Earnings Call Transcript - MESO Q2 2023

Silviu Itescu, CEO

Thank you very much, operator. Good afternoon, good morning to everybody. Thank you for joining us on the operational highlights and financial results for the second quarter fiscal year 2023. If we could go to Slide 4, please. On the call with me today is Andrew Chaponnel, our Interim CFO; and Dr. Eric Rose, our Chief Medical Officer. Slide 4 is a snapshot of the investment highlights for the company. We have a novel allogeneic cell therapy platform that allows us to develop off-the-shelf allogeneic medicines based on our proprietary mesenchymal stromal cell platforms to treat patients with severe inflammatory conditions without the need for donor matching or immunosuppression. A lead product candidate is remestemcel for steroid-refractory acute graft versus host disease in children. The remestemcel BLA was resubmitted to the FDA on January 31 of this year. Rexlemestrocel, our second lead product, is being developed for two indications: chronic low back pain and heart failure with reduced ejection fraction. For chronic low back pain, the first Phase 3 trial has been completed, and RMAT was granted by the FDA during this quarter, and the program is progressing towards initiation of a second pivotal Phase 3 trial commencing midyear. Rexlemestrocel for heart failure with reduced ejection fraction has also completed its first Phase 3, and we have previously had RMAT granted by the FDA for patients with end-stage heart failure with an LVAD implanted. Today, I can announce that the Phase 3 trial DREAM heart failure for rexlemestrocel in patients with Class 2/3 disease has been published in the Premier Cardiovascular Journal, Journal of the American College of Cardiology. In terms of finances, we have approximately $7.6 million in annualized revenue from royalties on sales of our mesenchymal stromal cell products. We have $67.6 million in cash and up to an additional $40 million from existing financing facilities subject to certain milestones. Let's go to the next slide, Slide 5, please. This slide shows a snapshot of our late-stage clinical pipeline. I have just talked to the lead indications for remestemcel and GVHD, rexlemestrocel in chronic discogenic back pain and heart failure with reduced ejection fraction, and there are several other indications for remestemcel that we are pursuing, including acute respiratory distress syndrome and inflammatory bowel disease, those are with clinical collaborations and investigator-initiated studies. Next slide, please. Our proprietary stromal cell technology platform allows us to have very well-defined stromal cells with well-characterized mechanisms of action, potency assays, batch-to-batch consistency, and reproducibility. Our capability to manufacture these cells allows us for scalable production and off-the-shelf therapeutics. We have a very strong IP estate that underpins compositions of matter, methods of manufacturing, and indications. Next slide, please. Now, I would like to move to our financial results, and Andrew Chaponnel will take you through these. If we can go to Slide 8, please.

Andrew Chaponnel, Interim CFO

Thanks, Silviu. The financial highlights for the second quarter are on Slide 8. So revenues from royalties on sales of TEMCELL in Japan by our licensee were $1.9 million for the second quarter ended December 31, 2022. On a constant currency basis, sales for the quarter ended December 31, 2022, were $2.1 million compared with $2.3 million for the quarter ended December 31, 2021. Net cash usage for operating activities in the second quarter FY 2023 was $16.5 million. This represented a 9% reduction of $1.7 million on the second quarter FY 2022 and a 46% reduction of $14.1 million on the second quarter FY 2021. At December 31, 2022, cash on hand was $67.6 million, with up to an additional $40 million that may be drawn from existing financing facilities subject to achieving certain milestones. Turning to the next slide, I’ll take you through the components of our improved loss before tax for the quarter. Our revenues are predominantly from royalties on sales in Japan by our licensee. Our R&D expenditure was reduced by $2.5 million or 25%, down to $7.7 million for the quarter ended December 31, 2022. Our R&D expenses primarily supported preparations for the remestemcel BLA resubmission and preparations for pivotal studies for rexlemestrocel as clinical trial activities have been reduced. Continued investment in manufacturing activities to support the potential commercial launch of GVHD. On FDA approval, $30.4 million of remestemcel pre-launch inventory will be recognized on the balance sheet. In relation to finance costs, they include $5 million of noncash expenditure for the quarter ended December 31, 2022, comprising accrued interest and borrowing costs. Now, I’d like to turn the call back to Silviu.

