Hello, and welcome to the Mesoblast Financial Update and Operational Highlights Webcast for the Quarter Ended March 31, 2018. An announcement and slide presentation have been lodged with the ASX. These materials will also be available on the Investor page at www.mesoblast.com. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. Before we begin, let me remind you that 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 by representing the company’s views of any subsequent date. The company specifically disclaims any obligations to update such statements. With that, I would now like to turn the call over to Mesoblast’s Chief Executive, Dr. Silviu Itescu. Please go ahead, Dr. Itescu.

Thank you all for joining this call. Today, I’m joined by our Head of Finance, Andrew Chaponnel; and our new Chief Financial Officer, Josh Muntner. Josh has just joined Mesoblast, so Andrew will today take us through the financial results. On behalf of the board, I would like to take this opportunity to thank our outgoing CFO, Paul Hodgkinson, for his significant contribution over the past 4 years to the company. The appointment of a New York-based CFO is in line with our corporate strategy to bring additional U.S. based corporate expertise to senior management and to our board. Josh brings to Mesoblast over 20 years of U.S. health care related transactional and capital markets experience. Welcome, Josh. Would you like to say a few words, please?

Thank you, Silviu. I’m really pleased to be here with Mesoblast. I’m excited to join the company at a critical time as it transitions to a commercial organization. I’m very much looking forward to working closely with the Mesoblast team in delivering capital growth and shareholder value.

Welcome, Josh. If we can go to Slide 4, this slide sums up why Mesoblast is a compelling investment proposition. We have a disruptive technology platform that uses very potent, very homogeneous immuno-selected cells to develop well-delineated medicines. These cells have well-characterized mechanisms of action that target multiple disease pathways. We have a very robust intellectual property estate, and we target the most severe disease states that are otherwise refractory to conventional therapies. We have industrial-scale manufacturing. The unique properties of our cells enable both large-scale expansion and the use of the cells in unrelated individuals, so we have a very robust business model based on an allogeneic off-the-shelf platform with the proprietary media formulations that meet industrial-scale needs and we ultimately have delineated off-the-shelf products with batch-to-batch consistency and reproducibility that underpins our regulatory strategy. And of course, we’ve got already several revenue generating products and multiple products in Phase III. We have the first two commercially approved products commercialized by our licensees, stem cell products in Japan and Europe, and we have three product candidates in Phase III in the United States. That’s a mature pipeline. We have major near-term data readouts and we have revenues from approved and late-stage assets that will help fund our very deep product pipeline. If you go to the next slide, Slide 5. This slide shows you both our clinical pipeline and our commercial products partnered through our licensees. Notably, as I’ve mentioned, TEMCELL is the first allogeneic cell therapy that has received full approval in Japan and is now generating growing sales. Alofisel is the first allogeneic cell therapy product to receive approval by the European Commission very recently. We’re very pleased by the cumulative increase in royalties from sales of TEMCELL as you will shortly hear from Andrew. The ramp-up has exceeded our expectations, and this all goes very well for the potential sales of our own first GVHD product to be launched in the United States. More on this later. We could now move to the financials. Andrew?

Thank you. Turning to Slide 7, you look at our cash position and cash flows for the quarter. For the nine months ended March 31, 2018, we reduced net operating cash flows by 24% versus the comparative period. Within the quarter, we drew $35 million from our non-dilutive, four-year $75 million credit facility. This facility has an interest-only period of up to 30 months, and notably, it has no warrants. In terms of cash on hand, we ended the quarter with approximately $60 million, which is $13.8 million increase on the June 2017 cash position. If you could now turn to Slide 8. Let’s look at revenue first. There has been a significant increase in revenue for the nine-month period versus the comparative period. There are a number of factors behind this increase. Firstly, we continued to see a sharp increase in TEMCELL royalties as sales in Japan increased. Royalties increased by 162% for this period versus the comparative period. We also received sales milestones on TEMCELL in the period, which resulted in a $0.5 million increase compared to the prior period. In regards to revenue from our patent license agreement with TiGenix, we recognized $5.9 million, which was received on execution of the agreement as well as $5.9 million that was paid to us – that will be paid to us by December 2018. If you could now turn to Slide 9, where we will look at the remainder of the P&L. Other than the increase in revenue discussed on the prior page, the [Audio Dip] period versus the comparative period relate to manufacturing and income tax. Within manufacturing, we reduced spend by 69% as sufficient clinical product was manufactured in the comparative period of FY 2017 for our Phase 3 trials. This enabled us to limit our spend in the current period. Looking at income tax, there was a $20.4 million increase in our income tax expense benefit as a result of recent changes in the U.S. corporate tax rates. The overall impact of these changes was a 71% improvement in our loss after tax, which decreased to $14.5 million from $49.7 million in the comparative period. That completes the financials.

