Mesoblast Limited
Q3 2019 Earnings Call Transcript

Published: 31 May 2019

[Operator:]

Hello, and welcome to Mesoblast's Financial Update and Operational Highlights Webcast for the Third Quarter Ended March 31, 2019. An announcement and slide presentation have been lodged with the ASX.These materials will also be available on the investor page 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 announcements in the Company's filings with the SEC, which cause actual results to differ materially from those such as forward-looking statements.In addition, any forward-looking statements represent the Company's views only as of the data 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 and welcome everybody to this call. On the call with me is our Chief Financial Officer, Josh Muntner. We can go straight to a Slide 5 please.Now recent corporate highlights, we're very excited to be able to say that we've initiated our BLA filing, which is a rolling submission for our product remestemcel-L in the treatment of steroid-refractory acute Graft Versus Host Disease.This follows the agreement with the FDA for a rolling Biologics Licence Application and their agreement to review the submission on a rolling basis. This process will provide the opportunity for ongoing communication with the FDA and during the process we expect to be able to adequately address any substantial matters that may be raised.In addition to the importance, this is really a historical importance of having filed our first BLA. We accomplished some significant advancements with our product candidate Revascor in for Advanced and End-Stage Heart Failure.We entered into a memorandum of understanding with our collaborators from the National Institutes of Health, at the Icahn Center Mount Sinai to conduct the confirmatory clinical trial using a product candidate Revascor for reduction of major gastrointestinal bleeding and end-stage heart failure patients who've received the left ventricular assist device.The same product candidate is currently in the Phase 3 trial for advanced heart failure. It's completed patient enrollment 566 patients in total have been randomized to receive either Revascor or placebo. That study conducted across 55 centers in North America continues to accrue primary end points and will complete when the full amount of primary endpoints have been collected.Regarding, back pain program in MPC-06-ID. That Phase 3 trial also completed enrollment more than 12 months ago 404 patients randomized to receive, a single injection intradiscally or placebo. All assessable patients have now completed at least 12 months of safety and efficacy follow-up.We continue to extend our license agreement with JCR Pharmaceuticals in Japan for the use of TEMCELL beyond Graph Versus Host disease now in patients with Epidermolysis Bullosa. And we look forward to potentially extending further into new indications. JCR has now filed to extend that marketing approval for this indication.The other important corporate milestone we achieved was to welcome, the appointment of our new Chairman Joe Swedish in April of this year. Joe brings deep healthcare expertise and a track record in healthcare resource allocation and reimbursement metrics, which are critical skillsets as the company now enters that commercial stage.Slide 7, gives a snapshot of the corporate history of Mesoblast. With over decade of scientific, manufacturing, clinical development and corporate transactions to bring, we hope significant products to markets. This snapshot identifies our partnerships and our progress over time and the more recent transactions that we've entered into.Slide 8, summarizes, those transactions including our partnership with JCR, Takeda, and Tasly.We can move to Slide number 9. This slide is a summary of our commercial and late-stage product pipeline. Just to remind folks that our product, our licensee JCR, sells and markets TEMCELL in Japan, which has been approved for Acute Graft Versus Host disease. This was the first allergenic regenerative medicine product approved in Japan.Through a license arrangement with Takeda, Alofisel approved for perianal fistulae was the first allergenic regenerative medicine product approved in Europe. And below that you can see a broad based late stage platform, which the way we look at it now are those, those indications being developed through a platform for Mesenchymal Stem Cells, the MSC suite of indications and those late stage programs developed using the MPC suite platform.And that includes, of course Acute Graph Versus Host disease, Crohn's disease, repair of cartilage, cardiovascular disease, low back pain, rheumatoid arthritis and diabetic nephropathy. And what all of these indications really have in common at the heart is severe inflammation, with relationship between progressive inflammatory disease and progressive disease, refractory to conventional therapies.With that, I'd like to now switch to our financials and Josh, if you could take everybody through the financials on Slide 11 please.

