On August 29, 2018 Mesoblast Limited (ASX: MSB; Nasdaq: MESO) reported strong financial results and provided operational highlights for the fourth quarter and full-year ended June 30, 2018 (FY2018) (Press release, Mesoblast, AUG 29, 2018, View Source;item=o8hHt16027g9XhJTr8+weNRYaV9bFc2rMd0Q/AXw4zuUTg0en/KcdBeB2D1sLj6Fbyn5ENYG5XNUdL3rSn0pv9WSqmIFGBCnRAZzXYrb5+0yHyicskiI8tpFjx5wkbFPabblqYsBIUXG2jDVPS2SRw==&cb=636711765071461253 [SID1234529757]).
Key financial results for the 12 months ended June 30, 2018
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• Revenues significantly increased to US$17.3 million in FY2018 compared with US$2.4 million in FY2017
• Commercialization revenues from sales of TEMCELL1 HS Inj. in Japan increased by 152%
• Significant reduction in loss after tax by US$41.5 million (54%) to US$35.3 million in FY2018 from US$76.8 million in FY2017
• Substantial reduction in operating cash outflows in FY2018 of US$20.5 million (21%) compared with FY2017
• Pro-forma cash on June 30, 2018 was US$116.8 million including:
o US$37.8 million balance sheet cash
o US$39.0 million from NovaQuest Capital Management through a strategic financing agreement in July 2018, and
o US$40.0 million from Tasly Pharmaceutical Group through agreements entered into in July 2018, subject to filing with the State Administration of Foreign Exchange
• 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
Mesoblast entered into a strategic alliance with Tasly Pharmaceutical Group for the development, manufacture and commercialization of MPC-150-IM and MPC-25-IC in the treatment and prevention of chronic heart failure and heart attacks in China. Mesoblast granted TiGenix NV (now fully owned by Takeda Pharmaceutical Co. Ltd) exclusive
access to certain of its patents to support global commercialization of Alofisel in the local treatment of fistulae. This product is the first allogeneic mesenchymal stem cell therapy to receive approval from the European Commission. As consideration, Mesoblast will receive up to €20 million in payments, as well as single digit royalties on net sales.
Mesoblast accessed non-dilutive capital for commercialization of MSC-100-IV (remestemcel-L) through credit facilities with Hercules Capital and NovaQuest. New non-executive Directors Joseph R. Swedish and Shawn Cline Tomasello joined the Board of Directors, bringing substantial commercial and transactional healthcare expertise
Operational highlights and anticipated upcoming milestones
MSC-100-IV (remestemcel-L) for pediatric steroid-refractory acute Graft Versus Host Disease (SRaGVHD):
• The Phase 3 primary endpoint was successfully met
• The primary endpoint of Day 28 overall response rate to remestemcel-L treatment was 69%, a statistically significant increase compared to the protocol-defined historical control rate of 45% (p=0.0003)
• Day 100 survival results demonstrated 87% survival rate for Day 28 responders (33/38), and an overall survival rate of 75% (41/55) Mesoblast Limited
• These results were presented at the 2018 annual meeting of the International Society for Stem Cell Research
• The multi-infusion regimen of remestemcel-L was safe and well tolerated
• Day 180 survival results are expected shortly
• Based on discussions with the United States Food and Drug Administration (FDA), Mesoblast believes that successful results from the completed Phase 3 trial may provide sufficient clinical evidence to initiate filing of a marketing authorization for this product candidate in the United States.
MPC-150-IM for Advanced and End-Stage Heart Failure:
• Upcoming 12 month database lock for Phase 2b trial in 159 patients with end-stage heart failure and a left ventricular assist device
• Full trial results to be presented at upcoming major cardiovascular conference
• Mesoblast is in active discussions with the FDA on the regulatory pathway under the granted Regenerative Medicine Advanced Therapy (RMAT) designation for MPC therapy in this indication granted in December 2017.
• Enrollment completion for the Phase 3 events-driven trial for Advanced Heart Failure Class II/III anticipated Q4 CY18
• Trial received a recommendation from the Independent Data Monitoring Committee to continue without modification after an evaluation of clinical safety data in the first 465 randomized patients
• Mesoblast plans to leverage results of this Phase 3 trial from complementary global trials performed by strategic partners. MPC-06-ID for Chronic Low Back Pain:
• Enrollment was completed during FY2018 in Mesoblast’s Phase 3 trial in patients with chronic low back pain who have failed conservative therapy
• A total of 404 patients across 48 sites are being followed for evaluation of treatmentrelated improvement in pain and function over two years. Financial Results for the Three Months Ended June 30, 2018 (fourth quarter) (in U.S.
