Mesoblast Limited (MESO) Q1 2022 Earnings Call Transcript

Mesoblast Limited (MESO 3.67%)
Q1 2022 Earnings Call
Mar 31, 2022, 12:12 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to the Mesoblast financial results for the period ended December 31, 2021. An announcement and presentation have been lodged with the ASX and are also available on the home and investor pages at www.mesoblast.com. [Operator instructions] As a reminder, this conference call is being recorded. Before we begin, let me remind you that during today's conference call, the company will be making forward-looking statements that represent the company's intentions, expectations or beliefs concerning future events.

These forward-looking statements are qualified by important factors set forth in today's announcement and the company's filings with the SEC, which could cause actual results to differ materially from those in such forward-looking statements. In addition, any forward-looking statements represent the company's views only as of the date of this webcast and should not be relied upon as representing the company's views of any subsequent dates. The company specifically disclaims any obligations to update such statements. With that, I would now like to turn the call over to Dr.

Silviu Itescu, chief executive of Mesoblast. Please go ahead.

Silviu Itescu -- Chief Executive Officer

Thank you, and welcome to Mesoblast's operational highlights and financial results for the period ended December 31, 2021. With me on the call today is Andrew Chaponnel, our interim chief financial officer, and I'm delighted to welcome Dr. Eric Rose, our new chief medical officer. Eric has been on our board, as you all know, for the past eight years and has decided to step up into the critical chief medical officer position at such an important period in the company development.

Eric is a renowned physician with extensive commercialization experience and a proven track record in successfully navigating products through the FDA in addition to his extensive network across our various stakeholders at the NIH and BARDA. As a world-renowned heart surgeon and scientist, Eric performed the first pediatric heart transplant in the world, and he subsequently served as chairman of Columbia University Department of Surgeon for over a decade. I'm delighted that Eric has agreed to join us in a management -- in a senior management role. And perhaps, Eric, you'd like to just offer a couple of words to the listeners.

Eric Rose -- Chief Medical Officer

Sure. Sure. I'm very excited by the prospect of cell therapy becoming mainstream. I think this field is now where monoclonal antibodies were two or three decades ago, and they've obviously had important major impact on a lot of different illnesses.

And I think cell therapy, allogeneic cell therapy, that means the blast is pioneered, is going to follow that trajectory over the next few years. So it's very exciting to be here. Aside from that, Silviu and I have worked together on the board for eight years, and we were together at Columbia as well. So it's personally a pleasure to work with him as well.

So it's nice to be here, Silviu.

Silviu Itescu -- Chief Executive Officer

Well, terrific and welcome, and it's very exciting to be working together.

Eric Rose -- Chief Medical Officer

Indeed.

Silviu Itescu -- Chief Executive Officer

If we could go to the slide deck. If we go straight to slide four in the slide deck. So slide four is the summary of the platform technology that underpins the various products that we're developing and the mechanism of action of the core technology. As we've previously highlighted, we're developing therapeutic products derived from mesenchymal precursor and stromal cells.

These cells have surface receptors that are able to be activated by a variety of inflammatory cytokines. And when the cells find themselves in various tissues that are inflamed, they then release a number of well-characterized factors that are able to modulate multiple arms of the immune system in such a way that the inflammatory process comes under control. And so, therefore, it's very clear that the potential opportunity here to develop therapeutics for diseases of severe inflammation where existing therapies, small molecules, monoclonal antibodies, etc., in and of themselves are not sufficient to turn off the damaging inflammation. If we go to slide five, this is a snapshot of our late-stage clinical pipeline.

As you can see, we have a number of indications being developed using our remestemcel-L platform and a number of indications using our rexlemestrocel-L platform. The remestemcel-L platform provides us with products that are the most advanced by systemic delivery, in particular, and product for acute graft versus host disease. I'll talk more about it, but it's completed phase three and is currently before the FDA. Our product targeting acute respiratory distress syndrome initially with COVID-19 has completed the first study, and we have plans to initiate a pivotal trial.

And finally, we've recently presented very exciting results for remestemcel-L in local delivery to turn off the damaging inflammation -- inflammatory bowel disease in patients who are otherwise unresponsive to a whole range of biologics. We will talk more about that in a moment, too. Rexlemestrocel-L is our product that uses immunoselection to derive homogeneous cells targeting inflammatory load back pain and targeting inflammatory heart failure. Both of those indications have completed phase three trials, and we'll talk more about them during this presentation.

If we can now go to our financial results, and I'll go to slide seven, and I will ask Andrew Chaponnel, if you could take us through the next few slides, please, Andrew.

Andrew Chaponnel -- Interim Chief Financial Officer

Thank you, Silviu. So turning to slide seven. Revenues in the quarter were $2.4 million. These revenues were primarily from TEMCELL royalties on sales of GVHD in Japan, which increased 7% on a comparative quarter last year.

In November, we completed a refinancing of our senior secured debt facility with a new $90 million five-year facility provided by funds managed by Oaktree Capital Management. Cash on hand at the end of the quarter was $95 million. We also have up to an additional $14 million available to be drawn down from existing financing facilities subject to certain milestones. We saw a 40% reduction in net operating cash usage.