[Josh Muntner:]

Thanks Silviu. And thanks everyone for joining the call today. This is an exciting time for Mesoblast as we've now achieved an important milestone with the initiation of our rolling BLA submission for remestemcel-L for the treatment of steroid-refractory acute Graft Versus Host Disease.We're looking forward to providing updates to the market as we make progress with the FDA. So, the information that’s found on Slide 11, we'll start with, for the nine month period ended March 31, 2019, we're able to report a 29% reduction in net operating cash outflow.The significant decrease was largely driven by an increase in milestone payments in the current period relative to the prior period. We completed the quarter ending March 31, with just over $70 million of cash.I want to remind everyone that upon meeting certain milestones, we may be able to access additional cash through our non-dilutive capital arrangements with Hercules and NovaQuest.Taking a look Slide 12, we’ll now review our revenue. Total revenues were $14.8 million for the nine months ended March 31, 2019 compared to $15.6 million for the prior period. Off note is that our commercialization revenue, which is primarily composed of royalties from JCR, continues to show strong growth, increasing 28% in the recent nine-month period compared to the prior period.As we discussed when we reviewed last quarter's results, the current period contains a milestone payment of $10 million related to our partnering transaction with Tasly. The prior period includes $11.8 million of milestone revenue from our licensing transaction with TiGenix, now part of Takeda.Moving on to Slide 13, I'll walk through the remainder of the P&L line items. You'll notice for the nine-month period of fiscal 2019 we incurred a higher after tax loss relative to the year prior period. As we discussed last quarter, much of the difference in tax or tax losses between the two periods was due to two large noncash items during the prior period. The first was a large one-time non-cash income tax benefit due to changes in U.S. tax law. The other was a noncash gain due to a revaluation of our contingent consideration based on a reduction in expected future payments owed to a third party.Other drivers of the differences of the net loss, one of them to point out is an increase in finance costs when comparing the two periods as we've recorded interest expenses in the current period related to our non-dilutive capital inflows from Hercules and NovaQuest.Finally, a portion of the loss is due to an increase in investment in commercial manufacturing. This is being done to support the regulatory filing and potential launch of our GVHD product. We expect to continue invest in manufacturing in order to build inventory to support the potential commercial launch. We believe this will position us well as we execute on our upcoming milestones.For more information on the financial results, please see our recently filed reports with the SEC or on our website.I'd like to turn the call back to you Silviu.

[Silviu Itescu:]

