On November 16, 2018 Mesoblast Limited (ASX:MSB; Nasdaq:MESO) reported strong financial results and provided operational highlights for the first quarter ended September 30, 2018 (Press release, Mesoblast, NOV 16, 2018, View Source;item=o8hHt16027g9XhJTr8+weNRYaV9bFc2rMd0Q/AXw4zsnDXGHIhg1Zo6OdZ/mQ8xDmNwG+8nCjWUi3+8AQHHPCXcVikgZW6js6ORaqvd2+bjcttGnteaZ9Jpj4yScdpgCNFAltwkTyd4RE/yXEZRb1w==&cb=636779123550696247 [SID1234531524]).

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Key financial results for the three months ended September 30, 2018 (first quarter FY2019)
• Significant increase in revenues to US$11.6 million in the first quarter FY2019, compared with US$1.2 million in the first quarter FY2018
• 66% increase in commercialization revenue from royalty income on sales of TEMCELL1 HS. Inj. for the quarter, compared with first quarter FY2018
• Reduction in operating cash outflows in first quarter FY2019 of US$0.8 million (4%) compared with first quarter FY2018
• Loss after tax increased by $12.5 million compared to the first quarter FY2018, $10.1 million of which is due to non-cash remeasurement of contingent consideration in the comparative quarter
• Pro-forma cash on September 30, 2018 was US$95.1 million including:
o US$55.1 million balance sheet cash, and
o US$40.0 million from Tasly Pharmaceutical Group (Tasly) received in October 2018 in relation to the strategic cardiovascular partnership in China announced in July 2018
• An additional US$50.0 million may be available under existing arrangements with Hercules Capital and NovaQuest, subject to achievement of certain milestones.

Corporate Highlights
• Results of a 159-patient randomized placebo-controlled Phase 2 trial, sponsored and conducted by United States National Institutes of Health (NIH), evaluating MPC-150-IM in the treatment of end-stage heart failure patients implanted with a left ventricular assist device (LVAD) were presented at the 2018 American Heart Association Scientific Sessions.
• The trial succeeded in achieving the clinically meaningful outcome of reduction in gastrointestinal (GI) bleeding and related hospitalizations
• Results confirm the previous pilot trial, which also demonstrated significant reduction in GI bleeding and related hospitalizations in MPC-150-IM treated LVAD patients
• Pilot trial results formed the basis for the FDA Regenerative Medicine Advanced Therapy (RMAT) designation granted in December 2017
• The RMAT designation under the 21st Century Cures Act aims to expedite the development of regenerative medicine therapies intended for the treatment of serious diseases and lifethreatening conditions
• Company intends to meet with the FDA in 1H CY2019 to provide full study data and discuss pathway to potential Biologics License Application (BLA) filing using reduction in GI bleeding and related hospitalizations as an approvable regulatory endpoint
• While the trial did not meet the overall primary endpoint of temporary weaning, MPC-150- IM treatment did significantly improve weaning in the 44% of patients with chr
• Mesoblast’s Phase 3 trial of its product candidate remestemcel-L in children with steroidrefractory acute Graft Versus Host Disease (aGVHD) demonstrated strong survival outcomes through Day 180. Mesoblast is preparing for a pre-BLA meeting to initiate filing of a marketing authorization for this product candidate in the United States.
• Mesoblast expanded its partnership with JCR Pharmaceuticals Co. Ltd. (JCR) for the treatment of wound healing in epidermolysis bullosa (EB). Having been granted Orphan Regenerative Medical Product designation for EB in October, JCR now intends to seek a label extension for TEMCELL in Japan for EB beyond its existing approval for the treatment of aGVHD.
• Mesoblast completed its transaction with Tasly to establish a strategic cardiovascular partnership in China. In addition to US$40 million received on closing the transaction, Mesoblast is eligible to receive up to US$25 million on product regulatory approval in China, double-digit escalating royalties on net product sales as well as six escalating milestone
payments upon the achievement of certain product sales thresholds in China.

