TWST

+++++++++++++++++++++++++++++++++++++++++++++++++++++++The Wall Street Transcript - March23, 2020TWST:Could you tell me about the company?Dr.Itescu: Mesoblast is a publicly listed biotechnology company listed on theAustralian Securities Exchange and Nasdaq. We are developing a number ofproducts based on a platform technology using allogeneic mesenchymal lineagecells, which have a well-characterized mechanism of action that allows them tobe used in diseases with severe inflammatory dysregulation. These cells areable to modulate the aberrant immune responses characterized through a numberof major disease states. We are developing product candidates using thismechanism of action to target those diseases that remain refractory to existingstandard of care.As a company, we haveidentified the areas of priority for us. We have one product candidate that isin a very advanced stage for the treatment of steroid-refractory acute graftversus host disease, and that has completed Phase III trials successfully. Wehave completed a BLA — biologics license application — filing with the FDA forapproval of this product in children. The same product has already beenapproved and launched by our partner organization in Japan — JCR — where it hasbeen available for the last three years. And it has been used widely, safelyand effectively, which provides us with great confidence in how this productshould be approved.Sitting behind thisproduct, we have two other products that are currently in the midst of PhaseIII. They will each have a data readout later this year: a product for advancedchronic heart failure and a product for severe inflammatory back pain. Both ofthese diseases are driven by severe inflammation. And again, the underlyingmechanism of action of the cells provide the rationale for why we think that wehave products to address these unmet needs.TWST:Could you talk about the specific illnesses, the one that involves children andthe others?Dr.Itescu: Certainly. Graft versus host disease — GVHD — is a devastatingcomplication of a bone marrow transplant in people who otherwise have been welltreated with chemotherapy for leukemia and various blood cancers. When youattempt to cure the underlying leukemic process with chemotherapy, the highdoses of chemotherapy result in wiping out the bone marrow. And in order toreconstitute the normal elements of the bone marrow, patients undergo a bonemarrow transplant from an unrelated individual. The unfortunate complication ofthat is the unrelated bone marrow sees the body as foreign and attacks it, andthat disease process is called acute graft versus host disease. It primarilyinvolves the skin, the gut and the liver and the staging of the diseasereflects those organs.Patients with skindisease respond reasonably well to existing therapies, but when the attackinvolves the gut and the liver — otherwise known as stage C/D or grade 3/4 disease— unfortunately the mortality rates approach 90%. And so for those patientswith this devastating complication, steroids are usually ineffective, and thereare no other drugs approved in children with this complication. There is a drugapproved in adults, but it does not work very well at all in grade C/D or 3/4disease in adults either.So our cells areparticularly effective in the most severe forms of this complication, and weknow that because they have been used in over 309 children, used either assalvage therapy after every other biologic has failed or when used as they werein our Phase III trial as first-line after steroids have failed. The resultshave been terrific in terms of overall responses at day 28 and overall survivalthrough six months. In this condition, if you are alive through six months, youare effectively cured of the disease. It is a terrible condition, and we hopethat our data is sufficiently robust to support an FDA approval process.With respect to ourheart failure product candidate, heart failure is a major epidemic in theWestern world. There are as many as 6.5 million people in the U.S. today withheart failure. Whilst there are lots of generic drugs, ACE inhibitors, betablockers and some new drugs developed by several pharmaceutical companies, allpatients at some point move from early-stage disease — called Class I/IIdisease — toward the most severe states of the disease, Class III and IV. Atthat point, they have cycled through and have failed to adequately respond tothe various drugs that are out there, and once they get to Class III/IVdisease, there is nothing else that works in terms of reducing the recurrenthospitalization rates and the high mortality.The high-mortalityClass III and IV disease really starts to be as high as for many cancers, andwhat causes patients to progress from Class I to Class IV disease isprogressive severe inflammation in the heart. That inflammation, again, is as aresult of an aberrant immune response. Multiple arms of the immune system areactivated, and the cytokines produced by