Thanks Josh. If could move to Slide 15 please. Acute graft as a host disease is a significant market opportunity for Mesoblast and for our product candidate, remestemcel-L. The burden of illness for this disease is very significant with mortality rates as high as 90% in that 50% of patients who have great CD disease. There's only one approved treatment, for steroid-refractory disease in Japan. And there are no approved treatments, particularly for children outside of Japan.In Japan, our licensee JCR, has received the only product for approval in both children and adults. And their ability to sell and market this product and the adoption by the physician community in Japan, gives us very good insight as to how this product would be accepted in the United States. Globally, there are more than 30,000 allogeneic bone marrow transplants. And steroid-refractory GVHD in children and adults represents a very significant market opportunity driven primarily from the U.S. market.Slide 16 provides the significant burden of illness assessment of children with this very bad disease. And I think I would simply point out that this is, I think, a very conservative roadmap of the costs incurred by a large medical center in the U.S. for a child with severe graft versus host disease, particularly given the extensive in hospital, intensive care requirements.So based on our own qualitative U.S. market research on Slide 17, we believe we've got very significant value drivers for this product, which includes an excellent day 28 overall response rate, particularly in those hardest to treat great CD disease patients. We have excellent day 100 and day 180 survival rates. Very importantly, we have no evidence of any kind of major adverse events, including infections or other complications, typically seen with a whole range of immunosuppressive drugs. And we have a very large clinical dataset that supports what I'm saying in both terms of safety and efficacy.And finally, the ability to administer the drug both intravenously where there is no problems with oral uptake in patients who have severe gastrointestinal diseases and the ability to deliver the agent as an outpatient procedure, are major advantages to the hospital administrations.And when you go to Slide 18 and you see the typical product reimbursement that is being seen for both Biologics on the one hand, on the left-hand side Biologics that are branded immune – global immune-suppressants in a variety of inflammatory conditions. And on the right-hand side, innovative drugs taking advantage of advances in cellular immunotherapy, you can see that we believe that the value propositions by the results with remestemcel-L are substantial.We now go to Slide 19. I'd like to summarize some of the clinical data that is being generated to date. This slide summarizes the data from 241 children receiving remestemcel-L as salvage therapy following the failure of steroids and various immunosuppressive drugs under an expanded access program. The experience in these children was between 2007 and 2014 across North America and Europe, age range from two months to 17 years. The grading was Grade B to Grade D. But as you can see below about two thirds of the patients were Grade C and Grade D disease, the most severe forms.And what is immediately evident is that the response rate to an induction course of therapy over a four-week period was somewhere between 61% and 73% across all grades with an overall 65% main responder rate in all grades.Now Slide 20 shows you the relationship between day-28 overall response and survival through at least a 100 days. And what you can see as predicted from the outset, early response predicts a high degree of survival and survival at day-100 correlates with good survival beyond that to six months. And if you are alive through six months, then you've got a great chance of being alive for many years.Now that study was using remestemcel-L as salvage therapy and important to the physicians, to the agency and to us was the key question of given the safety of these cells relative to global immunosuppressants, would they be as effective when used as first-line off the steroids failed. And that was the whole hypothesis and basis of the 55 patient Phase 3 trial.So on Slide 21, is the protocol designed for the Phase 3 trial was a multicenter, single-arm open-label study, evaluating safety and efficacy of an induction protocol of multi-dosing of remestemcel-L over four weeks. With a primary endpoint of day 28 overall response and key survival endpoints at day 100 and day 180, the study enrolled 55 children from two months to 17 years. And you can see the disposition on Slide 21.Slide 22 is a summary of demographics of these children. The majority had been treated with chemotherapy for an underlying malignancy and as a result of the chemotherapy required an allogeneic bone marrow transplant to rebuild their immune systems.Slide 23 shows further disease characteristics reflecting the severity of the graft versus host disease. And I think what's most important here is that almost 90% of patients had Grade C/D disease at baseline. 