Thanks, Andrew. If you could move to Slide 10. This slide is to remind you all of the disruptive nature of our technology platform. We focus our product, product pipeline on cell called the STRO-1+ mesenchymal precursor cell, which is at the apex of the hierarchy of the mesenchymal lineage. Use of monoclonal antibodies to immuno-select these cells results in a very homogeneous, very potent population of cells that have well-characterized surface receptors, which are able to respond to signals from inflammation and damage in the tissue where the cells find themselves in. In response to these activating signals, the cells secrete a diverse variety of biomolecules that are responsible for a two-step process, immunomodulation and shutdown of damaging inflammation and induction of pathway as a result of tissue repair. Those two-step processes are complex and are necessary for providing the kind of clinical benefits that one would expect to see in complex diseases that have multiple pathway aberrations, including chronic heart failure and graft-versus-host disease. Slide 11 speaks to the strength of our intellectual property. We have a dominant IP estate that covers mesenchymal lineage cells. We have more than 800 patents and patent applications grant event and working their way through all major jurisdictions. These patents cover composition of matter, manufacturing and therapeutic applications of mesenchymal lineage cells. They provide strong commercial protection for our product candidates that are under development. They provide strong patent protection for products commercialized by our partners, and they enable licensing, if we so wish, of our IP to third parties for indications that, when they’re in alignment with our corporate strategy, make sense. Slide 12, our allogeneic manufacturing process underpins our business model. We have an allogeneic business model with the type of margins that one would expect in biologics development. The…

Thank you. [Operator Instructions] Your first question comes from Kevin DeGeeter from Ladenburg. Please go ahead.

Thank you very much for taking my questions. Josh, congrats on the new position. And two if I may. First off, Silviu, thank you for highlighting the company’s progress with regard to improving manufacturing yields and efficiencies. Really two questions along those lines. First off, as we think about the MPCs, can you either quantify or provide a metric that we should think of in terms of how some of the qualitative improvements you described may translate to either quantitative improvement yields or reduction in COGS? Just what’s the right way to appropriately begin to put some economic value on the significant improvements in manufacturing that you’ve made recently and over the course of several years?

Thanks, Kevin. I mean, that is obviously a very, very complex question that we spend a lot of time addressing. I think I’d start out by saying think about the issues around autologous CAR-T cell therapies. Those relate to hematopoietic lineage cells, which, in and of themselves induce immune responses and need to be developed autologously. The issues there are the regulatory environment around each product. Effectively, each product – each patient’s product is a stand-alone product. The costs associated with regulatory testing and release criteria are enormous if you have to do it on a product-by-product basis. Our ability to scale, to effectively have thousands of therapeutic doses from a single source of starting material means that several vials can be used to quantify the release criteria and reproducibility of an entire batch of material. And that dramatically reduces the cost of goods, right? The testing and the regulatory requirements of an autologous versus an allogeneic product are just diametrically opposed. Secondly, an autologous product has very high inherent failure rate, as high as probably 30%, so – and that has nothing to do with hematopoietic versus mesenchymal or other cell type. It’s just the nature of the beast that if you do things on a patient-by-patient basis, you’ll have a 30% failure rate. And we have eliminated that degree of failure rate by establishing criteria for the type of donors, the type of standardization of the donor, the type standardization of source material and starting material, the use of monoclonal antibodies as opposed to very old-fashioned approaches that others use, et cetera, et cetera. So elimination of failures is a big reduction in cost of goods. And then you move from those kind of simplistic approaches to the use of bioreactors and most importantly, our own proprietary media…

That’s extremely helpful. No. I appreciate that clarity. Maybe just one related follow-up. As we think about time line to potential FDA filing for GVHD, pediatric GVHD, should we think of the gating factor to filing as being that 180-day safety follow-up or CMC?

The 180-day follow-up. We must have the full 180-day follow-up in order to have a pre-BLA meeting with the FDA. That then really is the gating event for filing, yes.

Perfect. Congratulations on all the progress.

Thanks, Kevin. Appreciate.

Thank you. Your next question comes from Mark Breidenbach from Oppenheimer. Please go ahead.

Hi, good morning, Silviu and let me add my congrats to another quarterly growth of progress. Let me ask, first, a question about April’s DMC review of the Class II, Class III heart failure trial. I know, this year it will be what you earlier referred to as a futility analysis, and last year, we did have what was referred to as a futility analysis. Can you help us understand maybe a little bit of the difference between the DMC reviews between this April and last April?

