Mesoblast Ltd Q4 FY2025 Earnings Call

Hello, and welcome to the Mesoblast Financial Results for the Full Year Ended June 30, 2025. An announcement and presentation have been lodged with the ASX and are also available on the home and investor pages at www.mesoblast.com. 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.

Good afternoon, good morning. Welcome to the Mesoblast financial results and operational update for the full year ended June 30, 2025. I am Silviu Itescu, Chief Executive of Mesoblast. Joining me are Andrew Chaponnel, Interim Chief Financial Officer, and Marcelo Santoro, Chief Commercial Officer. Let’s proceed to Slide 4, which presents a snapshot of our company profile. Mesoblast has an FDA-approved product, Ryoncil, the first and only FDA-approved mesenchymal stromal cell therapy in the United States. We hold over 1,100 patents and patent applications globally for our platform technology. We are also advancing two additional assets in Phase III trials, have FDA-approved commercial scale manufacturing capabilities, and have developed a U.S. commercial organization. Moving to the next slide, our platform technology is built on a shared mechanism of action that applies across all our products. Our mesenchymal lineage stromal cells are activated by multiple inflammatory cytokines via surface receptors, leading to a cascade of anti-inflammatory effects due to various factors secreted by these cells. This underpins our products that target major inflammatory diseases. Next slide, please. This slide outlines our mesenchymal stromal cell product portfolio, featuring two platform technologies: remestemcel-L, our first-generation technology, and rexlemestrocel-L, our second-generation technology. Ryoncil, our flagship product approved for pediatric steroid-refractory acute graft-versus-host disease and launched last quarter, is based on the remestemcel-L platform. It is also being developed for adult steroid-refractory acute graft-versus-host disease and inflammatory bowel disease. The rexlemestrocel-L technology utilizes monoclonal antibodies to isolate purer and more homogeneous cell populations, currently in Phase III for inflammatory chronic heart failure and chronic low back pain related to intervertebral disc inflammation. More about that later. Next slide. This slide shows the annual market opportunity for our product portfolio. Ryoncil, the first FDA-approved MSC therapy, is available for treating children with acute GvHD and has potential for label extension in adults with severe acute GvHD, representing an approximate $1 billion market. Biologic refractory inflammatory bowel disease also holds more than $5 billion in potential market. The potential market for chronic heart failure with reduced ejection fraction through our rexlemestrocel-L product exceeds $10 billion, while chronic low back pain similarly has an annual market opportunity of over $10 billion. Additionally, we have several multi-billion dollar opportunities from both current and future products based on our technology platforms. Next slide. We are very pleased with the successful launch of Ryoncil thus far. In December 2024, it became the first FDA-approved MSC product in the United States, becoming commercially available on March 28, 2025, just a quarter after receiving FDA approval. Since its launch, we have partnered with 32 transplant centers across the U.S. and aim to onboard the top 45 centers by the end of this quarter, which account for 80% of pediatric bone marrow transplants in the country. Coverage for Ryoncil continues to grow, now reaching over 250 million lives in the U.S. insured by various payers, including Medicaid, which was mandated for coverage on July 1 of this year. Next slide, please. Now, let's discuss our financial results for the period ending June 30, 2025. Next slide. Here are the financial highlights for this year: Revenue from cell therapy products was $17.2 million, an increase of 191% compared to the previous year. We are thrilled that this revenue growth was fueled by the successful launch of Ryoncil in the last quarter of the year, generating $13.2 million in gross sales and $11.3 million in net sales after a 14.6% gross-to-net adjustment. Our net operating cash spend for the year remained at $50 million, similar to the prior year, despite investments for the commercial team's development and product launch efforts. As of June 30, we had $162 million in cash, or AUD 247 million. I will now have Andrew elaborate on some details regarding our financial performance.

Thanks, Silviu. Next slide. Turning to Slide 11. We have the financial results for the year ended June 30, 2025. All numbers are reported in U.S. dollars. Total revenues from cell therapy products are up 191% on the prior year. Cost of revenues related to product sales were $1.2 million, which is 10% of net product sales and a gross margin of 90%. Additionally, cost of revenues also included $3.9 million of expenses related to non-cash amortization of the intangible value of our prior MSC asset acquisition. Selling, general and admin expenses were $39.3 million for FY 2025, an increase of $14.3 million on FY 2024. This increase related to our commercial team build and product launch. For revaluation of contingent consideration, we recognized a loss of $14.9 million in FY 2025, a non-cash revaluation of potential future third-party payments. The revaluation of warrant liability as a result of FDA approval of Ryoncil and the consequential share price appreciation resulted in us recognizing a warrant remeasurement loss of $5 million in FY 2025 compared to a gain of $0.8 million for FY 2024. Back to you, Silviu.

