MESOBLAST REPORTS FINANCIAL RESULTS AND OPERATIONAL HIGHLIGHTS FOR THE THREE MONTHS AND FOR THE YEAR ENDED 30 JUNE 2016 Melbourne, Australia; and New York, USA; August 25, 2016: Mesoblast Limited (ASX: MSB; Nasdaq: MESO) today reported its consolidated financial results and operational highlights for the three months ended 30 June 2016 (fourth quarter of 2016) and year ended 30 June 2016 (FY16).

Mesoblast ended FY16 with cash reserves of US$80.9 million. The Company reduced its annual operating and investing cash outflows by 15% (US$16.4 million) to US$89.7 million for FY16 in comparison with the prior financial year. Additionally, Mesoblast outlined cost-cutting measures to further reduce cash burn by up to US$25 million in the year ended 30 June 2017 (FY17) in order to absorb the incremental costs of the heart failure program.

Mesoblast Chief Executive Silviu Itescu said: "During the past financial year, we have made a concerted effort to significantly reduce our cash burn and to apply our resources prudently to advance our Tier 1 product candidates towards major upcoming value inflexion points. Consistent signals of efficacy using our cells in the hardest to treat patient segments across multiple disease states continue to validate the disruptive potential of our platform technology."

Key Progress in Operations
  • Phase 3 trials in chronic heart failure (CHF) and chronic low back pain due to degenerative disc disease (CLBP) recruiting toward major milestones

  • Phase 3 trial in steroid-refractory acute Graft Versus Host Disease (aGVHD) recruiting towards completion

  • Positive Phase 2 trial in biologic refractory rheumatoid arthritis (RA) patients opens new blockbuster opportunity

  • Phase 2 trial results across multiple Tier 1 product candidates were highlighted in peer- reviewed publications and presentations

  • Manufacturing achievements in formulation and yield underpin future commercial rollouts

  • Continued expansion of our IP portfolio to 728 patents or patent applications across 72 families provides broad commercial protection for our cell based product candidates

    FY17 Outlook
  • Material steps taken to conserve cash and rebalance organization to focus on delivery of Tier 1 outcomes

  • Upcoming significant Phase 3 milestones for Tier 1 product candidates

  • With control of our valuable heart failure product candidate, the Company can refine the clinical pathway to global commercialization

  • Enhanced opportunities for partnering based on cumulative Phase 2/3 clinical results

  • Expanding US investor base provides additional liquidity

Financial Highlights

Mesoblast ended FY16 with cash reserves of US$80.9 million.

The Company reduced its annual operating and investing cash outflows by 15% (US$16.4 million) to US$89.7 million for the FY16 in comparison with FY15, primarily by decreasing Tier 2 expenditure, lower payments to 3rd parties and reduced employee costs.

For FY17 the Company expects to save a further US$20-25 million in operating cash outflows compared with FY16 in order to absorb the incremental costs of the MPC-150-IM program in FY17. Anticipated total trial costs for MPC-150-IM are approximately $13 million to the scheduled Interim Analysis in Q1 2017.

As previously announced, a fully discretionary equity facility has been established for up to $A120 million/$US90 million over 36 months to provide additional funds as required.

Operational Streamlining for FY17

As previously indicated in July, the Company has initiated a number of cost reductions in order to fund the incremental costs of the MPC-150-IM program in FY17.

Specifically:

  • Company labor force was restructured in July 2016 with a significant number of roles eliminated in line with focus on Tier 1 products

  • Third party vendor costs, consultancy costs and activities have been reduced

  • Reductions to office accommodation and laboratory space have been executed

  • Enrollment has been completed for our heart attack study using MPC-25-IC, reducing future expenditure on this Tier 2 program

  • Certain Tier 2 programs have been deprioritized (MPC-MICRO-IO and MPC-CBE)

    Operational Highlights

    Significant progress has been made in four Tier 1 clinical programs, with three in Phase 3 and one in Phase 2. Each of the three Phase 3 trials have major value inflexion points reading out in FY17. The CHF, RA and CLBP product candidates using the Company's proprietary allogeneic Mesenchymal Precursor Cells (MPCs) all have blockbuster potential and are well positioned to advance through strategic partnerships through confirmatory studies to registration. Mesoblast intends to take its product candidate for aGVHD, MSC-100-IV, to licensure directly.

    MPC-150-IM for Advanced Heart Failure:

    The Phase 3 trial for 600 patients with advanced heart failure is recruiting well across North American sites; as of June over 240 patients had been enrolled.

    After reviewing all clinical data for the first 175 patients in April 2016, the trial's Data Monitoring Committee recommended that the study should continue according to its protocol.

    Based on observed HF-MACE event rates in the trial to date, the Company has decided to bring forward to Q1 2017 a previously planned Interim Analysis to assess the trial's primary endpoint between cell-treated and control patients. Anticipated costs are US$13 million to this time point.

    Interim analysis results will provide evidence based support for strategic and scientific decisions regarding the Phase 3 program.

    MPC-300-IV for Biologic Refractory Rheumatoid Arthritis:

    The Phase 2 trial in biologic refractory rheumatoid arthritis has completed enrollment and results of the 12 week primary endpoint were released in August 2016. An intravenous infusion of allogeneic MPCs was well tolerated in biologic refractory RA patients, without serious adverse events over 12 weeks.

    A single intravenous MPC infusion in biologic refractory RA patients resulted in dose-related improvements in clinical symptoms, function, and disease activity, with the 2 million MPCs/kg dose providing the greatest benefit.