Yes, of course. Thanks, Mark. So a formal futility analysis, of course, as you know, is a formal agreement between the company and the agency that in order to do – in order for the company to receive certain information about the efficacy of the product within a given trial, in order to not get a statistical disadvantage, there needs to be an agreement that if the results are subpar, the trial would stop. And that’s a typical futility analysis, and that’s how we structured the formal futility analysis last year, where, to be honest, we agreed to do an analysis probably at a premature time in the development of the program, but we had to do that because we needed to assure ourselves that the trial was moving in the right direction in order to justify further spend. And we took a high risk. We agreed to a certain bar that needed to be met for efficacy purposes, beyond which, if it’s successful, we would continue the trial, and if we were not successful, we would stop the trial. And we were fortunate that we achieved that successful bar, which gave us tremendous confidence that we were going in the right direction and had a good chance of meeting the pre-specified primary endpoint, hence, the continuation of the program at that point. The Data Monitoring Committee, which reviewed that set of data was very clearly instructed to give us a yes or no answer on a certain pre-specified question. This time, the Data Monitoring Committee has the ability to review all data, all safety data, all efficacy data, primary endpoint data, secondary endpoint data. And interestingly enough, the safety data and the efficacy data in this particular trial are very similar, right, because the safety data for this trial relate to hospitalizations, to deaths, to deaths from heart failure and the like, and the primary and secondary endpoints are very much those. The primary efficacy endpoints and secondary endpoints are built around hospitalizations, recurrent hospitalizations and deaths from cardiovascular disease. So the interface between safety and efficacy are very interesting. And the Data Monitoring Committee recently met and reviewed all data available to them on the first 465 patients in the trial, and the recommendation was to continue without modification. They have the flexibility to recommend anything, including stoppage of the trial so – for perceived safety problems or for lack of efficacy. And so we were very pleased to receive a recommendation to continue because we think that we’re on the track to potentially positive outcome as we move forward. Does that put it into context?

Yes. I think that’s helpful. And you – can you possibly tell us how many events have accrued with those 465 patients that were enrolled as of April?

Look, I am not at liberty to tell you how many events have occurred, but I would say that we’ll – we’re accruing events at exactly the rate that we had anticipated. We’re well on track. And I see this, since it’s an events-driven trial, as meeting our perceived time line.

Okay. Okay, fair enough. Second question is really just a housekeeping question. I was hoping you can maybe walk us through the conditions that you would need to meet before you could access the remaining two tranches of the debt finance from Hercules? Or are there specific criteria that have to be upheld before you can access those?

Look, those are obviously confidential matters contractually, but look, they relate to clinical development milestones that you would expect would be clearly value-enhancing for the company. So providing that the company continues to achieve very clear near-term milestones, then I think that we would have access to draw down the additional capital.

Your next question comes from Elemer Piros from Cantor. Please go ahead.

Good morning, Silviu, I was wondering if you could clarify something related to the U.S. GVHD trial. If I remember correctly, back in February, when you have announced the 28-day data, you already referred to a very favorable, very low mortality rate at 100 days at 22%. I think you reiterated this statement in the 6-K today. And so my suspicion is that this trial is actually very close to achieving the 180-day landmark, and I was wondering if you could confirm that.

Thanks, Elemer. Look, I think you are right in many of the aspects that you’ve just stated. We saw a very low mortality that we were able to report in partially completed dataset when the day 28 data had come out. We will be updating very shortly the 100-day survival. And there is a reason why the day 28 endpoint is validated by the FDA. It is an endpoint that typically predicts outcomes in survival at day 100 and at day 180. So we would hope that we are in line to achieve those outcomes. Indeed, in the Expanded Access Program in 241 children, we saw a highly significant mortality and survival benefit at day 180 in children treated with our mesenchymal stem cells compared to the control population, and that was in the sickest of the sick children, great CD disease where mortality at day 180 was about – of the order of – sorry, survival at day 180 was in the order of around 30% in the control group.

And just to further amplify on how predictable the final results may be, you made that observation of 22% mortality in 50 out of the 55 children. Is that correct?

I think so, yes.

Okay. Okay. And one final question. If you were to be able to maybe not quantitatively but handicapping the order of interest that you receive, what you prepared – described as your high-volume programs for potential license awards, which, one, based on their feedback, appears to be generating the most interest?