these cells result in progressivedebilitation of the heart — fibrosis — which results in hospitalizations anddeath, and that is where we are targeting.In addition topatients with Class III and IV disease, we are also targeting end-stage heartfailure, where we believe that a single injection of our cells can sufficientlyswitch off the inflammatory process to allow the myocardium to strengthen andto reduce the complications of hospitalizations and deaths. That is therationale for that particular indication.In terms of the thirdmajor focus, inflammatory back disease, this is another big problem in theWestern world, with as many as really 3 million to 4 million patients in theU.S. and the same number in Europe with inflammatory destruction of the disc —intervertebral disc — that translates into chronic severe pain that isunresponsive to nonsteroidal anti-inflammatory drugs. The only thing that cantide patients over is chronic use of opioids. In fact, the opioid crisis in theU.S. and elsewhere is in large part due to prescriptions for inflammatory backpain, with some 50% of opioid prescriptions for patients with severe refractoryback pain due to disc degeneration.We know that opioidswork fairly inefficiently in this condition, and we know that patients tend totake more and more and higher and higher doses of opioids in order to have animpact on the severity of the back pain. If we had something that went to thecore of the problem, which is inflammation within the disc, then the objectivewould be for durable reduction in pain and improvement in function andhopefully a reduction in use of opioids. We are focusing on this area becauseit is a major unmet need, and we think that this well-characterized mechanismof action has a real strong possibility of offering benefit.TWST:Then, one of the common themes is that inflammation plays a central role ineach of the areas.Dr.Itescu: Correct.TWST:Maybe you could detail that a little bit more. And could you talk about themanufacturing process?Dr.Itescu: Damaginginflammation is known to cause a number of diseases in patients. It is really aresult of an excessive immune response to try to compensate for an underlyingdisease that is progressive. This immune response is driven by macrophages — Tcells and B cells — multiple cellular arms of the immune system that are revvedup effectively. But there is a limit to how much benefit you get frominflammation versus the excessive tissue destruction that is a byproduct of theinflammatory response. And that’s where our cells come in.Our particular cells —mesenchymal lineage cells — sit around blood vessels in every major tissue, andtheir role in life is effectively to respond to two things: to abnormalinflammatory signals and to reduce blood flow, or hypoxia-ischemia. They havereceptors on their surface or major inflammatory cytokines, like TNF, IL-1,IL-6, IL-17. Those are the cytokines that at different arms of the immunesystem produce as part of an immune response to tissue damage. They areactivated by these various cytokines, and when they are activated through thespecific receptors on our cells, they release other factors that turn off theimmune cells themselves in a way that switches off the aberrant immuneresponse, so it curtails it. So they service as counter-regulatory cells; thatis what they do.Secondly, because itis sitting around blood vessels, if there is a vascular abnormality such as inheart disease or potentially stroke or other tissues that have insufficientblood flow, they also respond to ischemia by releasing other factors thatimprove blood flow. You can see a common mechanism here, where our cells arethe regulators of an aberrant inflammatory immune process and regulators ofblood flow, or tissue ischemia.TWST:What have been some of the challenges that you faced in the history of thecompany? And what are some of the challenges in the future?Dr.Itescu: Ithink with any new platform technology, you have a number of barriers. You haveto be able to manufacture to scale. You have to show that you can meetregulatory expectations with consistency and reproducibility. You need to dothe appropriate large clinical trials to generate evidence-based outcomes ofefficacy and safety. You have to have a strategic plan as to where these newtherapies fit into the patient management plan. We were aware of those factorswhen starting out with a whole new platform technology.I would say it isexactly the same with a CAR-T therapy for cancer. From the outset, byunderstanding the mechanism of action of the cells, you can understand the typeof disease we should be targeting. You then look at those diseases, you say,“Where is the unmet need, and what is the segment of the patient population?”Almost every time, it turns out to be the segment that is at the most extremeend of the disease, where traditional small molecules — and let us saymonoclonals, which typically target a single pathway — do not work.The whole advantage