Thank you. Let me guide you through our progress with Ryoncil for children suffering from acute graft-versus-host disease. This therapy is the first and only mesenchymal stromal cell treatment approved by the FDA. More than 30,000 allogeneic bone marrow transplants are performed worldwide, with 10,000 to 12,000 of those occurring in the U.S., where about 20% of the transplants are for pediatric patients. Approximately 40% to 50% of transplants, in both children and adults, result in acute graft-versus-host disease, a serious condition impacting the skin, gut, and liver, with severe liver and gut manifestations leading to a mortality rate of 70% to 90%. About 50% of patients with acute graft-versus-host disease do not respond to steroid treatments. For the pediatric population, Ryoncil is currently the only FDA-approved option. The results from our pivotal Phase III trial supporting Ryoncil's approval are summarized here. In this study involving 54 patients across multiple centers in the U.S., the primary endpoint of day 28 response rate was 70%. Nearly 90% of the participants had severe forms of the disease, typically unresponsive to other treatments and associated with high mortality. Follow-up studies conducted by the International Blood and Bone Marrow Transplant Research Registry demonstrate that despite the severity of their conditions at baseline, nearly 50% of these patients survived four to five years after treatment, with only 14% dying from acute graft-versus-host disease. This indicates that the initial positive response seen in most patients can lead to long-term survival and essentially a cure for the disease. It's crucial to recognize that for patients with graft-versus-host disease who ultimately succumb to the condition, the treatment costs, including expenses for intensive care, are significant. Children who receive our therapy and can be discharged from the hospital cost approximately $1.8 million less than untreated children with acute graft-versus-host disease who ultimately die, representing a considerable cost saving per patient. The advantages of Ryoncil extend beyond pediatric graft-versus-host disease, as we have a clear strategy to broaden its usage in adult patients with the same condition. Many of the sites that have started using Ryoncil for children also conduct adult bone marrow transplants. Our compassionate care program actively provides Ryoncil to adults with steroid-refractory acute graft-versus-host disease who have not responded to alternative therapies. Patients in this adult group exhibit a high non-responsiveness rate to second-line treatments, such as ruxolitinib, with survival rates of only 20% to 30% at 100 days following failed treatments. However, in our compassionate care cohort of 25 patients aged 12 and older who either failed ruxolitinib or other second-line therapies, survival at 100 days was recorded at 76% with Ryoncil use. We recently consulted with the FDA to discuss the design of a pivotal trial for Ryoncil in adults facing severe acute graft-versus-host disease. Our intention is to pursue a pivotal study combining Ryoncil with approved second-line therapies like ruxolitinib for patients classified as having severe steroid-refractory graft-versus-host disease. This trial will be managed alongside the NIH-funded Bone Marrow Transplant Clinical Trials Network. Our goal is to extend Ryoncil’s label from children to adults, thereby reaching a population approximately three times larger than the current pediatric market. In addition to adults with acute graft-versus-host disease, we aim to explore other inflammatory indications for Ryoncil. Conditions such as inflammatory bowel disease, especially ulcerative colitis and Crohn's disease, represent significant areas of interest, considering over 3 million individuals in the U.S. are affected by these disorders. Annually, there are around 38,000 new cases of ulcerative colitis and approximately 33,000 new cases of Crohn's disease diagnosed. There exists a considerable unmet medical need, with about 30% of patients not responding to biologic treatments, which can often lead to surgical interventions. Currently, there is a pressing requirement for therapies that promote early and sustained remission to prevent long-term complications and surgeries in these patients. Local administration of mesenchymal stromal cells has been shown to be both safe and effective in patients with inflammatory bowel disease. A pilot study in Europe evaluated the use of mesenchymal stromal cells in patients with ulcerative proctitis, with outcomes demonstrating marked improvement in clinical and endoscopic scores after six weeks of treatment. Furthermore, the local administration of Ryoncil in biologic-refractory extensive colitis has shown promise in a pilot study, resulting in significant clinical and endoscopic responses by week six. The notable reduction in inflammation over this period highlights Ryoncil's potential as an effective treatment option in this patient population. With these encouraging results, we plan to launch a pivotal study of Ryoncil aimed at achieving early remission in patients suffering from medically-refractory inflammatory colitis, and we will keep the market updated on this initiative. Next, I would like to discuss our second-generation product, rexlemestrocel-L, which focuses on treating chronic low back pain caused by degenerative disc disease. This condition affects over 7 million people in the U.S. and often leaves patients with limited treatment options, particularly those who have not seen improvement from standard care or anti-inflammatory drugs. The opioid crisis is a serious concern, as a substantial proportion of opioid prescriptions are made for chronic lower back pain. There is an urgent demand for effective and lasting pain relief to mitigate reliance on opioids. Our previous Phase III trial showed promising outcomes with a single injection of rexlemestrocel-L. Data indicate significant pain reduction for up to 36 months following treatment, contrasting starkly with the static outcomes seen in placebo participants. Regarding heart failure with low ejection fraction, this remains a critical area due to its growing prevalence and associated risks. Over 60% of patients with chronic heart failure also have underlying ischemia, placing them at heightened risk for recurrent adverse cardiac events. Our Phase III trials have demonstrated that we can significantly improve patient outcomes and reduce mortality rates in those experiencing inflammation. Our data show a marked decrease in the severity of conditions and risk of mortality over a five-year follow-up period. Following discussions with the FDA, we have received guidance suggesting that our comprehensive trial results may warrant an accelerated approval pathway under existing RMAT designation. We have aligned on necessary items to support our biologic license application for Revascor, including chemistry, manufacturing controls, and design of confirmatory trials. Finally, our corporate milestones for the forthcoming year include the initiation of registration trials for Ryoncil in adult patients with graft-versus-host disease and studies on inflammatory colitis. For chronic heart failure, we are preparing for an accelerated filing for Revascor, and we are also actively enrolling participants in a confirmatory Phase III trial of rexlemestrocel-L for chronic low back pain. I appreciate your time and would now like to open the floor for questions.