So I would put it this way. I think the GVHD program has done tremendous good in terms of being a bellwether for the platform. I think it’s demonstrated the strength of the technology. I mean, graft-versus-host disease is the mother of inflammation, and it’s been a disastrous place for the pharmaceutical industry, where all known biologics have failed, and that includes the anti-TNFs of course. And to have a positive result of that magnitude – we were against the historical control of other biologics achieving 45% responder rates. We were almost 25% better than that, I think close to 70% responder rates. To see that type of a result says a lot about the technology, about the platform and about our capability to manufacture. And I think you take that and you then look at our high-volume products, back pain and heart failure, look where the markets are 10 times the size of graft-versus-host disease but where clearly commercial partners will be required to leverage sales and marketing capabilities, those discussions have now taken a different leg as a result of the – of proof of concept of graft-versus-host disease. And the type of companies that we’re talking to with regard to our back pain product are quite different from the type of companies we’re talking to on our heart failure product as you would expect because there are different leaders with sales, marketing and distribution capabilities in each of those segments. And we’re also talking, of course, on a regional basis to partners who have strengths in major jurisdictions outside of the U.S., where regional deals are quite possible and where the type of partnerships would allow us to continue to build our value in the United States.

Thank you, Silviu.

Thank you. Your next question comes from Jason Kolbert from H.C. Wainwright. Please go ahead.

Hi, Silviu, congratulations on all the progress. I wonder if you could opine with me a little bit about the strategy both on the cardio and on the chronic lower back pain trials. On cardio, typically, we would expect to see two matching Phase 3 trials. But since you have the same product, the same dose, are you looking at the LVAD trial and the CHF Class II, III trial as a possible discussion with regulators? And when we go out to the disc disease, the chronic lower back pain, I know that the current trial has a 24-month endpoint where you might see data in 12 months. What do you think the second trial might look like? Thanks

So I think with respect to heart failure, it’s a little bit early to talk about the overarching relationship between the two trials, although, clearly, we see that there is a continuum between the treatment of the same product of end-stage heart failure and the treatment of Class III heart failure. In particular, what we’re trying to do is to strengthen the native myocardium in end-stage patients. Those end-stage patients have a 50% 12-month mortality in the absence of having an artificial device put in with an artificial device which, today, is used in maybe 10% of end-stage heart failure patients. The survival – there is a clear survival benefit of one to two years, but it comes at the expense of some pretty bad complications. And so we – our objective is to improve on the complications by reducing the inflammation associated with LVAD use, strengthen the native myocardium and perhaps be in a position to build out what’s called a Bridge to Recovery model, where the hope is that the native myocardium is strengthened sufficiently so the LVAD can then be taken out after a six-month period. And that’s a hope. That’s a plan as we move forward, and obviously, the results of this upcoming readout will inform very much as to whether that’s an appropriate pathway to build out a commercial plan around. If we’re fortunate and those discussions with the agency and the results of this program are all in alignment, then, of course, the product itself has the ability to be used in Class III patients to prevent progression from Class III to end stage. And that’s the continuum, right? That’s the continuum. And that’s where we’re going with the larger trial and the readout – that readout will probably be somewhere around 18 months behind the readout of the LVAD trial. And that’s how we see a step-wise progression with this product in the heart failure market. With respect to back pain, the current Phase 3 in a very conservative mode has a 24-month readout. We expect to have a look and a review of the data at 12 months. And again, given the severity of the disease and the opioid epidemic that is a consequence of the severity of this disease, we will be having ongoing dialogue with the FDA through the 21st Century Cures Act potentially to discuss how this program can potentially be shortened.

Thanks so much for the follow-up and congratulations to my old friend Josh Muntner for the CFO role.

Thanks, Jason. Nice to hear you.

Thanks, Jason.

Your next question comes from Dennis Hulme from Edison in Sydney. Please go ahead.

Good morning. Thanks for taking my question. Silviu, can you tell us about your plans for adult graft-versus-host disease, about how you might achieve label expansion from a pediatric approval if that’s sustained?

Sure. So first of all, by getting pediatric approval, we will establish a new standard of care. Already through our Expanded Access Program, we know that adoption of our product in children with GVHD will be easily achievable. It’s already, today, potentially the standard of care in children who failed other biologics. So approval in this space will make it really the standard and I think will make it extremely difficult for any alternative therapies, who will have to go head to head against our product to find a role in the pediatric form of the disease. In parallel, of course – and this still requires agreement with the agency. In parallel, we will be performing an additional adult study in the most severe forms of acute GVHD in order to demonstrate, again, a survival benefit, particularly in those patients with severe life-threatening liver and gut disease. We’ve already seen that in the previous Phase 3 that was the subset where this product’s succeeding in. So we have a high degree of confidence that we’ll be successful again. And given that our product will already be approved in the market, I think it’ll be a relatively easy transition to move and label extended into the adult population. In addition to that, we have a very dominant IP estate, and I think it’s very important to – for everyone to understand that whilst there may be a variety of academic studies, a variety of competitive products, by having a first-mover advantage, having a registration and having a dominant patent estate, we will ensure that there will not be competitors to our product in this market.