Dollars) Loss after tax was significantly reduced by US$6.3 million (23%) for the fourth quarter of FY2018, compared with the fourth quarter of FY2017 due to the items below:
• Revenues were US$1.7 million in the fourth quarter of FY2018, of which US$1.6 million was due to sales of TEMCELL by our licensee in Japan, JCR Pharmaceuticals Co. Ltd. Revenues increased by US$1.1 million (200%) compared with the fourth quarter of FY2017.
• Research and Development expenses were US$17.5 million for the fourth quarter of FY2018, compared with US$15.9 million for the fourth quarter of FY2017, an increase of US$1.6 million (10%) as the Company invested in Tier 1 clinical programs.
• Manufacturing expenses were US$2.1 million for the fourth quarter of FY2018, compared with US$1.2 million for the fourth quarter of FY2017, an increase of US$0.9 million (84%) primarily due to an increase in process validation activities for MSC-based manufacturing.
• Management and Administration expenses were US$5.2 million for the fourth quarter of FY2018, compared with US$7.1 million for the fourth quarter of FY2017, a decrease of US$1.9 million (27%) due to an overall decrease in corporate activities.
• Finance Costs of US$1.4 million in interest expenses were recognized in the fourth quarter of FY2018 in relation to the Company’s loan and security agreement entered into with Hercules in March 2018. No interest expense was recognized in the fourth quarter of FY2017.
The overall increase in loss after income tax also includes 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$1.0 million was recognized in the fourth quarter of FY2018 in relation to the net change in deferred tax assets and liabilities recognized on the balance sheet during the period, compared to US$4.1 million in the fourth quarter of FY2017.
The net loss attributable to ordinary shareholders was US$20.8 million, or 4.39 cents loss per share, for the fourth quarter of FY2018, compared with US$27.2 million, or 6.34 cents loss per share, for the fourth quarter of FY2017.
At June 30, 2018, the Company had cash reserves of US$37.8 million. As of June 30, 2018, the Company recognized funds receivable from debt financing and unissued capital of US$39.0 million pursuant to a financing facility with NovaQuest. On July 10, 2018 the net proceeds from the financing facility of US$39.0 million were received and recognized in cash reserves. The Company will also receive US$40.0 million from Tasly on closing of the strategic alliance that the two companies announced in July 2018 for cardiovascular therapies in China. This transaction has been approved by the Tianjin Bureau of Ministry of Commerce and the Tianjin Bureau of National Development Reform Commission, and is subject to filing with the State Administration of Foreign Exchange.
Mesoblast retains an equity facility for up to A$120 million/US$90 million, to be used at its discretion over the next 12 months to provide additional funds as required.
Financial Results for the Year Ended June 30, 2018 (in U.S. Dollars) Loss after tax was significantly reduced by US$41.5 million (54%) for FY2018, compared with FY2017.
The main items which reduced loss after income tax were:
• Revenues were US$17.3 million for FY2018, compared with US$2.4 million for FY2017, an increase of US$14.9 million. These revenues primarily consisted of US$11.8m from our patent license agreement with TiGenix (now fully owned by Takeda) in December 2017 and US$5.1 million in royalties and milestones from sales of TEMCELL by our licensee in Japan, JCR Pharmaceuticals Co. Ltd. Royalties from TEMCELL increased by 152% for
FY2018 compared with FY2017.
• Research and Development expenses were US$65.9 million for FY2018, compared with US$58.9 million for FY2017, an increase of US$7.0 million (12%) as the Company invested in its phase 3 clinical programs.
• Manufacturing expenses were US$5.5 million for FY2018, compared with US$12.1 million for FY2017, a decrease of US$6.6 million (54%) due to a reduction in manufacturing activity because sufficient quantities of clinical grade product were previously manufactured for all ongoing clinical trials.
• Management and Administration expenses were US$21.9 million for FY2018, compared with US$23.0 million for FY2017, a decrease of US$1.1 million (5%) primarily due to decreased legal activities and corporate overhead expenses such as rent, IT costs and depreciation. This decrease was partially offset by an increase in labor costs primarily for recruitment and short term incentives.
• Finance Costs of US$1.8 million in interest expenses were recognized in FY2018 in relation to the Company’s loan and security agreement entered into with Hercules in March 2018. No interest expense was recognized in FY2017.
The overall decrease in loss after income tax also includes 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$30.7 million was recognized in FY2018 in relation to the net change in deferred tax assets and liabilities recognized on the balance sheet during the period, primarily due to a revaluation of our deferred tax assets and liabilities recognized as a result of changes in tax rates. 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%.
A non-cash income tax benefit of US$13.4 million was recognized in FY2017 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$35.3 million, or 7.58 cents loss per share, for FY2018, compared with US$76.8 million, or 19.25 cents loss per share, for FY2017.