Our quarterly cash burn is now down to $18 million. Regulatory and manufacturing activities related to our planned BLA resubmission for remestemcel-L in GVHD accounted for over half of this cash usage. Now, turning to slide eight. Within R&D expenditure, we saw a 28% reduction of $4 million as we reduced spend on clinical trial activity.

We continue our steady investment in manufacturing, including the production of remestemcel-L inventory to support the long-term commercial supply of GVHD, COVID-19 ARDS and IBD. To date, we have manufactured $28 million worth of remestemcel-L inventory in anticipation of launch. This prelaunch inventory will be recognized on the balance sheet if we receive FDA approval. Within our finance costs, we recognized a $4.3 million increase due to a noncash gain on revaluation of borrowings in the comparative quarter.

Thank you. And now, I'll hand the call back to Silviu for the remainder of the presentation.

Silviu Itescu -- Chief Executive Officer

Thanks, Andrew. I'm going to provide an operational update on activities relating to remestemcel-L and activities related to rexlemestrocel-L, our two platform technologies. We would go to slide 10, please. So remestemcel-L is being developed for the treatment of severe acute graft versus host disease.

This is a disease that's driven by T cells, T cells within the foreign bone marrow in a patient who receives a bone marrow transplant as part of the curative process for an underlying cancer or other disease. Unfortunately, when the foreign T cells recognize tissues as foreign, primarily the gut and the liver, they initiate a very severe process of cytokine release that ultimately ends up in organ destruction and is a potentially fatal disease. If we can go to slide 11, please. In particular, where there's a tremendous unmet need is in children with this very severe disease.

More than 2,000 allogeneic bone marrow transplants are performed annually in children and adolescent across the U.S. And despite appropriate prophylaxis, approximately 50% developed this disease, acute GVHD. The first-line treatment is steroid and response rate is no more than 50%. So a substantial proportion of children who get bone more transplants will end up with steroid-refractory graft as host disease.

For children under 12, there are no approved treatments. And for these children who failed steroids with nothing available, the potential mortality approach is 90% when involving the gut and the liver. So this is a real severe problem with a tremendous unmet need that we are addressing. Slide 12, please.

This slide summarizes the results of three different studies that support our application to the FDA for approval of this -- of remestemcel-L in children with severe steroid-refractory graft-versus-host disease. Notably, in each of these three studies, a randomized controlled study, an expanded access program and the most recent open-label -- single-arm study phase three trial. In each of these three studies, we see a very consistent day 28 overall response in yellow between 64% and 69%. And in each of these studies, we see a very consistent overall survival that approaches as high as 79% in children who received remestemcel-L.

In contrast, in controlled children who receive maximal standard of care, response rates are as low as 38% to 43%, and survival is as low as 54% to 57%. Those differences are substantial between remestemcel-L treated children and best available therapy. If we look at slide 13. On the left-hand side, you see a single center experience with 370 children and graft-versus-host disease.

After six months, the steroid-refractory population, despite treatment with maximal available therapy, demonstrate -- has lower survival rate, it's 35% two years out. In contrast, if you look at the figures on the right, which is a survival curve from our phase three trial data presented to the FDA, you can see that at six months, we see a 69% overall survival. And for those children who are alive at six months, the curve remains relatively flat beyond that. Effectively, a long-term cure.

Now, if we move to slide 14. The continued unmet need in graft-versus-host disease in both children and adults. And those patients who have the highest level of inflammation. And as you can see in this slide, a validated biomarker of severe inflammation is called the MAP score and the threshold of above 0.29 delineates those patients who are very unlikely to respond to any therapies and who are unlikely to have a reasonable response or survival.

And in fact, survival in these patients with the MAP score above 0.29, which accounts for about 50% of patients with severe GVHD, with steroid refractory GVHD, in these patients, survival is as low as 10%. As you can see in slide No. 15, data from an investigator-initiated study, from investigators in Mount Sinai published in Bone Marrow Transplantation just two months ago. In this particular study, 52 patients were studied, 27 of whom were treated with remestemcel-L from our phase three trial and 25 of whom received maximal standard of care and who were matched for both disease severity and stratified by the biomarker MAP score.

As you can see, the figure on the left is day 28 response, figure on the right is six-month survival outcome. As you can see, in the control children treated with maximal standard of care, overall response was seen in only one out of 10 children with a MAP score above 0.29, and survival was only seen in that one child out of 10. So nine out of 10 died. In contrast, in those children matched with disease severity and matched for severe MAP score, 67% achieved treatment response on day 28 and 64% were alive at day 180.

And both disease outcomes were significantly superior to those with children matched with disease severity and treated with other available therapies. Let's move on to slide 16. Where are we with respect to regulatory and commercial update for remestemcel-L in this very bad disease? We met with FDA's OTAT in November. OTAT indicated that our approach to address the outstanding CMC items is reasonable and asked us to understand how the immunomodulatory activity of the product can be measured appropriately using a potency assay that provides relevance to the clinical activity of the product using clinical outcomes.