Okay, great. Thanks very much. That’s all from me.

Thank you. [Operator Instructions] The next question comes from John Hester from Bell Potter.

Hi. Good morning, Silviu. Just a quick one for me. Can you just update us on your thinking around the pricing of the pediatric GVHD drug, please? And what feedback do you have on that?

Sure. So, we can come at this from two different perspectives. First of all, we can look at the parallel product in Japan and how it’s selling and how it’s adopting, yes? They have – they’ve been out there for two years now, have had reimbursements of between $120,000 to $180,000 per patient for a four-week course of therapy based on weight approximately. And what we’re seeing is very rapid adoption, this product becoming clearly the standard of care, and we’re – we are very, very encouraged by the uptick in sales and obviously, our royalties. And we can use that information clearly with respect to how we would see our product perform in the U.S. market. In the U.S., orphan drug pricing is significantly higher than it is in Japan. And just as a rule of thumb, I would say U.S. prices would be 60% higher than Japan for most drugs, including orphan drugs, orphan drugs perhaps even higher than that. We’ve tested the market. We’ve done commercial testing. And given that the cost of a bone marrow transplant in the U.S. is significantly higher than in other jurisdictions and given that the cost of treating a patient with graft-versus-host disease doubles or triples the cost of the bone marrow transplant, we think probably a reimbursement of about $300,000 per patient is appropriate and it is probably conservative. Yeah.

Thank you very much. And just in relation to partnering still in the U.S., is it possible with – that you could contemplate going ahead by yourselves without a commercialization partner in the U.S.?

Now it’s a great question, and look, part of the rationale for the type of non–dilutive financing that we’ve entered into with Hercules is, in fact, exactly to have that option. There are many, many potential partners in – financial partners in the U.S. that are providing options to us to consider a go it alone strategy, in other words, to have the ability to have cash on hand that is dedicated to building out a small launch team, to building out the inventory needed for launch and therefore, to retain 90% plus of the value of the product. And that – if we can achieve that, that will be a tremendous outcome.

And just finally for me, in relation to the U.S. market again for pediatrics, how many hospitals would you estimate would be potential buyers of the GVHD product? And I’m just sort of coming at it from there was – how big would a potential sort of marketing team be?

Yes. No, that’s the right question. You asked exactly a spot-on question, 50%, so we know already from our EAP program, 50% of all pediatric patients are covered in 15 hospitals. So when you look at the size of a sales force, it would be six to 12 people will cover the U.S., which is tiny, easily manageable. And in any event, I think that there’s an opportunity for us as a company to build out a relatively flexible but small sales force, biologic sales force that allows us even when we enter into a partnership on a large program like heart failure or back pain to potentially contribute with co-marketing efforts. And that, therefore, has the potential to retain more of the pie.

Thank you very much Silviu.

Thanks.

Thank you. Your next question comes from Marc Sinatra from Lodge Partners.

Good morning. Silviu, can you hear me all right?

Yes, I can.

Alright, great. Just listen, just to follow up on John’s question, how far are you down the path on deciding whether to partner or whether to go it alone with pediatric GVHD product given it looks relatively easily done to go it alone? And then has there been any changes to the time lines for the release of the LVAD trial results, which would seem to be a major catalyst coming up for you guys?

So, look second question first. No change. We’re on track. Those are locked in. Those are very important results and we will be providing to the market as soon as we have them. On your first question, look, you’re absolutely right. A pediatric alone launch is – will be very easy for us, and we’ve put in place the necessary capital that will facilitate that. And that is sort of the base case. I think, if an appropriate partner were to consider a simultaneous and rapid expansion of the opportunity in adults, acute GVHD and in chronic GVHD and potentially other applications of the technology, we would have to sit down and think very carefully about how to divide up that pie. But for pediatric graft versus host alone, of course, this is an opportunity we would love to retain 100%.

Okay, thank you very much for the answer Silviu.

Thanks Marc.

Thank you. [Operator Instructions]

Thank you. Thank you all for your questions. If there are no further questions, I’d just like to again remind you all about the imminent upcoming clinical milestones that we hope to be able to bring to you in very short term around the day 100 survival and obviously, the subsequent heart failure primary endpoint outcomes. Thank you all for being on the line.