    The responses to date in this 48-patient, randomized, placebo-controlled Phase 2 trial provide support for the potential of Mesoblast's allogeneic MPCs to be positioned as first-line treatment option in RA patients who have previously received a prior anti-TNF or other biologic agent.

    MPC-06-ID for Chronic Low Back Pain Due to Degenerative Disc Disease:

    The current 360 patient Phase 3 trial is recruiting well across US sites. The FDA has provided written guidance, specifically:

  • Use of a composite primary endpoint is acceptable for approval

  • Agreed thresholds for pain (50% decrease in VAS) and function (15 point improvement in ODI)

  • Two time points (12 and 24 months) for meeting pain and functional improvement criteria

  • No intervention at the treated level through 24 months

    The Company intends to conduct an interim analysis in the Phase 3 trial in Q1 CY 2017.

    MSC-100-IV for Steroid Refractory Acute Graft Versus Host Disease:

    MSC-100-IV is currently being evaluated in a 60-patient Phase 3 registration trial in the US as first-line therapy after steroid failure in children with aGVHD.

    The open-label trial, if successful, will support filing of a biologic license application to the FDA for regulatory approval.

    The Company plans to conduct a futility analysis in Q4 CY 2016.

    TEMCELL® HS Inj.: Mesoblast's licensee in Japan, JCR Pharmaceuticals Co. Ltd. (JCR), launched its culture-expanded Mesenchymal Stem Cell product, TEMCELL® HS Inj., in February 2016 for aGVHD. It is the first fully-approved allogeneic regenerative medicine in Japan.

    Mesoblast is entitled to receive royalties and other payments at pre-defined thresholds of net sales, with first royalties recognized in Q3 FY2016.

    Selected Presentations and Peer Reviewed Articles
  • MPC-150-IM and MPC-300-IV: Phase 2 trial results in CHF and Type 2 Diabetes were published in leading peer reviewed journals, Circulation Research and Diabetes Care, respectively.

  • MSC-100-IV: Data from 241 children presented at the tandem annual scientific meetings of the Center for International Blood & Marrow Transplant Research and the American Society of Blood and Marrow Transplantation in Hawaii in February. These data were also presented at the third International Conference on Regenerative Medicine held within The Vatican in April.

  • MPC-06-ID: 24-month data were presented and received the 2016 Best Basic Science Abstract Award at the 24th Annual Scientific sessions of the Spine Intervention Society meeting in August.

  • MPC-75-IA: Results released from our Phase 2a trial in patients with post-traumatic knee injury to the anterior cruciate ligament, which showed that a single intra-articular injection of our MPC product candidate, resulted in improvement in pain, function, cartilage thickness, and joint structure over 24 months. The study results were presented at the 2016 Osteoarthritis Research Society International World Congress in The Netherlands in April.

  • Technology developed at Harvard University and exclusively licensed by Mesoblast was shown in a preclinical study, published in the journal Stem Cells, to enhance homing properties of mesenchymal lineage cells to sites of inflammation and to induce durable reversal of Type 1 diabetes.

    Financial Results for the Three Months Ended 30 June 2016 (Fourth Quarter of 2016)

    Loss before income tax increased by 12% for the fourth quarter of 2016 compared with the three months ended 30 June 2015 (fourth quarter of 2015). There were a number of significant non- cash items within this overall loss increase. However those which impacted our cash reserves were:

  • Revenue: Revenue was US$26.9 million for the fourth quarter of 2016 compared with US$4.2 million for the fourth quarter of 2015, an increase of US$22.7 million. This increase was primarily due to the non-cash recognition of US$22.5 million of deferred revenue in this period as we regained full world-wide rights from Teva on our product candidate MPC-150-IM in June 2016. Included in the increase was royalty income earned on sales of TEMCELL in Japan since the launch of the product on 24 February 2016 by our licensee, JCR, which is offset by a decrease in interest income as we increased the proportion of cash reserves held in US dollars to reduce currency risk.

    All deferred revenue amounts are non-cash. Our cash reserves experienced a net reduction in relation to receipts from revenues in the fourth quarter of 2016 compared with the fourth quarter of 2015 of US$0.2 million as the increased royalties were more than offset by the shortfalls in interest income receipts.

  • Research and Development: Research and development (R&D) expenses were US$14.4 million for the fourth quarter of 2016 compared with US$18.5 million for the fourth quarter of 2015, a decrease of US$4.1 million. This decrease primarily reflects a reduction in expenditures of our Tier 2 products and product support costs as management reduced costs in line with our corporate strategy.
  • Manufacturing Commercialization: Manufacturing commercialization expenses were US$7.7 million for the fourth quarter of 2016 compared with US$7.0 million for the fourth quarter of 2015, an increase of US$0.7 million. This increase was primarily driven by an increase in the number of production runs to meet the clinical supply demands of our Tier 1 products and preparing the facility for commercialization.
  • Management and Administration: Management and administration expenses were US$5.8 million for the fourth quarter of 2016 compared with US$8.3 million for the fourth quarter of 2015, a decrease of US$2.5 million. This decrease was primarily due to a savings in labour and associated costs and a reduction in consultancy expenses as management reduced costs in line with our corporate strategy.

The overall loss reduction before income tax also includes reductions in items which did not impact our current cash reserves, such as: fair value remeasurement of contingent consideration, impairment of intangible assets, foreign exchange movements within other operating income and expenses and finance costs.

Our net profit attributable to ordinary shareholders was US$48.3 million, or US 12.78 cents earnings per share, for the fourth quarter of 2016, compared with a net loss of US$30.6 million, or US 9.24 cents losses per share, for the fourth quarter of 2015.

Mesoblast Limited published this content on 25 August 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 24 August 2016 23:39:06 UTC.

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