47% of patients had Grade D disease, and these are the most severe forms that typically fell all therapies.If you look at Slide 24, this is data from the CIBMTR, the registry in the United States, published in Blood. And whilst more recent data have somewhat improved outcomes, pretty much the survival outcomes in Grade C and D disease continue to be as bad as you see here on this slide. So really Grade A and B or Stages 1 and 2, which are very similar, have long-term survival rates of about 90% and really at, whilst their diseases involving predominantly the skin, they don't seem to be severe diseases that impact on survival.However, you can see Grade C disease has 12 month survival of about 30% and the Grade D disease has a 12 month survival of as low as 10%. And I think those are the diseases that we are focusing our therapy on and where really, patients, physicians and payers are looking for something that really works.Now moving to Slide 25, what we are extremely excited about is that in these very, very advanced disease patients, we have seen a 69% overall response rate. And in particular, as you can see here, Grade C and D disease are even more likely to respond to our therapy than Grade B disease. Now that's not surprising because we know that the greater the inflammatory stimulus, the greater the response to ourselves. So this is exactly what we were hoping to see. And we're very pleased with this outcome. The pre-specified controls, protocol defined control was 45%. And so an overall response rate at day 28 of 69% or significant that p equals 0.0003 level, very significant.Moving to Slide 26, importantly we looked at how did day 28 response predicts survival for six months. And day 100 survival was overall 75% with 87% surviving if you are a responder at day 28. Day 180 overall survival was 69% with 79% overall survival if you're an early responder so clearly early response predicts long-term survival and a great outcome.Importantly also we – treatment with remestemcel-L was very well tolerated with no evidence of cell related infections or complications similarly to what may often be seen with global immunosuppressants. So we are very pleased about that. And importantly, the findings in this Phase 3 trial were very consistent to the findings previously reported in the 241 patient study where the drug was used as a salvage therapy.Slide 27 shows the Kaplan–Meier, survival curves, which I've just talked to, which I’m very pleased about it and are highly significant between responders and non-responders. And on Slide 28 is that overall regulatory and commercial strategy overview that allows us to take these data forward to the agency and beyond. The FDA agreed to a rolling review of that BLA submission using those clinical data. We have a fast-track designation that provides eligibility for prior to review of that BLA filing by the FDA.We are currently ramping up our inventory builds, our commercialization strategy is in place and continues to – our team is continuing to grow in place for product launch. We're building out an efficient target of sales force, which has to cater for about 15 centers which accounts for 50% of all patient transplants. And we are using the stem cell experience in Japan to inform our commercial strategy as we prepare for a potential approval and launch in the U.S.On Slide 29 is a summary of the way we see a comprehensive global program for remestemcel-L. And you can see here that we have a plan for filing on the base of that pediatric data for a pediatric approval. We have a confirmatory program planned for adults to expand the indication into the adult GVHD space. We have plans to move into the chronic GVHD market, which is an overlapping but perhaps almost as large opportunity as for acute GVHD.And then we have the opportunity for label extension for other indications in the U.S. market, in parallel with our partner in Japan as they continue to expand in the Japanese market, we will work closely with them to take cue and use as much data as we have as they have and use data for potential label extensions.Now I'd like to switch gears and talk about some of our other large programs in Phase 3. On Page 30 is a summary of our cardiovascular opportunity. And we've presented this slide previously. This is the way we see the evolving heart failure market. And we believe we fit into the terrain. Heart failure is a progressive disease of vascular endothelial dysfunction, as well as loss of muscle tissue and loss of cardiac function. Many drugs, generics and otherwise target in the field dysfunction particularly in early stage disease Class I, Class II, we believe that our product candidate MPC-150-IM or Revascor has a unique mechanism of action to reduce the severe inflammation and in the field dysfunction that is present in Class III and Class IV end stage patients. And we have focused in that segment of patient disease. Now heart failure is clearly a major epidemic in the western world. As many as 8 million patients today suffer with heart failure, we're targeting that sickest 15% to 20% segment where all existing therapies have failed.Slide 32 is a reminder to everybody about our Phase 2 data published in Circulation Research, which allowed us to identify an optimal therapeutic dose in patients with advanced heart failure and left ventricular patient, we identified the 150 million dose as being the most effective in terms of reducing left ventricular systolic volume and left ventricular end-diastolic volume over six months.On Slide 33, importantly, we were able to stratify patients on the basis of large systolic volumes at baseline and matched in this way, we shoved that our cells were even more effective in terms of reducing systolic volume and reducing diastolic volume and improving ejection fraction or rather preventing the further loss of ejection fractions. So this allowed us to identify that greatest benefit of our cells was much longer to be in patients with the most severe form of the disease with a larger systolic volume.And these data were supportive Slide 34, by Kaplan–Meier statistics looking at overall heart failure major adverse cardiac events, hospitalizations and deaths where again, you see that over a three year period a single injection of the 150 million does significantly protected or reduced or prevented these adverse events over three years compared to placebo. And in particular, this protective effect was maximal in those patients with systolic volumes of more than 100 mils at baseline. So on that basis, we progressed into Phase 3 with what we have felt is the appropriate dose and have identified patients who we think are at greatest risk and the most likely to respond