ofour cells is that they work in terms of the effect that they produce. They areable to simultaneously affect multiple pathways. So by definition, theunderlying mechanism itself positions us to target the most refractory, sickestsubsegments of major diseases. That is how we would look at each of thesedisease states. If we succeed, we make a major impact. Obviously,manufacturing, regulatory and clinical trial design all come into it, and Ithink that Mesoblast has successfully navigated through all of those factors.In terms ofmanufacturing, which I was touching on earlier, we have an industrialized,scalable manufacturing process. From individual donor source material, we areable to substantially scale and make thousands of therapeutic doses that alllook the same, that have the same release criteria, potency assays,characteristics to ensure that each product that is cryopreserved and frozenand shipped to supply chain from the manufacturing side to the end user meetsthe same rigorous release criteria and reproducibility that you would expectfrom any drug.That is importantbecause it provides the confidence that clinical trials will be meaningful. Itwill give us data that we can be confident around because of the consistency ofthe product. But equally as important, it provides the comfort to regulators suchas the FDA that we have a process that we can control well and that eachproduct looks the same and is safe. At the end of the day, as a commercialcompany, we need to be able to verify that to the patients, to the stakeholdersand to the regulators.TWST:And I understand too that your company’s off-the-shelf products are allogeneic,so cells from a single donor can be used in different recipients without theneed for matching. Could you talk about that?Dr.Itescu: Yes, that is unique to this type of cell. This cell is lackingco-stimulatory molecules, which are normally necessary for the immune system torecognize and respond, so they do not activate the immune system and,therefore, can be used across genetic boundaries. Using our media, they can bequickly grown up and expanded in very large numbers. They are ideal to use froma single donor to treat literally thousands of unrelated recipients.So unlike CAR-Ttherapies, which are patient-specific autologous, our therapies are alloff-the-shelf allogeneic. That is unique to their cell type and allows us toscale and manufacture large batches of reproducible products from individualdonors. Now, each of our Phase III programs has products made from differentdonors to ensure that there is no donor-to-donor variability, and this hasalready been verified.At the end of the day,the final batch of products that goes out the door is the same no matter whichdonor it came from, but very few donors are needed for us to make very largenumbers of therapeutic doses for our commercial needs. This is a very scalableand efficient manufacturing process. Moreover, we have proprietary technologiesdeveloped using serum-free media and the use of bioreactors as it allows toscale up to much higher levels — as and when the commercial requirement arises— so that we are not in any way constrained by manufacturing.TWST:More generally, when you look at the sector that is involved with the adultstem cell platforms, do you want to talk about some of the wider trends that aregoing on now?Dr.Itescu: These technologies are company-specific, product-specific,disease-specific. I think all I would say is that there is an evolution fromsmall molecules toward cellular therapies, and I think it is reallyunderstanding the depth and the breadth of a specific technology that allowsyou to make intelligent assessments of potential and commercial success. ReallyI don’t see this as an industry trend; it is really some companies and theirtechnologies are going to be wildly successful, and many others are not.TWST:And what would you like investors to know about the company?Dr.Itescu: I think we are a dominant player in terms of the mesenchymal lineagespace. We have over 1,000 patents that cover compositions and manufacturing andways of using the cells with various disease types. We have invested heavily inmanufacturing and clinical development, and now in commercial sales andmarketing. We hope to have the first approved product in the U.S. market usingmesenchymal lineage cell technology platforms. Our licensee has the firstproduct in Japan.We will continue to bethe leading force in these off-the-shelf cellular platforms for regenerativemedicine. And we have just begun, I think, to see the clinical benefits ofthese products. I would expect this year will be a big year for us. Ifeverything goes well, we will have a first product approved and launched in theU.S. market and will look to build a franchise around that first product withmultiple indications that we think the product will be useful for beyond GVHD.I think this is a time of great excitement for Mesoblast and for our investors.TWST:Thank you.