 studies may support an accelerated approval pathway for REVASCOR in end-stage ischemic heart failure patients with LVADs. We intend to request a pre-BLA meeting to discuss the totality of the data, the timing and the FDA expectations for an accelerated approval filing in this patient population. And with that, I thank all. Thank you for listening. This has been a very exciting 6 months, and we think the excitement will continue as we hopefully get a positive outcome from the FDA. I'd like to open it up to questions.

[Operator Instructions] Today's first question comes from Louise Chen with Cantor.

This is Carvey on for Louise from Cantor. First, can you discuss any potential partnerships or collaboration that could accelerate your commercialization effort? And second, how are you planning on tackling reimbursement challenges, assuming you get approval for RYONCIL?

Well, so RYONCIL for pediatric and adults GVHD, we have a go-to-market strategy on our own because we've already put a lot of effort into doing so. The patient population is relatively targeted and the transplant centers that perform these transplants are relatively smaller number. So it's highly manageable commercialization process. We are in discussions with payers, and we have a very good sense of what the reimbursement is likely to be in this space based on two important considerations. One is that the recent approvals of CAR-T therapies, particularly in children with leukemia will represent a similar population as the children we're targeting with GVHD, provides at least a level of basis for comparison. Secondly, we have 5-year outcomes, which we've talked to and have provided to the FDA last year, 5-year outcomes from our Phase 3 trial, demonstrating a 50% overall survival for between 4 to 5 years. Meaning that at least 50% of the children are cured of this disease. And that puts the treatment paradigm into the realm of genetic diseases, where, again, intense therapy at the front end provides a substantial number of patients with purity of outcomes. And so when one thinks of reimbursement, given the orphan size of the population and given the precedence in both CAR-T therapies and gene therapy, we think that the reimbursement is going to fall somewhere between those parameters. The second question, I think you asked me was on partnering. And so it really depends on which products we talk about. For our back pain product, we already have a commercialization partner in Europe. That's Grunenthal, which is Europe's #1 pharmaceutical company for -- in the pain space. The relationship with Grunenthal is robust. On successful completion of this Phase 3 trial they will take on the responsibility of market access, pricing and distribution. And then we will be eligible for a variety of milestone payments. In the U.S., we will be seeking a similar relationship with a commercialization partner, leveraging the existing sales, marketing, distribution channels rather than seeking to build those ourselves. And similarly, with cardiovascular disease, we have now a pathway to potential approval both on a first pediatric indication and secondly, the end-stage heart disease indication. Those are fully manageable by us as a company given the small patient populations. I think in parallel, as we move the product through the FDA for potential approval in either of those 2 populations, we will be engaging with and are engaging with currently potential commercialization partners who will take on the -- again, the potential commercial channels for the adult patients with Class 2 to Class 4 heart failure.

Awesome. And congrats on the progress.

[Operator Instructions] Our next question today comes from Edward Tenthoff with Piper Sandler.

Thank you very much, and congrats on the update. Looking forward to the review for RYONCIL in acute GVHD. I'm wondering when should we expect an update with respect to REVASCOR and kind of the regulatory filing plans? And how long do you think the Phase 3 for the spinal product will fit?

Sure. Let me take the spinal product question first. The Phase 3 now is up and running. You know how enrollment works where you, first of all, recruit a lot of the centers, contract and they start to screen their patients, et cetera, and you have a hockey stick kind of enrollment period. And so that -- we're in that early phase right now, and we expect that it will ramp-up over the coming 3 months or so. Our projection is that it will take about 12 months to fully enroll. And then the primary endpoint is a 12-month outcome in terms of paid reduction. So we will be updating the market as that program continues to move forward.

I'm sorry, Silviu, how many months to enroll, I apologize?

That's 12 months. With respect to the regulatory interactions on REVASCOR and cardiac disease, we have 2 potential early pathways to approvals. One is for the pediatric congenital heart disease and the other was for end-stage patients on L-bands. The immediate plan for discussion with the agency in the second half of the year is going to be on the pediatric indication because we have a pediatric rare disease voucher designation. And it is important if you know that the first approval is the one that is linked to a pediatric voucher. So that's -- that we need clarity with the FDA, whether the randomized controlled trial that has already completed and there was a basis of the voucher designation can support a filing for approval process. After that discussion, we will be then also meeting with the agency, given the support they've given us to an accelerated approval for the adults based on the totality of the LVAD study and the prior DREAM study. We will be meeting with them to understand exactly what clinical data needs to go into a filing for that patient population. The confirmatory study that will be required as part of any accelerated approval will be a confirmatory study of the dream population in ischemic heart failure patients with Class 3, 4 heart failure. So that's a trial that is being designed as we speak, and will be obviously presented to the FDA when we meet on a pre-BLA basis.

Thank you. And this concludes our question-and-answer session. I'd like to turn the conference back over to Dr. Itescu for closing remarks.

Great. Well, I'm very excited about the progress we've made in the last 6 months. And we look forward to maintaining the momentum and to updating the market in short order on FDA interactions and the potential approval of RYONCIL for our first commercial launch. Thank you, everybody.

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