to this dose.Slide 35 gives us a summary of where the Phase 3 trial is at. It's a one to one randomized controlled double blind trials conducted over 55 sites across North America. It's testing the 150 million cell dose versus control to an events-driven Phase 3 trial, it's enrolled 566 patients. The primary endpoint is a reduction in heart failure related major cardiac adverse events such as hospitalizations and deaths. Secondary endpoint is a reduction in terminal cardiac events. We’ve achieved about 85% of the targeted major cardiac events and we continue to accrue these primary endpoints and we will update the market when all events have been completed.Now end stage heart failure, Slide 36 represents a unique potential opportunity for an accelerated entry point of our product into those patients with heart failure who are the sickest the extreme end of the disease, who have a potential 50% mortality at 12 months on medical therapy and who being kept alive on an artificial heart called the left ventricular assist device, an LVAD approximately 4,550 to 5,500 patients a year are implanted annually in the United States. And really the potential growth of this market is in large part dependent on the ability to control adverse events such as infections, a major gastrointestinal bleeding, which is seen in up to 40% of these patients.If you go to Slide 37, we have now reported that in two placebo-controlled randomized studies, one a 30 patient pilot, the second 159 patients study, we have seen at a single injection of our cells into the left ventricle, at the time of a device implant significantly prevents these major gastrointestinal bleeds and recurrent hospitalizations. And you can see how similar the reduction in GI bleeding rates has been between these two studies were both demonstrated something like a 70% to 76% reduction in recurrence, major GI bleeding events over a six month period of time.And on Slide 38, you can see that in the recently reported 159 patient trial, this reduction in GI bleeding events was accompanied by the 70% reduction in hospitalizations from GI bleeding. And we think that's a very important outcome in terms of hospitalization usage and pharmacoeconomics benefits potentially of a single injection into these patients. On the basis of the data from the pilot trial, we received what's called the Regenerative Medicine Advanced Therapy designation from the FDA, an RMAT designation. We're very clear guidance that, achievement of reduction in gastrointestinal bleeding these patients was a clinically meaningful outcome that the FDA would see as important in terms of potential for approval.We have – we had a memorandum of understanding that we've entered into with colleagues at InCHOIR an NIH funded administrative body that we have an understanding that there will be a further trial put in place by the cardiothoracic network with using gastrointestinal bleeding as a primary endpoint to confirm the observations we have to date. And we intend to meet with the FDA midyear to put all the data in front of them that has been generated in the recent 159 patient trial and discuss the potential approval pathway for this product.Finally, if we can move to Slide 40, a summary of our other asset in Phase 3, MPC-06-ID for severe chronic low back pain. Again, this is a tremendous market opportunity for Mesoblast given the severity of the condition, given the large volume of patients who are suffering out there and given the terrible opiod epidemic that has engulfed western countries, including the U.S. and Australia. The burden of illness is substantial. The options for these patients are limited and the market potential for us is very large.To remind folks, Slide 41 on the excellent Phase 2 data we achieved. These will postop data that provided the target endpoints for our current Phase 3 trial. And just to remind you, the bar here is very high showing you that we achieved the threefold improvement in responders who received a single injection of that sells into the disc compared to a placebo injection and responders we defined as at least a 50% improvement in pain and it’s listed at least at 15 point improvement in function concomitantly within the same patient.Those endpoints for responders, the same as endpoints required by device manufacturers for spinal fusion and other disc replacement strategies from the FDA. So we were very pleased by those data at both 12 months and at 24 months. And these are the endpoints that we’re targeting in our current Phase 3 trial.Slide 42 summarizes this Phase 3 trial. It’s a three-arm study comparing saline injection against our NPCs with or without hyaluronic acid, all assessable patients have now being assessed at 12 months for pain and function. And we continue to collect that on these patients for 24 months. Needless to say that at least 50% of the patients today have already achieved, have already completed 24 months of follow-up. So the rest of the patients will be assistant continue to follow-up through the remainder of his this year.And finally Slide 43 of the anticipated milestones that are coming up in the calendar year. As discussed, of course, we’ll complete the BLA filing for remestemcel-L in GVHD. With respect to Revascor, we seek to complete the accrual of primary endpoints as quickly as possible. We are meeting with the FDA midyear to discuss the potential approval pathway for the product in end stage heart failure patients using GI bleeding is the primary endpoint and our cardiovascular partner in China Tasly continues to work towards in the Phase 3 program in China with potential guidance from the local regulatory authorities. Back pain asset will continue to accrue to follow their patients out through 24 months and we continue in discussions and the expect to have additional partnerships globally or regionally.Thank you. I think with that, I would like to open to questions.