Well, I've just shown you some of the data that indicates that our product is highly effective in patients with the highest levels of inflammatory biomarkers, and we've now generated a substantial body of new data that we believe establish the relevance of the in vitro immunomodulatory activity of the cells to the in vivo clinical effect, including survival in children with this devastating disease. We expect to be providing these data to OTAT in short order and to address those outstanding items in the CMC that supports our Biologics License Application resubmission. We continue to be in a well-established process and have an ongoing dialogue with FDA CBER. And if the resubmission is accepted, we will be in a review process to hopefully proceed toward approval.

Let's move on to other indications of remestemcel-L. The first of which is acute respiratory distress syndrome due to COVID-19. Slide 18, please. COVID-19 is a respiratory virus with a high mortality rate due to severe inflammation in the lungs.

Add the inflammatory syndrome is due to cytokine storm. And the ongoing mortality rates, despite the fact that there are vaccines and there are antiviral drugs out there, indicate really the sheer numbers of patients who will continue to be exposed just as far as it mutates, and new variants continue to arise. And despite a reduction in overall severity, the numbers of patients who have progressed to needing ventilators, and once you're on a ventilator continues to have a very high mortality rate, continue to be very high, making this an ongoing unmet need both during the pandemic, as well as when the disease becomes endemic. We intend to move forward with a pivotal trial for an emergency use authorization as per our discussions with the FDA.

And the FDA has asked us to provide them with a pivotal trial design, as well as refer the potency assay of the product to our acute GVHD Biologics License Application. And that will -- of course, will be in place prior to commencement of the trial. Just to show you a couple of the data points. Slide No.

20 is where we see a signal of efficacy in the 222-patient study, randomized control that was performed in conjunction with the CTSN and NIH sponsored organization across the U.S. You will see on the left-hand panel the survival benefit overall in patients who are under the age of 65 was about a 46% reduction in mortality. And on the right-hand side, you see that in this younger population, we see a substantial improvement in respiratory function at each of the time points measured over a 30-day period. We believe that the dose regimen that was used in patients under the age 65 was an appropriate dose for the degree of inflammation.

And of course, it's well-established now that as patients -- as older patients getting infected with the same virus, the inability to handle viral load results in a much higher order of inflammation. And so, we expect that in older patients, we would need a more prolonged or a higher dose of cells, and that will be explored in subsequent studies. However, the signal seen in younger patients, we think, is strong enough to justify moving to a pivotal trial to support an EUA in this patient population. And in particular, on slide 20, you see on the left-hand side that in conjunction with dexamethasone, we see a tremendous synergy reduction in mortality through 90 days, and that correlated with a similar synergistic effect on pulmonary function throughout the 30-day period of follow-up.

So that would be the patient regimen in a pivotal confirmatory study. And I've just mentioned to you, going to slide 21, that in fact we plan to move forward with an additional phase three trial in that target population. But together with our partners and clinical investigators, we expect to agree on the final protocol and put it in front of the FDA for their agreement to move forward. Let's move forward now to inflammatory bowel disease, a very exciting area that we provided an update just last week.

Slide 23, please. The unmet medical need in inflammatory bowel disease continues to be very high. In fact, 30% of patients who are treated with biologics failed to respond. And even among those who do respond, there's loss of response of at least 10% per year.

So there is a very large patient population who requires different approaches sort of settle down the severe inflammation, particularly in the colon, in diseases such as inflammatory -- such as Crohn's disease and ulcerative colitis, each of which represent at least 33,000 to 38,000 patients per year across the U.S. So this is a large unmet medical need. And the mechanism of action that we believe ourselves can leverage is the same mechanism by which they're effective in the gut component of GVHD, we think, is a play as well in inflammatory bowel disease. Together with a world-leading investigator at Cleveland Clinic, Dr.

Amy Lightner, who has initiated an investigator-initiated study, up to 48 patients are being randomized in a controlled fashion, in a two-to-one randomization, to receive a single intervention with remestemcel-L injected under visualization into the column directly or placebo in patients who have either ulcerative colitis or Crohn's disease refractory to medical intervention. And that's defined as resistant to an antibody, anti-TNF or anti-integrin or other monoclonal antibody. The results of this study on the first 12-patient cohort were just presented at the Congress of European Crohn's and Colitis Organization. If we go to slide 25.

At a high level, the results showed that a single injection of remestemcel-L into the inflamed colon resulted in early response as early as two weeks and a high degree of remission by six weeks in all ulcerative colitis patients and in all Crohn's colitis patients. And the measurement of disease remission is using the gold standard, which is direct visualization by endoscopy. But evidence of improvement in disease activity was also seen by measuring biomarker activity in the score called fecal calprotectin, which substantially reduced within a three-month period. Importantly, no improvements were seen either in terms of endoscopy or biomarker activity in controls with ulcerative colitis or Crohn's disease.