Your first question today comes from Ted Tenthoff with Piper.

Congrats on all the progress. Really excited to see Ryoncil sales coming off. I wanted to get a sense from you guys, you laid out how the opportunity in adults is larger. How long do you think it might take for label expansion and to run that Phase III trial?

Thanks, Ted. I think you asked how long it might take for label extension to in adults. So the objective is to commence an adult acute GvHD trial this quarter. We are working with the Bone Marrow Transplant CTN group, which is an NIH-funded organization. They will conduct the trial under their auspices and will provide the product. We will contribute to funding. The objective is to add our product on top of existing second-line agents, ruxolitinib being the only approved therapy in patients with severe disease, those patients with Grade C/D disease where ruxolitinib does not adequately address the requirement of these patients, where we think that our product will substantially add to the early responses and overall survival. We expect to initiate the study this year, and we'll come back with specific dates and duration.

Great. And then just can you give us a little more color on how the back trial, the Phase III chronic lower back pain trial is coming?

This represents a significant opportunity for us and an urgent unmet need, particularly concerning disability and chronic pain, as well as the potential to develop a product that can alleviate or completely eliminate pain in patients for at least 2 to 3 years from a single injection. It's also crucial to note that around 40% of patients in this demographic are compelled to use opioids as their only option. Being able to help patients avoid opioids is extremely important right now. In our initial Phase III trial, we observed that three times as many treated patients discontinued opioids compared to the control group, even though they were instructed not to alter their medication during the trial. This gives us optimism about achieving similar results in our current study. We have been expanding the study over the past few months by increasing the number of sites, and we are currently nearing 40 sites enrolling participants across the U.S. As we add more sites, enrollment has been improving. We have made several modifications to the protocol design to refine the enrollment criteria, and we are currently on track with enrollment. There are no safety issues, and since the trial is double-blind, we don't have specific insights into its progress. However, we are confident that we will finish enrollment by the end of this year or in the first quarter of next year. We are eager to expedite the study as much as possible. After the last participant is enrolled, there will be a 12-month follow-up period to assess the primary endpoint of pain at that time.

The next question comes from Olivia Brayer with Cantor.

Congratulations on a really strong start to the launch. Are you guys able to disclose how many monthly treatment kits have been administered to date? And what can you tell us about inventory dynamics here? Was any of this net revenue actually related to inventory? And as you think about going forward with the launch, what level of inventory will you typically have to maintain going forward? And then I've got a couple of follow-up questions, if you don't mind.