[Operator:]

Thank you. [Operator Instructions] Your first question today comes from Mark Breidenbach with Oppenheimer. Please go ahead.

[Mark Breidenbach:]

Hey Silviu, good morning, and thanks for taking the questions and congrats on getting the rolling BLA submission started. Two quick – a couple of questions on the graft versus host disease program. Given that Ruxolitinib was recently approved here in steroid-refractory GVHD at least in the adolescents and adults. And there’s obviously going to be a, to some degree, an overlapping label in the future is remestemcel is approved. Can you just comment on what you think will primarily be driving a physician’s choice if they have multiple new options to choose from in steroid refractory graft versus host. Thanks.

[Silviu Itescu:]

Thank you very much. I think it’s a very important question. So I think I’d like to point out again that 89% of our Phase 3 trial was in Grade C/D disease. And we achieved 69% Day 28 overall response. Grade C/D disease continues to be the area where there’s a high mortality and where there is a need for effective treatment in the public presentations for Ruxolitinib, the responder rates for Grade C/D disease, we believe we’re up the order of 41% to 43%.So substantially lower than what we’ve achieved in our Phase 3 results. About 50% of patients, children and adults have Grade C/D disease. And I think that is the important area that needs of us, we’ll be focusing, particularly in adults where we believe that we will be first line after steroids in patients with such severe disease, given not just the efficacy, but the very, very good safety record of the drug.In terms of children in particular, safety is paramount. And the great experience that we’ve had with children and the safety dossier together with the efficacy that I just showed you, I think means that children in particular will receive these cells as first line after steroids. But look, we have on the line, while they stood in this field, professor Joanne Kurtzberg had really like – Joanne would you provide us with your view of, from a clinician’s perspective?

[Joanne Kurtzberg:]

Sure. Hi guys, I’m happy to be here. Yes, as a clinician who treats the children regularly, we would definitely go to MSC as the first line therapy after treat such a steroid-refractory in this. And also we – first of all, there’s no, I think toxicity with other agents were using with the Jakafi product and there is myelosuppression, leucopenia, thrombocytopenia, and these are children’s who just had a transplant or recovering their blood counts and they have unstable blood cancer to give them a drug that suppresses their blood counts at that critical stage is risky.In addition, children, particularly the children who are having diarrhea, they don’t want to take all medication and they don’t work of oral medication. And when you’re in that critical stage of the Grade C/D disease, you really want to give them the therapy. I really let you know got into their body and has a chance to have an effect. And totally – generally, in my hospital, I’m giving the IV medication is preferred. Going down in a year at a clinical point there, he’s got to get control with sort of tell me that.So the MSC still provide better vehicle of administration and more guarantee that the therapy will get delivered appropriately, a good – an excellent safety profile, no overlapping toxicities because they don't suppress blood counts, they don't suppress the immune system, they don't cause [indiscernible] toxicity, which is another clinical problem in these kids because of the other drugs they receive before the transplant. So, I think there's no question that, the doctors who are familiar with them, have seen them more, we'll go to the MSCs first. And maybe go to [indiscernible] response, that's going to be a much less likely situation to occur.

[Mark Breidenbach:]

Okay. Okay. That's actually very helpful. And as far as I understand it, Ruxolitinib is administered on top of a backbone of steroid therapy. The activity you're seeing with remestemcel-L as a single agent therapy or is that also on top of steroids in the steroid-refractory pediatrics.

[Silviu Itescu:]

I think – go ahead, Joan.

[Joanne Kurtzberg:]

No, I had trouble hearing the whole question. Can you repeat it?

[Silviu Itescu:]

The question was whether MSC is like a given in conjunction with steroids or after steroids are left with that steroids being on board.