And the fact that we see this level of improvement both endoscopically, clinically and by biomarkers that relate to similar inflammatory biomarkers that we've seen, the impact in GVHD supports what I said earlier that there's an underlying mechanism of action that is common to both steroid-refractory GVHD and biologic-refractory inflammatory colitis that remestemcel-L can address. Let's move on now to the activities relating to rexlemestrocel-L, our second platform technology, slide 27. The burden of illness for inflammatory back pain is substantial. In fact, 50% of opioid prescriptions in the U.S.

are for patients with chronic low back pain. And so, the opioid epidemic is in large part interrelated to the inflammatory back pain that we're intending to target. Over 7 million patients are estimated to suffer from this particular disease across the U.S. And let's talk about the patient journey here and what is available for these patients, slide 28.

After conservative treatments have failed, and that includes nonsteroidal drugs and physical therapy, really the only thing that's available is opioid analgesics, which are very weak in terms of pain relief and their lack of efficacy really is a major reason for people continuing to increase the use of opioids and ultimately, the potential -- the high potential for accidental overdosing. And beyond that, there's really only interventional therapies, including epidural injections, spinal cord stimulation, intrathecal pumps or ultimately surgery. So we think that our treatment approach, rexlemestrocel-L targeting moderate to severe inflammatory back pain will be used very early in this disease process and aims to avoid opioids and, of course, well before any kind of interventions. Slide 29 is a schematic of why we think ourselves are effective here.

It's a severe inflammation in the middle of the disc that is the driver of the disease process. And it's due to macrophages and T cells, which we know our cells are able to turn off. So slide 30 is a schematic of the mechanism of action of our cells. It's a dual mechanism.

On the one hand, it turns off this -- the inflammatory cytokines produced by the inflammatory cells within the disk. And on the other hand, there are factors that the cells make that directly are analgesic and induce long-term pain reduction. And so, slide 31 is a summary of the data to date, but maybe I can show you schematically the figures across all patients in our phase three trial that completed testing of cells in combination with hyaluronic acid and is the basis of what we have shown the FDA. Slide 32 shows that overall, over a 36-month period, in red, the combination of cells plus hyaluronic acid gives us a significant reduction in pain at 12 months, 24 months relative to, in green, placebo-treated patients.

In blue, the cells without hyaluronic acid, they also show substantial pain reduction, but the combination of the two appears to give us the greatest effect and synergistic. That endpoint of pain achieved across the entire study, we think, is the basis of an approvable endpoint for the FDA. But importantly, slide 33 shows that patients most likely to respond are those who were treated within the first five to six years. That's patients below the median time frame with pain.

And so, here, you see that the reduction in pain at 12 months and at 24 months and 36 months is highly significant at levels of p less than 0.001 compared to the saline-treated controls. And it is this patient population that we think will allow us to have the greatest likelihood of success in the confirmatory study, but as well as provide a therapeutic that has the greatest likelihood to make a difference as soon as possible in these patients with severe inflammatory back pain. Now, the other key points, slide 34, is that despite the fact that both physicians and patients were told not to change their medication during the phase three trial, as many as 25%, 27% of cell-treated patients for 36 months came off opioids, and these are patients who were on opioids at baseline. And about 40% of patients effect in this trial were on opioids.

In contrast, in green, only about 7% of control patients came off opioids in the same time frame. This difference was significant, and it demonstrates the fact that the pain reduction seen, which is so durable with the single intervention of our cells, allows patients who were otherwise have been using opioids to potentially come on which -- come off of these opioid drugs. And it suggests that this may be an opioid-sparing approach to this disease. So slide 35 is a summary of our interactions with the agency and our plans moving forward.

We met with the FDA in December. They had reviewed the data in great detail and the FDA agreed with our proposal for pain reduction at 12 months to serve as the primary endpoint for potential approval of this product and for the endpoint in the confirmatory study. A key secondary endpoint would be to demonstrate also improvement in function and to demonstrate that the reduction in pain may result in reduction in opioid usage. The planned upcoming U.S.

trial will include at least 20% subjects in Europe to support a concomitant submission to both FDA and EMA and to support our relationship with our partner in Europe Grunenthal. Finally, let's move to our heart failure program, slide 37. The mechanism of action by which we believe our cells impact outcomes in patients with low ejection fraction heart failure is by attacking the inflammatory process that is within the myocardium in these advanced patients. And again, the inflammatory cytokines within the myocardium shown to be there activate our cells, our cells then release anti-inflammatory factors that turn off the inciting inflammation.

And at the same time, also induce a microvascular network, which we think is critical to impacting the hypoxic nature of the myocardium. If we go to slide 38, in the completed randomized phase three trial of 537 treated patients, in this slide, you'll see that a composite of time to first event using cardiovascular death or nonfatal heart attack, or nonfatal stroke showed a significant benefit in the cell-treated patients over a mean three-year follow-up that achieved significance of p-value of 0.02. So there was a 33% overall reduction in time to first event of a three-point MACE. This was a post hoc analysis.