Silviu Itescu, CEO

Thanks, Andrew. If we could now go to Slide 11. The remainder of the slides will focus on operational activities for our lead indications. Slide 11 demonstrates the unmet need for children with steroid-refractory acute graft versus host disease. This is a devastating complication of an allogeneic bone marrow transplant and is associated with mortality rates as high as 90%. Approximately 1,500 children in the U.S. alone undergo an allogeneic bone marrow transplant. And as many as 50% will get steroid-refractory acute graft versus host disease, of whom 50% will respond and the rest will not respond. Go to Slide 12. The new data that were comprised in the BLA resubmission are outlined on this slide. We’ve generated new data that shows remestemcel’s treatment benefit in high-risk disease activity and survival. In propensity matched studies of children in the previously completed Phase 3 trial and in controls, stratified by validated biomarkers for high-risk disease. We’ve presented data on new long-term survival outcomes of the children who were enrolled in the Phase 3 trial showing durability of treatment effect for at least four years. We’ve generated new analyses of data from the Phase 3 trial and from the Expanded Access Program, showing that the validated potency assay in place during the Phase 3 trial actually reflects the primary mechanism of action of remestemcel in children with steroid-refractory GVHD and correlates with the product in vivo bioactivity and predicts overall survival outcomes. Finally, we’ve also presented in the BLA new data showing that the validated potency assay now has low variability and can adequately demonstrate manufacturing consistency and reproducibility. Next slide, please. In an investigator-initiated study at Mount Sinai in New York, the use of validated biomarkers for assessment of treatment effect in severe steroid-refractory GVHD children demonstrated that remestemcel treatment resulted in significantly greater day 28 overall responses on the left-hand slide and day 180 survival on the right-hand slide in those children who were matched for biomarkers for the highest risk of disease. The biomarker that was used here is called MAP. MAP score above 0.29 is a validated biomarker for very severe disease and, in fact, appears to be more sensitive in identifying severe disease patients than its clinical severity score that has otherwise been used previously. We can go to the next slide. This is a Kaplan-Meier analysis of children in the Phase 3 trial, GVHD001. In children treated with the best available therapy in the MAGIC database, the children were matched on the basis of clinical grades as well as on the objective biomarker score of MAP greater than 0.29. In this highest risk category of patients, you can see a very significant improvement in overall survival through six months in those who received remestemcel in blue compared to those who received maximal available standard of care in red. Next slide, Slide 15. This slide is a summation of the three trials performed to date and the short-term survival benefit of remestemcel in matched controls where available. In a randomized controlled trial in protocol 280 from some years ago, children who received remestemcel had 79% day 100 survival compared with children who received the best available care. In our open-label Phase 3 trial study 001, 89% who had severe Grade C/D disease, day 100 survival was 74% compared to 57% in propensity-matched children from the MAGIC cohort, matched for the same inclusion criteria as the children in 001. In the larger Expanded Access Protocol with children who received remestemcel salvage therapy, day 100 survival was 66%. Of course, we had no controls overall for this whole study. However, in an earlier analysis with the CIBMTR database just in Grade D patients, there was a 51% day 100 survival compared to 31% survival in children with Grade D disease treated with the best available therapy. If we can go to the next slide, data that we recently published and presented at the Tandem Meeting demonstrated survival out to four years now in children from the GVHD001 study. In this table, we show the one-year, two-year, three-year, and four-year survival, in blue, of children from this study and highlighted as well our long-term survival outcomes in various studies in the literature. MacMillan et al. is a study exclusively in children, only 22% of whom had Grade 3/4 disease, and it’s a single-center experience through two years. The other four studies are all in adults. As you can see, the one-year survival in our children from the 001 study was 63%, which was substantially higher than the one-year survival in each of the published literature studies. Similarly, with the two-year survival being 51% relative to the studies that have been published in children and adults. After two years, we see stable, long-term survival for at least four years of those who were alive at two years, who continue to maintain long-term survival. Next slide, please. This Slide 17 shows side-by-side the published data from MacMillan et al. on the left-hand side in children with steroid-refractory acute GVHD treated with the best available therapy, demonstrating an overall survival of just 35% through two years. In comparison, you can see that the two-year survival of children treated with remestemcel in steroid-refractory disease had 51% survival through two years. Next slide. Now let’s move on to rexlemestrocel. This is being developed for both chronic low back pain due to inflammatory degenerative disc disease and for low ejection fraction heart failure. In terms of the CLBP program, go to Slide 19, this continues to be, of course, a very large unmet need with as many as seven million patients across the U.S. and an additional number in the EU being refractory to maximal available therapy and potentially benefiting from this type of an approach. Slide 20 now shows the