[Joanne Kurtzberg:]

The usual scenario is, how it is developed is [indiscernible]truly give a few days of steroids, they either respond or they're getting worse or not responding and it’s at that point, as the energy taper with steroids, because those steroids have a whole set of its first reaction that make them not an ideal choice to continue. So these steroids are being used as the MSCs are given.

[Mark Breidenbach:]

Okay. Understood. And maybe one last one for Silviu and it might be too early to comment on pricing and reimbursement issues, but what would you expect remestemcel-L reimbursement to be fumbled with transplant costs in the U.S., or would you expect this to be reimbursed up early? Thank you.

[Silviu Itescu:]

Yes, I mean – clearly that it's a little bit early for us to address that with full information in hand, but given that we can get patients out of the hospital relatively fast. And certainly well ahead of completing the full week induction therapy that we would expect that it could be a combination of both bundling as well as out of hospital add on costs that would support the overall process.

[Mark Breidenbach:]

Okay. Well, thank you very much for taking the questions and congrats on the progress.

[Silviu Itescu:]

Thank you.

[Operator:]

Thank you. The next question comes from Jason McCarthy with Maxim Group. Please go ahead.

[Jason McCarthy:]

Hey guys, thanks for taking the question and congratulations on the progress. So for remestemcel-L like to see if you could give us a bit more color on how long we could expect the rolling BLA submission to take and then if you could remind us of the path towards expanding the label into the adult population.

[Silviu Itescu:]

Yes. So we expect to complete the filing process second half of this year. And then we have a fast track designation which enables us and we will seek a priority review, which then if accepted by the FDA means that there's a maximum of six month review process. The advantage of a rolling review is that as these modules go in there's an interaction with the agency that allows for an ongoing dialogue and question and answers that hopefully will further shorten the review process. What was the second question, Jason?

[Jason McCarthy:]

If you could give us an overview of the path to expand the label to include adults.

[Silviu Itescu:]

Sure. Well we're now pleased that there is a – at least one product that's available as an approved product and an immunosuppressive product in adults. I've said to you that the – our outcomes in great CD disease where there's a real need for survival benefit, we believe is excellent. And a relatively small trial, comparing against any approved standard of care would be focusing on great CD disease day 28 overall survival, showing we hope a superior outcome both on response day 28 response and overall survival at day 100, day 180. And we will be focusing on starting that program as soon as practicable.

[Jason McCarthy:]

Okay. Thank you. And then on Revascor and end-stage heart failure, you guys reduce GI bleed related hospitalizations by 65%. So my question is how does that transfer to total reduction in hospitalizations due to heart failure related events? As in like, how large is the burden placed on patients by GI bleeding in stage-4 heart failure.

[Josh Muntner:]

Yes. look, it's not stage-4 heart failure, right. It’s stage-4 heart failure, it’s end-stage heart failure with an LVAD in place. So these patients have a very unique trajectory. They don't have heart failure, they're being kept alive by pump that maintains pressures and takes all of the load off their existing heart that causes for hospitalization and not are all to do with cardiac. The hospitalization causes are due to primarily two major things, infections and GI bleeding. GI bleeding occurs in about, as I said up to 40% of patients are perhaps a little bit less than that with some improved new devices. But it is a major component of the hospitalization. We did not impact infection rates at all. That's not that – that is outside of the mechanism of action of the cells, but we did impact hospitalizations by about 65% from GI bleeding.And so the cost implications of hospitalization from bleeding has significant, but beyond that, there are also a barrier to the agreement of families and the patients to take on these devices. I mean, it’s a significant challenge when you’re in and out of hospital with major bleeding in intensive care requiring transfusions, to ask people to be agreeable to taking on that kind of lifestyle problem is a major barrier to the growth of this industry. And I think, if we can impact that through reduction of bleeding, reduction in hospitalizations, we will have a significant market opportunity.

[Jason McCarthy:]

All right. Thank you. And then just one more quick one on degenerative disc disease. I would like to know what sort of improvement in the VAS pain score we would need to see in order for it to be comfortable in terms of efficacy to other methods such as opioids or surgery.