When you look at slide 39, the -- those patients at greatest risk for the severe outcome and those patients in an analysis of risk adjustment are patients with either myocardial ischemia or diabetes. In that group of patients, which accounted for about 70% of all enrolled patients in the trial, we see that on the left-hand side, rexlemestrocel-L resulted in a 37% risk reduction in the 3-point MACE over a mean three-year period follow-up. But even more dramatically is the figure on the right, where, in fact, in patients who have evidence of circulating inflammation as measured by a simple measurement CRP, in that group of patients with ischemia or diabetes, the treatment effect was 54% reduction in the major events of cardiac death, heart attacks or strokes. And if we go to slide 40, this table is a summary of major trials evaluating SGLT-2 inhibitors or GLP-1 agonists in patients with diabetes, where this exact three-point MACE endpoint, myocardial death -- sorry cardiovascular death, myocardial infarct or stroke was used as the endpoint that the FDA has used to approve GLP-1 agonists on.

You can see in the top three rows treatment benefits of the order of 6% to 13%. In contrast, if you look at the dark blue at the bottom, as I just mentioned to you, rexlemestrocel-L in similar patient populations resulting 37% to 54% reduction on top of existing maximal standard of care. If we go to slide 41, really, we are right now submitting our data to the FDA of our new analysis in -- that have evaluated the outcomes in our phase three trial in those patients at greatest risk of adverse events -- MACE events. And that's in line with the request by the FDA to identify those patients at greatest risk and to see what the treatment effect of our cell is in that patient population.

And that's exactly what we've done, and we expect to have discussions with the agency on the potential pathway toward approval. On that note, I think I'll leave it there now. And operator, I would like to open it up to questions. Thank you very much.

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from Louise Chen from Cantor. Your line is open.

Carvey Leung -- Cantor Fitzgerald -- Analyst

Hi. Good afternoon, everyone. This is Carvey on for Louise. Our first question is you've got previously additional phase three study initiations in chronic back pain and COVID-19 ARDS.

So can you provide more color on how these studies will impact opex for 2022 and onwards? Secondly, based on your discussions with the FDA, what kind of results from these studies will be considered as successful? Thank you so much.

Silviu Itescu -- Chief Executive Officer

Sure. So I think with respect to the COVID ARDS program, we will expect to be providing the market with granularity, with -- it should not have any impact on Mesoblast's opex in the short term, and we expect to be working with our partners. We've previously worked with NIH-sponsored investigators, and I think we will provide much more granularity on that in the short term. This is a major unmet need, we -- continues to be an unmet need.

And we think that the data that we've generated, the data that would support potential in EUA and that's certainly the guidance that we've received from the FDA is that a single trial would potentially -- if reproducing, that they had already shown in the previous study in collaboration with the NIH investigators would support an EUA if mortality reduction was -- is evident. With respect to our low back pain program, I've just shown you the data that showed a significant and a durable reduction in pain as early as 12 months and for as long as at least three years from a single intervention. That endpoint, the FDA is in agreement, is an acceptable endpoint for approval. And we're in the process of formulating the powering for the appropriate clinical trial, and we expect to be working with strategic partners on this program.

So again, we don't have any plans that this would impact our opex in the short term.

Carvey Leung -- Cantor Fitzgerald -- Analyst

OK, got it. Thank you so much. Super helpful.

Operator

Your next question comes from Jason Kolbert. Your line is open.

Jason Kolbert -- Dawson James Securities -- Analyst

Hey, guys. Great rundown. Really appreciate the comprehensive review. A couple of quick questions.

With remestemcel-L, coming up on GVHD, can you just go through maybe as much granularity as you can on the timing of the OTAT resubmission and when you think that could commercialize? And also, what lessons, from a commercialization point of view, have you learned given the launch in Japan? And then the other part to that is, once you're commercialized in GVHD, does that open up a fast pathway for you in IBD, UC, Crohn's because, obviously, the market size there is pretty substantial? And I have a follow-up where we can switch gears into degenerative disc disease.

Silviu Itescu -- Chief Executive Officer

Great. Thank you, Jason. Those are very insightful questions. So I think your first question was how confident or how are we approaching the resubmission and where do we think our time lines are at.

And I would say that we've worked very collaboratively with the FDA to understand precisely what they want us to provide them. And it was unfortunate that we received the CRL a year ago. We had a nine-to-one vote by the advisory panel in support of approval. And, I guess, that demonstrates the strength of the clinical data.

And what the FDA said to us really is that we need to have a better handle on the mechanism of action by which the cells generated the tremendous clinical results. And part of that is having a potency assay in place that reflects the mechanism of action. And that demonstrates, as we move forward, that every product that we make that goes to a child with a severe disease, we can predictably say meet the potency that reflects an activity level that will give us similar results that we've achieved in phase three. And I think that that's exactly where we're at.

We've understood now far better than a year ago the mechanism by which the cells provide their activity, and I showed you some of the data from the investigator-initiated study in Mt. Sinai, demonstrating that our product is particularly effective in patients with the greatest levels of inflammation, which goes to the heart of how the cells become activated and how they are able to target those children with high levels of inflammation in terms of that inflammation. And our potency assays are able to show exactly that. How the cell, which is -- demonstrates activity in vitro demonstrates activity in vivo, both in terms of biomarker activity, as well as survival outcomes.