patient journey from conservative therapy to potentially opioid analgesics to interventional therapy. The target population for us are those that fail conservative treatments. The objective, of course, is to avoid opioids and to avoid interventional therapeutics. Next slide. Page 21. We were very pleased last month to be notified that we’ve received Regenerative Medicine Advanced Therapy designation for rexlemestrocel in the treatment of chronic discogenic low back pain. The benefit of RMAT designation is that it provides all the benefits of breakthrough and fast track designations, including the rolling review and eligibility for priority review on filing of the biologics license application, and is specific for cell and gene therapies as opposed to small molecules. The RMAT was based on the data in the Phase 3 trial that was provided to the FDA. The key elements of that Phase 3 trial involved a single injection of rexlemestrocel together with a hyaluronic acid carrier into the lumbar disc causing pain, resulting in significant reduction in pain relative to saline controls at both 12 months and 24 months across the entire study population of 404 patients. The pain reduction was maintained through at least 36 months and was also seen in the subset of patients using opioids at baseline, with 168 patients in the rexlemestrocel group having substantially greater reduction at all time points compared with saline controls. Importantly, among patients on opioids at baseline, despite instructions to maintain existing therapies throughout the trial, by 36 months, 28% were able to come off opioids compared with only 8% of saline-treated controls. We hope to be able to demonstrate this as an objective in the next study. Next slide, please. Slide 22 presents further analysis of the pain data, where we saw that the maximal reduction in pain in this Phase 3 trial was in those patients who had a duration of pain for less than the median for the whole study, which was 68 months. You can see here that there was a very significant reduction in pain from baseline by the cells together with the HA carrier at each of 12, 18, 24, and 36 months in red compared to the saline treatment controls in green. Next slide. On that basis, we’ve had discussions with the FDA and have alignment on what the pivotal Phase 3 study would look like. It would seek to replicate the data I’ve just shown you, aiming to reduce pain at 12 months as a primary endpoint in patients with a duration of pain for less than five years. The RMAT designation for this program means that we’ll be able to have frequent interactions and further input from the FDA, and we expect to commence this pivotal trial by the middle of this calendar year. Next slide. Our rexlemestrocel is also being developed for the large unmet need of patients with chronic heart failure and reduced ejection fraction. Slide 25 shows that the unmet need continues to be very large despite a number of new medications that have been approved for patients with heart failure. Mortality continues to be very high and approaches 50% at five years, at least 75% after initial hospitalization. Patients with heart failure are also at high risk of recurrent major adverse events, including heart attacks and strokes, both of which contribute to mortality as well as progressive worsening heart failure. This is where the largest unmet need continues to be. Next slide. In terms of the patient journey, we believe that a single intervention with our therapy can provide a substantial difference in the natural history of this disease, all the way from Class II to Class III to end-stage heart failure patients. We have data that has addressed these diverse patient populations. Move on to Slide 27. Today, we are very pleased that the outcomes of the DREAM heart failure trial, a double-blind, randomized controlled study in 537 patients who received rexlemestrocel or sham and were followed for over 30 months, was published in the premier cardiovascular Journal, Journal of the American College of Cardiology. This is the largest cell therapy trial that has ever been performed, and certainly the longest follow-up in any study using cell therapy. The key findings that were published showed that the rexlemestrocel-treated patients demonstrated improvement in left ventricular ejection fraction at 12 months to a far greater extent than the placebo patients, and the maximum benefit and strengthening of the left ventricle, as measured by ejection fraction, was seen in patients with active inflammation. Secondly, rexlemestrocel reduced the risk of a heart attack or stroke by 57% in all treated patients and by 75% in patients with inflammation. Thirdly, rexlemestrocel reduced the risk for time to first major adverse cardiac event, defined as cardiovascular death or heart attack or stroke, by 28% in all patients over the 30-month mean period of follow-up and by 37% in patients with inflammation. It’s important to note that these large reductions in major risks come on top of maximal standard therapy that all patients were offered in both treatment and control arms. We’re very excited by these data, and they certainly support the potential efficacy of this therapeutic that’s changing the natural history of this disease. Next slide. The significant need is clearly there in terms of mortality and major adverse events. The data that have just been published demonstrate the potential of this approach, particularly, mechanistically linking improvement in left ventricular strength at 12 months by ejection fraction with the long-term major outcomes. Inflammation appears to be the major determinant of response to our therapy, as would be expected with an immunomodulatory therapy. We expect to meet with the FDA over the next quarter to discuss the pathway forward towards marketing approval under the existing RMAT designation. On that note, I want to thank you for listening to us and open it up for questions.