[Silviu Itescu:]

Yes, look the bar that we have put is a 50% improvement in VAS score, right? These patients come in at VAS score zero to a 100 where that means VAS scores were around 70. So that’s a pretty severe pain score. Just to put into context opioids, improve pain scores from meta-analysis of opioid studies by no more than about 10 to 15 points. We are looking at a 50% improvement, which from a mean of 70, means that 35 point improvement.So if we’re successful in this study and we reproduce the data from our Phase 2 results, the data should be significantly superior to anything that’s been reported with opioids. But beyond that, we’re talking about a very safe technology. We have not seen any cellular adverse events to-date. There’s no risks of long-term abuse, et cetera, et cetera.So and the bar around that 50% reduction in pain is as high as any device for total disc replacement or surgery. And we’re talking about the very large patient population where maybe at most 5% over a three year period would even be candidates for surgery. So there’s a very, very large patient population segment that is dependent on opioids today that are not candidates for surgery. And given the high risks of opioids, in the very near future, we’ll have no alternatives other than the type of approach that we are providing or other innovative technologies.

[Jason McCarthy:]

Well, thank you very much and again, congrats in the progress on the BLA.

[Silviu Itescu:]

Thank you.

[Operator:]

Thank you. Your next question comes from Jeffrey Cohen with Ladenburg Thalmann. Please go ahead.

[Jeffrey Cohen:]

Well, hi Silviu and Josh. How are you?

[Silviu Itescu:]

Hi.

[Jeffrey Cohen:]

So I guess I have about three questions, one for Silviu. I guess I’ll start where you left off as far as the Phase 3 involved back pain you talked about with percent of patients that have thus far been completed. What do you expect for the next two or three quarters as far as data in the public domain? Do you expect any readouts or do expect any presentations?

[Silviu Itescu:]

Look, I think we want this trial to complete without any interim data readouts in order to maintain the integrity of the study as per our discussions with the FDA. We will be putting more of the Phase 2 data in the public domain both in manuscript form and in presentations. And I think we look forward to further disclosures in due course.

[Jeffrey Cohen:]

Okay. Got it. And then as far as some of the timing on the vascular for advanced heart failure, you indicated about 85% of the [indiscernible] already could we expect to see something out there in the public domain in the next couple of quarters as far as completion on the events or perhaps in some preliminary data of the conference later in the year.

[Silviu Itescu:]

So again what we’re seeing is that as patients are now three, four years out from initial enrollment. We’re seeing an increase in event rate as patients are progressing over time to end stage disease. And so we’re accelerating our event accrue, which is good. It means that we’ve got a high risk population that is having events and it will mean that we will be able to come close out this study in due course and perhaps sooner than we had anticipated, but we’ll just have to see how the next few months go.

[Jeffrey Cohen:]

Okay. And then lastly, a quick one for Josh, on the R&D for the quarter, it seems a little [indiscernible] million based in comparison to our estimates. Is that just a lumpiness in function or general trend or the timing of some of the patients on few of the trials?

[Josh Muntner:]

I solely due to speed of some of different expenditures that we’re making. So I would not necessarily be a trend into it.

[Silviu Itescu:]

I would add Josh that I think a lot of our spend was heavy previously in the ramp up of the Phase 3 trials in heart failure and back pain and those trials now winding down. So I think that reduction in R&D reflects that. I think what you’re going to see over time and have seen is a shift in spend from clinical R&D to manufacturing and the manufacturing is in building up inventory for aGVHD launch.

[Jeffrey Cohen:]

Okay. Perfect. That sounds great. Thanks for taking the questions.

[Operator:]

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

[Silviu Itescu:]

Again, I’d like to thank everybody for today. We are very excited as I said at the asset, this is historic for Mesoblast. Our first BLA filing has been initiated and we will update the market in due course as we progress with our submission and the plans for rollout. Thank you everybody.

[Operator:]

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