That's precisely, I think, what the FDA wanted us to generate as data, and we're putting that all together in a very detailed package as part of the resubmission. Now, once we submit it, it's a process. That process includes the requirement for inspection of the manufacturing site. And so, all of that needs to be performed, and manufacturing site in Singapore was not inspected during the first three-year process.

So that still remains as an outstanding item and will probably drive the timeline to approval. Statutorily wise, it's the maximum time that resubmission can result in approval is six months. So we are working toward an approval in the second half of this year and putting our commercial team in place to be prepared for a successful launch. To your second question, in fact, what lessons have we learned from Japan.

And as you can see in today's financials, we're roughly now seeing -- we continue to see growth quarter-on-quarter of our royalties coming from Japan, which obviously implies that sales of the product in Japan continue to grow, and they have not plateaued. We're now on track to generate about $10 million a year just from our royalties from this product in Japan, and still growing. And so, I think that gives us very, very good line of sight of the way this product would perform in the U.S. in terms of penetration.

We think that within three years or so, as we've seen in Japan, the penetration rate will be at least 40% of the addressable market. And so, that's what we're targeting. And of course, in parallel, we would post-approval plan to expand the indication into the adult population with severe steroid refractory GVHD. And as I've shown you, those biomarkers give us a very clear understanding of those adults as well who are nonrespondent to existing therapy, and that would include, of course, the new biologic Jakafi approved for this indication.

So we have a life cycle plan in place beyond pediatric to the extent of the adult GVHD market in the U.S. And then, beyond that, of course, we just had very exciting data on inflammatory bowel disease. The unmet need here, of course, is the refractory nature of the patient population means that these are at high risk of progressing to needing surgery. And a colectomy in a young patient population is a terrible outcome.

So we will collect the data from Dr. Leitner's study in Cleveland and be in a position to go back -- go to the FDA and talk about what a pivotal study design would look like. Eric, you might want to have your perspective as a surgeon here in terms of how you see the inflammatory bowel disease population refractory to biologics and the risk of surgery.

Eric Rose -- Chief Medical Officer

No. The question that cell therapies that were effective would obviate a good deal of the resective surgery, which is basically destructive for these patients right now. So it can be administered endoscopically. So we're very excited about this.

Jason Kolbert -- Dawson James Securities -- Analyst

So Dr. Rose, that was my question. Since you're -- endoscopically, you're delivering cells to the localized site of the inflammation, I guess that that -- as somebody who's never guided an endoscope, I don't know, is that pretty easy to do? Is that kind of typical and within the treatment paradigm?

Eric Rose -- Chief Medical Officer

I think by skilled endoscopists, yes. I mean, resections are done endoscopically all the time for surface lesions. And for surface lesions for both UC and Crohn's, it's imminently feasible, which our investigators have shown with their trial. So far, it's been quite safe, too.

Jason Kolbert -- Dawson James Securities -- Analyst

Thank you. And my last question, which really was for you, Dr. Rose, I was talking a little bit about degenerative disc disease and the commercial potential in that. And I know in one of the conversations you and I had in the past, you seemed very excited about the potential in degenerative disc disease.

So could you kind of step back and talk about what you see as the potential changing gears here to rexlemestrocel-L and the DDD indication, which looks like it will be driving ahead of CHF.

Eric Rose -- Chief Medical Officer

Yes. I think the results that we've had now in two major clinical trials, both of which showed significant reduction in pain across the entire patient cohort. So pain reduction seems quite predictable and reliable. The magnitude of that reduction is set at a threshold that we've looked at, at 50% or greater pain reduction as opposed to the 30% reduction in pain that FDA has treated as approvable and which drugs like antidepressants and opioids, that standard is -- the standard to which they've been held.

The durability of our response to a single injection is now out to three years, but the results are measurable at six months, one year, two years as well. And the safety issue that FDA had when we first started our phase three and the reason that they insisted on a composite endpoint of pain and function improvement turned out to not be a problem. Safety with injection directly into the disc is just not a problem. So for that reason, actually, they want a two-year endpoint with pain and function.

They've agreed now that the confirmatory trial that we need to do is only 12 months of duration. The primary -- sole primary endpoint has been reduction, function is secondary -- a key secondary, but not part of the primary. And based on our past trial experience, we think it's imminently achievable. Besides the extent of commercial market -- yes?

Jason Kolbert -- Dawson James Securities -- Analyst

No, I just thanked you. That really answers -- yes, I can. And that really answers my question. Thank you.

And I have to say, welcome aboard to at least an operational role. Given our experience, I know we worked together when you were at SIGA. And to have a former CEO, a board member, and now as the chief medical officer, I think it just brings a lot of horsepower to Mesoblast at a time when it's very -- at that very critical juncture, clinically. So I really appreciate you being there.

Thank you.

Eric Rose -- Chief Medical Officer

Thank you. Appreciate it, Jason.

Operator

Your next question comes from Kennen MacKay from RBC Capital Markets. Your line is open.

Jackie Yan -- RBC Capital Markets -- Analyst

Yes. Hi. Good morning. It's Jackie Yan for Kennen.

Thanks for the questions. Just want to make sure I heard it right, that you're going to submit the BLA, which itself should include everything and obviously the new data you have generated so far, rather than submit the new data first to the FDA, wait the feedback and then file the BLA?