Operational Highlights and Anticipated Upcoming Milestones
MPC-150-IM for Moderate to Advanced Heart Failure:
• The ongoing Phase 3 trial received a recommendation in October 2018 from the unblinded Independent Data Monitoring Committee to continue without modification after an evaluation of clinical safety data in the first 526 randomized patients. MSC-100-IV (remestemcel-L) for pediatric steroid-refractory acute Graft Versus Host Disease
(aGVHD):
• Mesoblast will seek a pre-BLA meeting to initiate filing of a marketing authorization for remestemcel-L in the United States, where there are currently no approved therapies for aGVHD.
• An existing Fast Track designation from the FDA allows eligibility for priority review and a rolling BLA review process.
MPC-06-ID for Chronic Low Back Pain:
• Mesoblast’s Phase 3 trial in patients with chronic low back pain who have failed conservative therapy completed enrollment in March 2018, with a total of 404 patients across 48 sites being followed out for evaluation of treatment-related improvement in pain and function.
Financial Results for the Three Months Ended September 30, 2018 (first quarter FY2019) (in U.S. Dollars)
• Revenues were US$11.6 million for the first quarter FY2019, compared with US$1.2 million for the first quarter FY2018, an increase of US$10.5 million. These revenues primarily consisted of:
o US$1.5 million in royalties and milestones from sales of TEMCELL by our licensee in Japan, JCR Pharmaceuticals Co. Ltd. Royalties from TEMCELL increased by 66% for first quarter FY2019 compared with the first quarter FY2018
o US$10.0 million milestone revenue in relation to establishing a strategic cardiovascular
partnership with Tasly in China
• Research and Development expenses were US$18.5 million for the first quarter FY2019, compared with US$15.4 million for the first quarter FY2018, an increase of US$3.1 million (20%) as the Company invested in its Tier 1 clinical programs
• Manufacturing expenses were US$4.3 million for the first quarter FY2019, compared with US$0.9 million for the first quarter FY2018, an increase of US$3.4 million due to an increase in manufacturing activities in preparation for filing the Biologics License Application (BLA) for MSC100-IV
• Management and Administration expenses were US$5.6 million for the first quarter FY2019, compared with US$5.0 million for the first quarter FY2018, an increase of US$0.6 million (12%) primarily due to increased legal and professional fees associated with establishing the strategic cardiovascular partnership with Tasly
• Finance Costs of US$2.6 million in interest expenses were recognized in first quarter FY2019 in relation to loan and security agreements entered into with Hercules Capital in March 2018 and NovaQuest Capital in June 2018. No interest expense was recognized in the first quarter FY2018

Additional components of loss after income tax also include movements in other items which did not impact current cash reserves, such as: fair value remeasurement of contingent consideration, and foreign exchange movements within other operating income and expenses.

A non-cash income tax benefit of US$0.7 million was recognized in the first quarter FY2019 in relation to the net change in deferred tax assets and liabilities recognized on the balance sheet during the period. On December 22, 2017, the United States signed into law the Tax Cuts and Jobs Act (the Tax Act), which changed many aspects of United States corporate income taxation, including a reduction in the corporate income tax rate from 35% to 21%. In the first quarter FY2018 deferred tax assets in the United States were recognized at 35% compared with 21% in the first quarter FY2019.

A non-cash income tax benefit of US$2.9 million was recognized in first quarter FY2018 in relation to the net change in deferred tax assets and liabilities recognized on the balance sheet during the period.

The net loss attributable to ordinary shareholders was US$19.5 million, or 4.07 cents loss per share, for the first quarter FY2019, compared with US$7.0 million, or 1.58 cents loss per share, for the first quarter FY2018.
1TEMCELL HS Inj. is a registered trademark of JCR Pharmaceuticals Co. Ltd.
Conference Call Details
There will be a webcast today on the financial results beginning at 4.30pm on Thursday, November
15, 2018 EST; 8:30 am on Friday, November 16, 2018 AEDT.
The live webcast can be accessed via
View Source
To access the call only, dial 1 855 881 1339 (U.S.), 1 800 558 698 (toll-free Australia) or +61 2 9007
3187 (outside of the U.S. and Australia). The conference identification code is 667811.
The archived webcast will be available on the Investor page of the Company’s website:
www.mesoblast.com