Sure. So the way we treat the kids is on a weight band basis. And so we have infusion kits that are all priced at the same price, but they have progressively greater product per kit. Our inventory is constantly stocked to meet the needs of children at every weight band as we treat kids that might be a 20-kilogram child and that gets replenished. If it's a 50-kilogram larger child, then that kit gets replenished. We continue with each child that gets treated; they would typically be treated for 8 to 12 kits for infusions. As each infusion goes out, we replenish. Typically, we send 2 kits per week per child. So that's how we keep stocking our inventory, if that makes sense. Does that make sense, Olivia?

Yes, that does. Can you disclose how many treatment kits you guys have actually administered so far?

It's quite simple. We're very transparent. Each kit has its cost, which you are aware of. We have also shared our gross to net adjustments. Therefore, you can take the total gross to net and divide it by the price per kit to determine how many kits we've sold.

Okay, perfect. Helpful. And then you mentioned the gross to net dynamics, how do you expect those to evolve as the launch progresses or should they be pretty stagnant? And then one final question, just maybe a follow-up on the adult GvHD trial design. Will there be a subset of Jakafi-naive patients or will the entire study really be Jakafi-refractory patient population for the adult?

Yes. So with respect to gross to net, we expect that to be pretty stagnant, pretty flat. That's the sort of number that we've given you today is what we expect it to stay at. With respect to the adult trial, we've decided not to go to Jakafi-refractory patients, but rather on top of Jakafi. The reason for that is that it provides us with the largest possible market entry. So in second line, in other words, straight after steroids where Jakafi is currently approved in patients with Grade C/D disease or Grade 3/4 disease, which is about 50% of the Jakafi-treated patients, day 28 response is only about 50%. In other words, 50% of patients do not respond to Jakafi. That's the market opportunity. We believe that adding our cells on top of Jakafi in all patients with severe disease will have a major impact and a major increase in the proportion of patients who achieve response at day 28. Again, if you're a responder at day 28, you're likely to be a long-term survivor with our cells. This is an opportunity to really make a major impact on severe patients as early as possible and make ourselves available to the largest possible patients who need it.

Your next question comes from Elyse Shapiro with Canaccord.

Are you planning to disclose more details from your FDA minutes regarding the adult study now that you have them? Additionally, are there any unexpected changes in trial design, or will it be similar to the Jakafi trials?

I think we updated through our release today and our slides, a summary of our discussions with the FDA. The FDA and Mesoblast are aligned. We are in agreement that we want to see the product used as early as possible in the most severe adult population. That is the patient population who is on Jakafi with Grade C/D disease where Jakafi only helps around 50% of patients; the other 50% don't respond. Rather than waiting for these patients to fail Jakafi, where the survival is an abysmal 20%, the best way to provide ourselves is in combination with Jakafi in these patients as soon as they're diagnosed so that we would like to increase the responder rate from, say, 50% to 80% or more. That will be the objective, right? And that allows our product to be used as early as possible in the most severe patients, which is a market size that's about 3x the current pediatric addressable population. And that's where we'll be going into in the pivotal trial.

Got it. Understood. And then just good to see a bit more of a focus on IBD. I guess, what are the timelines to more detail on what a trial would look like? And do you need to do any additional kind of dose-finding work before commencing a pivotal registrational study?

So we've got a KOL group that's been assembled. These are experts in trial design and they've managed and run trials of the latest innovative therapies for ulcerative colitis and Crohn's disease, both in the U.S. and in Europe. These key opinion leaders are putting together right now the best possible trial design. We may use both local delivery of Ryoncil as well as intravenous delivery in order to aim to achieve rapid remission as early as week 6 to week 8 in patients who are otherwise refractory to other biologics. Remission remains the challenge. Remission remains a target that is not well addressed by any of the biologics. In fact, the best available therapy in ulcerative colitis achieves a remission rate of only about 20%. So there's a very large unmet medical need. Our trial design is being worked on and we'll update the market this quarter.

Great. And just one more question, if I may. Looking at the number of kits that have been sold, do you know if they are all being used for pediatric GvHD or could they also be used for other indications?

