Mesoblast Limited (NASDAQ:MESO) Q4 2024 Earnings Call Transcript

Mesoblast Limited (NASDAQ:MESO) Q4 2024 Earnings Call Transcript August 28, 2024

Operator: 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 and 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.

Silviu Itescu: 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 on this call are our Andrew Chaponnel, Chief Financial Officer; and one of our members of the Board, Dr. Philip Krause, formerly Deputy Director of the vaccines division of FDA’s CBER. I’m very pleased to report that in the past six months, Mesoblast has made tremendous progress and we’ve built great momentum in our relationships with the FDA on each of our three 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 now to the slide deck, please.

Starting with slide four. 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 five. Our platform technology demonstrates a shared mechanism of action across all of our products. The mesenchymal precursor and 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 by 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 six.

US pattern exclusivity for these cells term compositions of matter and method of treatment patterns have been granted for RYONCIL as well as for our other stromal cell products out to at least 2037 and beyond in certain indications. Methods 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 number seven 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 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 acute 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 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 two to four heart failure with low ejection fracture. And finally, rexlemestrocel 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 our multiple product pipeline toward FDA approvals in the following context.

RYONCIL, its BLA has already been resubmitted. We have a PDUFA date January 7, 2025, and we expect to then initiate a study in adult patients beyond post approval for label extension. Rexlemestrocel for chronic low back pain has completed one 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 US. The third product is REVASCOR, which is being developed for heart failure in children with congenital heart disease and 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.

Andrew Chaponnel: Thank you Silviu. Please turn to the financial highlights for the year on slide 10. At June 30, our cash balance was US$63.3 million with an additional US$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 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 lowered 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 of 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. Turn 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 swing in revaluation of contingent consideration between FY ’23 and FY ’24, and that’s due to the valuation being updated in FY 2024 for 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.

Silviu Itescu: Thanks Andrew. If we can go now to slide number 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 the T-cells in the donor graft that attacked the gut, the liver and the skin of the recipient, seeing those tissues as foreign and the cytokines that are produced result in tissue destruction and ultimately 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 US alone, about 10,000 patients undergo allogeneic bone marrow transplants.

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 had 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 that are new and responsive to the CRL. The FDA accepted the BLA resubmission within two 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 a 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 US and the initiation of sales directors to lead center profiling.

We have ongoing key opinion leader engagement with those KOLs 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 onboarding of centers with the highest volume and experience with our product. We will bring on a very targeted salesforce with experience in bone marrow transplant centers. As I’ve mentioned, 15 centers do 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 engage 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 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 fail the only approved drug in adults, ruxolitinib and that accounts for about 40% of ruxolitinib treated patients. Survival in these patients remains a dismal 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 a second line agent 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 US transplants that will be conducting the trial. Moving on now to the indications being developed for rexlemestrocel, our second generation STRO3 selected product. Slide number 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 dyskigenic [ph] chronic back pain. 50% of opioid prescriptions across the US 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 US as well as the EU 5. Go to the next slide, please 24. This is the patient journey for patients with this debilitating condition. Conservative treatments include, of course, nonsteroidal anti-inflammatory drugs, a variety of physical therapy approaches. But really, when these modalities fail, the only approaches that are non-interventional, 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 US. 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 versus saline injection. What we saw was as early as 12 months after a single injection, there was 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. This separation, red in this slide versus green was maintained for at least three years of follow up. So long durable, substantial reduction in pain from a single injection of rexlemestrocel.

Next slide please. Slide 26. And so the summary of our ongoing program is that we have regulatory alignment with the FDA on this 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 US. It’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 three years, but also 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 rexlemestrocel product pipeline, heart failure. Slide 28 focuses on a snapshot of the clinical indications being developed for the STRO3+ rexlemestrocel 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 two to four. Next slide, slide 29. REVASCOR is 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, a 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 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 of Thoracic Cardiovascular Surgery. The results in these 19 patients showed that a single injection into the left ventricle, into the tiny little 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 surgeons to substantially increase the proportion of children who could then undergo a successful biventricular conversion, meaning that more children that received a REVASCOR injection were able to tolerate definitive surgery where the left side of the heart supported the full body’s 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 number 31. Based on the results of this randomized controlled trial, we applied and received from the FDA a rare pediatric disease designation and often 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 or 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 that I’ve just outlined 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 correction and underlying ischemia. Heart failure, as we know, is the number one cause of mortality in the western world, affecting more than 6.5 million patients in the US alone, with an increasing prevalence.

Over 60% of heart failure with low ejection fraction have underlying ischemia. And it’s these patients that are 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 two large programs we’ve performed to date. And if you focus on the right-hand side of this slide, two large studies, randomized controlled one in that we call DREAM, the DREAM heart failure trial. 537 patients in class two to four heart failure and patients in end stage heart failure being kept alive with a ventricular assist device, an LVAD, in 159 patients. We focused our program on these two patient populations, because they continue to be the despite all other — 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 three, four 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 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 the Journal of 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 two trials I’ve talked about where in the DREAM population, in the ischemic patients, there was 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 two studies may support an accelerated approval pathway for REVASCOR and end stage ischemic heart failure patients with LVAD. 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 think I’ll say thank you for listening. This has been a very exciting six 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. Thank you.

Operator: Thank you. [Operator Instructions] And today’s first question comes from Louise Chen with Cantor. Please go ahead.

Q&A Session

Unidentified Analyst: Hi. Good evening, everyone. This is Karby [ph] on for Louise from Cantor. Thank you for taking your questions. 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? Thank you so much.

Silviu Itescu: Thank you. Well, so RYONCIL for pediatric and adult 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 small in number. So 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, we represent a similar population as the children we’re targeting with GVHD, provides at least a level of basis for comparison.

Secondly, we have five-year outcomes which we’ve talked to and have provided to the FDA last year. Five-year outcomes from our Phase 3 trial demonstrating a 50% overall survival for between four to five 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 curative 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 number one pharmaceutical company 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 US, 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 two 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 two to class four heart failure.

Unidentified Analyst: Awesome. Thank you so much and congrats on the progress.

Silviu Itescu: Thank you.

Operator: Thank you. [Operator Instructions] Our next question today comes from Edward Tenthoff with Piper Sandler. Please go ahead.

Edward Tenthoff: Great. Thank you very much and congrats on all the update. I’m 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 take? Thank you.

Silviu Itescu: 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 them, they start to screen their patients, et cetera, and you have a hockey stick kind of enrolment period. And so, we’re in that early phase right now and we expect that it will ramp up over the coming three months or so. Our projection is that it’ll take about 12 months to fully enroll, and then the primary endpoint is a 12-month outcome in terms of pain reduction. So, we will be updating the market as that program continues to move forward.

Edward Tenthoff: I’m sorry, Silviu. How many months to enroll? I apologize.

Silviu Itescu: About 12 months.

Edward Tenthoff: Yep. Thanks.

Silviu Itescu: With respect to the regulatory interactions on REVASCOR in cardiac disease, we have two potential early pathways to approvals. One is for the pediatric congenital heart disease and the other is for end stage patients on LVADs. 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 is the fact that we need clarity with the FDA whether the randomized controlled trial that has already completed and that was the 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 three, four 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.

Edward Tenthoff: Excellent. Thank you.

Operator: 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.

End of Q&A:

Silviu Itescu: Great. Well, I’m very excited about the progress we’ve made in the last six 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 RYONSIL for our 1st commercial launch. Thank you everybody.

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