Operator, Operator

Thank you. Your first question comes from Edward Tenthoff with Piper Sandler.

Edward Tenthoff, Analyst

Thank you very much. Thanks for the update and congratulations on all the progress recently. I want to get a better understanding regarding the recommission of BMI, when can we expect a response by the FDA. Would you anticipate an advisory committee? Thank you very much.

Silviu Itescu, CEO

Thank you. Look, the FDA is working towards their own timelines, obviously. The COVID pandemic has made things difficult and has clearly stretched timelines. However, we’ve had dialogue, interactions, and questions and responses, and it’s an active process. We’re pleased with where we are in terms of the process itself. Under the existing fast-track designation, there is a requirement for a six-month maximum review period from the date of filing. We do not expect that there will be another panel review since we’ve already had a panel the first time around, and you may recall that there was a 9:1 vote in favor of approval by the experts who are selected as part of that panel. We’ll certainly update the market in due course.

Edward Tenthoff, Analyst

Awesome. And then I was pleased to see the DREAM study get published. What are expectations and plans for rexlemestrocel in heart failure, either in terms of partnering or initiating a pivotal trial after discussions with the regulatory agencies? Thank you.

Silviu Itescu, CEO

Now that the randomized controlled study has been published in a major peer-reviewed journal, it provides validation for both our discussions with the agency as well as with strategic partners. We do have an RMAT for the sickest, most severe patients with heart failure, those on an LVAD. I would expect that we will continue to have those discussions with the FDA around the most direct path for the product towards approval, either in a high-risk, very high-risk segment or in the broader Class II/III population.

Operator, Operator

Your next question comes from Chen Louise with Cantor.

Unidentified Analyst, Analyst

This is Wayne for Louise. Thanks for taking my questions and congratulations on all the success this quarter. The first question I have for you was that I know there has been a lot of focus on the BLA resubmission, and it’s probably too early to draw any conclusions. But how should we think about the pricing and peak sales potential for remestemcel in aGVHD? My second question is for modeling purposes, how should we think about the OpEx in the third and fourth quarters and then in 2024? Thank you.

Silviu Itescu, CEO

Yes. I think, look, it’s probably a little bit early to talk about pricing and reimbursement. There’s a lot of activity by the company in interfacing with key opinion leaders, payers, and other stakeholders as we move forward. It’s reasonable to think about CAR-T cell therapies for similar patient populations, such as children with ALL, as an appropriate comparator, just given the complexity of the disease that we’re treating with the complexity of the technology. Sorry, would you mind repeating the second question?

Unidentified Analyst, Analyst

Second question is on the OpEx. How should we think about the OpEx for the third quarter and fourth quarter, given I think you mentioned...

Silviu Itescu, CEO

No, look, I think we’re very careful in how we’re managing our expenses. We are staging our spend and ramp-up in terms of commercialization step by step, as you would expect us to do. In general, we think that our quarterly spend has been relatively stable for the past six to 12 months. I would expect that we continue to be in the same sort of OpEx.

Operator, Operator

Your next question comes from Swayampakula Ramakanth from HCW.

Swayampakula Ramakanth, Analyst

Thank you. This is RK from H.C. Wainwright. A couple of quick questions. On the GVHD study, when you showed us some data, you were using MAP as a biomarker. In your conversations with the FDA, do they also see this as a validated biomarker? I’m just trying to get a feel for that. Also, on Slide 16, when you’re comparing patients as Group C and D from your setting, is that the same as Group 3 and 4? I’m just trying to understand why it's named differently.

Silviu Itescu, CEO

Yes. The clinical scaling – there are two major clinical grading scores. There’s the CIBMTR grading score. This relates to your question about Slide 16. The CIBMTR grading score is grades B, C, and D, whereas the Glucksberg clinical score is Grades 2, 3, and 4, but they effectively represent the same degrees of severity. That’s important to note. The MAP score is a very well-validated and extensively published biomarker that appears to be more sensitive in identifying those patients at highest risk for non-response and death than either the CIBMTR or the Glucksberg clinical scale. That’s the reason it’s being used by investigators and in various trials to provide an objective measure of disease severity. The problem with the clinical grading score is that it has the potential for bias by individual investigators and hospitals that have different standards of care. Using a biomarker like the MAP score, which has been validated predominantly in adults with severe disease, but to a lesser extent also in children, mitigates the potential bias from clinical observation.

Swayampakula Ramakanth, Analyst

Thank you. And then on the rexlemestrocel for chronic back pain. I know you gave us some idea of how the second Phase 3 is going to look. But in terms of the patient population, when we are thinking about patients who have less than five years of back pain, what sort of population are we thinking about? I just want to ensure that anybody who has less than five years is eligible for getting into your trial.

Silviu Itescu, CEO

Yes. The patient enrollment criteria are patients who have moderate to severe discogenic pain with radiographic evidence of a principal lesion, let’s say MRI showing degeneration of a lead disc like L4-L5 or L5-S1, etc., and at least six months of unremitting pain that has not responded to conservative therapy, including opioids. The patients who fall into that category, within, say, the first five years, have active inflammation, immune-mediated inflammation and pain that is very much out of proportion to the radiographic degeneration or functional disability. That’s why we think that ourselves are best suited to be used in that first five-year window when there’s active inflammation, where we can actually interrupt the inflammatory cycle and prevent the natural history of destruction and ultimately, fibrous replacement of the disc.

Operator, Operator

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

Silviu Itescu, CEO

Thank you, everybody, for joining us today. We’re very excited about the progress across each of our major lead indications: graft versus host disease, back pain, and heart failure, and we look forward to updating you all very shortly on continued progress. Thank you.