Silviu Itescu -- Chief Executive Officer

By having ongoing dialogue with the agency, we're in a position to have our data evaluated as part of a resubmission.

Jackie Yan -- RBC Capital Markets -- Analyst

Got it. Super helpful. And then, another question maybe on the investigator-sponsored trial for UC and Crohn's. Very interesting early data there.

And I think now you've got like only 12 patients worth of data. But going forward, ultimately, what do you want to see there in order to bring the programs in-house and maybe look for a partner because those two indications are going to require a super large trial, and maybe got in the phase two rating. So what do you want to see there in order to bring the programs in-house? That's maybe the first portion of the question. And then, second portion is that, when do you think we can see some data on the histological, or your causal hearings if those are being measured in that trial as well?

Silviu Itescu -- Chief Executive Officer

So let me address several of those questions. So first of all, remember that these patients are effectively no-option patients. They've already cycled through biologics and have failed and continue to have very active disease. So from that point of view, the control arm here is going to do really badly, right? So I don't think that the size of a pivotal trial will be anywhere near the size of trial that the biologics are targeting.

Remember that the first-line biologics have a very high responder rate within the control population. So they need large numbers. We expect very few responders, a very low response rate in the control. And as you can see in the first 12 patients, the control patients had no response and in fact, got worse during the three-month period of follow-up.

So I think in terms of a design of a study going forward, I think the numbers are going to be much more than you might anticipate. Secondly, I think while this study was set up to evaluate for up to 48 patients, it was not powered as such. And so, the objective for us was to see whether we have a signal of efficacy and safety by this local delivery method in both a sufficient number of ulcerative colitis patients and Crohn's patients to have a view as to how to potentially structure a randomized controlled study, that would be an in-house study with or without partners. And I think the objective of that is we're a good way through this.

And whether we stop after we've had all patients or whether we stop somewhere short of the 48 patients, I think, is still up to the data sets to tell us, right? The science will tell us that. But I think we're very excited by the data we've seen already. And I think this is an opportunity to address an unmet need that otherwise is not addressable today. So we're very excited about this.

Eric, you -- I don't know if you wanted to add anything to my answer. Eric?

Eric Rose -- Chief Medical Officer

I don't think so. The endoscopic appearance as an endpoint also is something that's achievable with relatively short periods of observation to get to an endpoint that I think the FDA would consider it actionable. So it's a very exciting set of observations.

Silviu Itescu -- Chief Executive Officer

Yes. I think that's a very good point about the endpoint. The endoscopic endpoint is an acceptable endpoint for approval of a therapeutic. Your question around histologic data, we will generate histologic data as well, of course.

But the validated endpoint is endoscopic, as well as, of course, clinical benefit.

Jackie Yan -- RBC Capital Markets -- Analyst

Yes. got it Thanks again for all the color.

Silviu Itescu -- Chief Executive Officer

Thank you.

Operator

Your next question comes from Tanu Jain from Petra Capital. Your line is open.

Tanu Jain -- Petra Capital -- Analyst

Hi, Silviu. Thanks for taking my questions. Just a quick one -- actually, two quick ones for me. In terms of the remestemcel-L life cycle, you've got the adult GVHD application, you've got COVID on, and you've got the IBD application.

Would you be able to talk about your priority ordering of those applications? And then secondly, just really potency assays, especially around the MAGIC algorithm probability biomarker score. How do you think that kind of translates to COVID ARDS or the IBD indication?

Silviu Itescu -- Chief Executive Officer

Yes. Very interesting, very good questions, actually. With respect to prioritization, No. 1 priority by far is to get the product approved for pediatric GVHD where the unmet need is complete.

There is nothing approved for children under 12. We are focused -- laser-focused on getting that approval. We, of course, intend to then demonstrate a broadening of the indication to the adult population with severe disease. And that would be part of our discussions with the agency as we seek approval for children.

So those two are part and parcel of the program. With respect to COVID ARDS, it continues to be a large unmet need, and we're working with the NIH, as well as the FDA to put in place a study that leads through an EUA for continued unmet need. And that's an important study that's important for the company, but it's even more important for the ongoing pandemic. And inflammatory bowel disease, as you just heard, is a tremendous opportunity, again, targeting a patient population with no options.

And here, the mechanism of action very much overlaps between the predominant GI disease in GVHD and the GI disease inflammatory colitis. Mechanisms are probably very similar. And so, the biomarkers that we're focusing on, as I highlighted earlier and that have been published in Bone Marrow Transplantation for GVHD, again, are the biomarkers that are very useful in monitoring disease activity and potential remission in the colitis patients.

Tanu Jain -- Petra Capital -- Analyst

Right. OK. And then, shifting gear to the disc trial. This might be more general, but with the trial where it's just one injection, you're obviously depending on patients taking in during the trial a lot of other medication like we saw, with opioids, etc.

So, I guess, when you've got more -- a large number of sites involved with -- how are you going to kind of control for all of these variability between patients and noise to kind of make sure that you're not losing data?