We cannot determine the exact usage of the product for acute GvHD compared to other indications, as physicians have the discretion to decide which patients are most suitable for Ryoncil treatment. We collaborate closely with institutions as they enroll patients, and we are aware of those with acute GvHD being treated across the country. There have been cases where children with acute GvHD have lacked proper housing or insurance, and we provide the product free of charge in those situations. We also have a compassionate care program for adults, where the product is available on a case-by-case basis as needed. Generally, our product is mainly used on-label for pediatric acute GvHD, which is federally reimbursed and covered by most state Medicaid programs as well as the majority of commercial insurance. However, we do not have additional transparency regarding individual physician usage.

Your next question comes from Michael Okunewitch with Maxim Group.

Congrats on a great start to the launch. I guess to start off, I'd just like to see if you can give us a sense of how the initial sales were distributed over the period? Were they weighted more towards the back end? I'm trying to get a sense of what sort of revenue trajectory we can expect going into the second half of calendar year '25.

Yes. Look, I think it's a little bit early to make projections right now. We've only had really 1 quarter of sales that we're reporting. So it's early. The commercial team has done a fantastic job in terms of getting insurance coverage, getting sites onboarded, getting us on formulary. I certainly expect that over the coming quarters, we're going to see continued strengthening of sales. But to provide guidance is a little bit early. Marcelo, would you like to add?

Yes. No, Silviu, I think it's a good question, and thank you. I think you mentioned that, right? So we're very pleased with the feedback that we've received so far from multiple treatment centers and the healthcare providers we serve right around. It's certainly already making a meaningful impact in the treatment of these children. The performance to date, especially for the first quarter alone from launch has been outstanding, I would consider not only compared to our own expectations, but also when you benchmark that against other successful rare disease launches. Of course, I mean, I think we're all focused on building the infrastructure. You mentioned that in terms of payers, in terms of onboarding, that is needed to ensure that we continue to reach our full potential. So yes, I mean, while we do expect growth, we also recognize that this baseline work is super important for our future performance.

All right. And then just one more for me and I'll hop back into the queue. I wanted to get a sense, in particular, in the context of the changes that we've seen at the FDA over the past 6 to 12 months. What sort of feedback have you gotten on the potential for a filing in heart failure based on your existing body of data? Have you gotten any additional follow-up since you last disclosed to the market?

Yes. We had a terrific meeting, and clearly, there was agreement on all of our manufacturing, our potency assays, which are really important given all of the learnings that we had with Ryoncil. I think getting alignment on that is really important ahead of a filing. Another important issue is that we have total alignment on what a confirmatory study of somewhere between 250 to 350 patients would look like with an endpoint that aims to reduce MACE events and mortality in patients with the greatest risk for MACE events. So we're very pleased with the interactions with the FDA and we're working diligently to get our documents in.

Your next question comes from John Hester with Bell Potter.

Just a quick question there on market access and this might be one for Marcelo. What work is left to do with market access in terms of Medicare in the various states across the U.S.? And are you sort of halfway there or can you give us some sort of sense of your remaining market access activities?

Marcelo, would you like to address that? I think the short answer is…

Yes, I'm happy to share that we have made significant progress. We are already well established on the payer side, thanks to the hard work of our team. We have engaged with more than 97 payers on clinical and value discussions. Ryoncil is now covered by insurance plans that represent over 250 million lives across both commercial and government sectors. Notably, Medicaid coverage is available nationwide as of July 1. Additionally, commercial payer support has been strong, with all major players, including Aetna, Cigna, United, Anthem, Humana, and the Blue Cross Blue Shield companies, offering favorable coverage policies for Ryoncil. Importantly, these policies do not require step therapy, greatly simplifying patient access. All of this has been achieved within the first six months after launch. To further enhance reimbursement, a specific J-Code for Ryoncil will go into effect on October 1, which will allow for more efficient billing for our customers and payers, along with the published rates from CMS. This is crucial as we advance, and October is approaching quickly.

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

Well, thank you, everybody, for being on this call. We are extremely, extremely excited and pleased by the way things have gone this whole year, actually, the fact that this has been a banner year for the company. We've received approval. We are the only company that has an FDA-approved mesenchymal stromal cell therapy in the U.S. and we're extremely pleased by the first quarter results. We will continue to work hard. We've got a growing commercial team in the United States, and we hope to continue to provide sales and updates to the market that continue to give the confidence as we transform this company from an R&D company to a fleet-footed commercial biotech organization. Thank you very much, everybody.

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