Silviu Itescu -- Chief Executive Officer

You've seen the successful 400-patient trial that was already accomplished in the U.S. It was performed across 40 sites. It took into account all alternatives that are out there. 40% of patients were on opioids at baseline.

And despite that, you saw the very strong statistical numbers around reduction in pain at each of 12, 24 and beyond months. And so, we think that the trial design and the potency of the product is such that it will override any confounding effects of other medications. Frankly, other medications just don't have much benefit in this patient population. And as Eric said, I mean, a large proportion of patients achieved more than 50%, if not complete remission, in pain reduction in our patient population.

The reduction in pain score of the order of about 35 points, which is more than 50% reduction from baseline, compares to about 15 points that the average opioid achieves. So we're talking about apples and oranges in terms of the degree of pain reduction. And I think that is accounted for in the trial design and the powering of the study.

Tanu Jain -- Petra Capital -- Analyst

And in your inclusion criteria, you're not going to restrict what medications the patients allowed?

Silviu Itescu -- Chief Executive Officer

No. Nor did we in the first study. So in other words, we expect that the second study would confirm the outcomes that we've just seen.

Tanu Jain -- Petra Capital -- Analyst

Yes. OK. And then, just lastly on the cardiovascular application. Can you just walk through what are the next steps from here and the timing to progress that toward a new trial?

Silviu Itescu -- Chief Executive Officer

I think as I've said, we're in the process of providing the revised analysis, as guided by the FDA. The FDA asked us to do these analyses on those patients at highest risk for adverse outcomes. And those data will be provided in a very formal submission to the agency.  And again, Eric might want to comment on the real-world disease and MACE outcomes that we're targeting. Eric?

Eric Rose -- Chief Medical Officer

Sure. The MACE endpoint actually was the primary endpoint for the phase two that we did. It was a smaller trial. It was originally the primary outcome for the more recent trial but was changed to the joint frailty model by our partner when we were partnered for this and stayed as the primary endpoint.

But three-point MACE and the entire cohort proved to be of significant benefit, which was a truly remarkable outcome for a single injection type of therapy. But unquestionably, the data are the data. The FDA has asked us to pick a patient population that would maximize the public health benefits of cells as an intervention, which we think we are drilling down to, as Silviu mentioned, the diabetic and the ischemic and the ischemic diabetics, particularly those with high CRPs, seem to be a very large patient population that could accrue significant benefit. I think that's the direction in which we're headed.

Silviu Itescu -- Chief Executive Officer

Great. Thank you. Thank you, Eric. And I think we've got one more question before we have to close out the presentation.

Operator

Your last question comes from Jason McCarthy from Maxim Group. Your line is open.

Michael Okunewitch -- Maxim Group -- Analyst

Hey, Silviu. Thanks for taking the question. This is Michael Okunewitch on the line for Jason. So I'd like to see if you could just provide a bit more color and some clarification on what we might expect to see from the heart failure phase three in terms of endpoints and trial size.

Would we expect it to be similar to the phase three or given the magnitude of the result in this population and the fact that you've hit p-value in a relatively small set, could it be smaller? And is there the possibility, given the really meaningful reductions that you saw in mortality, that the study could be powered for that even as a secondary endpoint, given that this has been such a difficult endpoint to hit in heart failure?

Silviu Itescu -- Chief Executive Officer

Yes. Look, we were really quite staggered by the effect size, particularly in this patient population. 70% of the study were ischemics and/or ischemic diabetics. And when we did the analysis that the FDA asked us to do, which is identify the groups in a hierarchical fashion, at highest risk for this outcome, the group that showed the highest risk among all the prespecified groups was this group, ischemic diabetic.

And they have an 87% greater risk of a MACE event than did any of the other groups in the controls. And then, when we looked at where the treatment benefit was greatest, it was staggeringly in this patient population. So precisely where the unmet need is, is where the cells have the greatest benefit. Marrying those two things up is what the FDA wanted us to do rather than look at things like subjective subsets like class two disease, class three disease, etc.

This takes into account all the subsets and concludes that the group at highest risk is precisely the group where these cells have most effect. And look, rather than pre-empt the discussions that we're now having with the agency, I think all I can say is that we're in the process of a formal submission of our documents, and we'll update the market in short order. Thank you very much. I think that's -- appreciate the question.

And operator, that may -- it's the last question. So I think I see that we're just over our time.

Operator

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

Silviu Itescu -- Chief Executive Officer

Well, again, thank you, everybody, on such a tumultuous day, for attending our conference call. I think we're very pleased by our operational deliverables in the last quarter and our financials are robust. And we look forward to updating the rest of the market as in due course on some very important near-term deliverables. Thank you very much.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Silviu Itescu -- Chief Executive Officer

Eric Rose -- Chief Medical Officer

Andrew Chaponnel -- Interim Chief Financial Officer

Carvey Leung -- Cantor Fitzgerald -- Analyst

Jason Kolbert -- Dawson James Securities -- Analyst

Jackie Yan -- RBC Capital Markets -- Analyst

Tanu Jain -- Petra Capital -- Analyst

Michael Okunewitch -- Maxim Group -- Analyst

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