MESO

Hello, and welcome to the Mesoblast financial results for the half year ended December 31, 2025. 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 at the date of this webcast and should not be relied upon as representing the company's views of any subsequent date. The company specifically disclaims any obligations to update such statements. With that, I would like to turn the call over to Paul Hughes.

Thank you. Welcome, everyone, to the Mesoblast financial results call for the period ending 31 December 2025. My name is Paul Hughes. I'm Head of Corporate Finance and Investor Relations. In the room with me today is our CEO, Silviu Itescu; our CFO, Jim O'Brien; and our CCO, Marcelo Santoro. We have a presentation to run through highlighting the financial results and the operations for the period, and then we'll have some time for questions at the end. So now I'll hand over to Silviu to begin.

Thank you, Paul. We could go to Slide 4, please. This slide highlights the corporate priorities for 2026. We intend to continue to show strong growth in Ryoncil sales driven by market adoption. We will build a strong cash flow with judicious use of funds for operations and an optimal capital structure. Cultural transition is critical so that we can move to an efficient commercial organization. We will expand Ryoncil label indications and obtain approval -- seek to obtain approval for remestemcel-L products, our second-generation platform. Our manufacturing focus will seek to increase diversification, capacity and cost efficiency for our platforms, and we will continue to focus on appropriate commercial partnering backed by demonstrable value drivers, including FDA approvals, strong revenues and advanced clinical programs. Next slide, please. This year was marked by a very successful product launch. We initially received FDA approval for Ryoncil in December 2024. Ryoncil is the first and only FDA-approved allogeneic mesenchymal stromal cell product. The product was launched in April of 2025 with revenues growing quarter-on-quarter. There is significant unmet need for continued uptake and increasing market adoption. And our net revenue from Ryoncil was USD 49 million in the first half of FY '26. Next slide, please.

Thanks, Silviu. Jim will take us through the financial slides. Thanks, Jim.

Thank you, Paul. Hi, everybody. I'd like to now review our first half fiscal 2026 operating results. And I should mention that all figures are in U.S. dollars. Total revenues for the period were $51.3 million, driven by the successful launch of Ryoncil. Our net product revenues, as Silviu mentioned, were $49 million, and we had a gross margin of a strong 93%. Our R&D expenses for the period were $46.1 million (sic) [ $46.2 million ] compared to what we reported last year of $5.1 million. Now last year's numbers were a bit skewed because we had a $23 million reversal of the inventory provision once we got approval of Ryoncil. Without that adjustment, the prior year number would have been about $18.1 million. So -- I'm sorry, we would have grown about $18.1 million over the prior year. And again, the spending in the period really related to our adult GVHD trials, back pain and also our LVAD program as well as getting ready for the BLA and some manufacturing work. Our sales and general and administrative expenses were $28.5 million compared to $18 million in the prior year. And that increase really related to the sales and marketing effort that Marcelo and the sales team did in terms of driving sales growth. The loss during the period this year was $40.2 million compared to $48 million in the prior year period. Again, as I mentioned a few moments ago, that prior year loss was impacted by the $23 million worth of reversal on inventory. And -- but for not those items, we were down -- we were up about -- we were down on a net loss of about $30 million year-over-year. Just in terms of our operating spend and our cash flows for the first fiscal quarter -- first fiscal half of the year, excuse me, we were at $30.3 million. As we look to the second half of the year, we expect our operating cash flow usage to decline when compared to the first half of fiscal '26 based upon our projected cash receipts from revenues as well as maintaining disciplined cost control measures and efficiencies in the operation. And on the next slide, just to point out our profitability and growth pipeline from Ryoncil. As I mentioned, we had strong revenues for the period. Gross margin, excluding amortization expense would have been about $44.2 million. Our direct selling costs were $7.7 million. And again, we have strong operating performance that allows us to invest in our R&D programs and our life cycle extensions. And we do have a very robust pipeline, and we continue to invest in our manufacturing footprint as well as building inventory where needed and getting our second-generation products to market. On Page 9, next slide, please. We had $130 million worth of cash at the end of December of this year, which you can also note that the reduction in our net spend over the year, as I said, will decline over the second half of this year. On December 30, 2025, we entered into a $125 million nondilutive credit line facility. The first tranche of which is $75 million was drawn at closing and enabled Mesoblast to replay in full its prior senior secured loan. We also partially repaid the subordinated royalty facility, which will continue to be reduced from ongoing revenue and will be fully repaid by the middle of 2026. The second tranche of $50 million is available to be drawn on our option through June of 2026. The new facility has a lower cost of capital for the company, freed up its major assets to provide flexibility for strategic partnerships and commercialization. In addition, the new facility can be repaid at any time without incurring early prepayment or make-whole fees. It does not include any exit fees and does not cover any of Mesoblast assets, which is a very strong point for the reason why we did this. This is terrific for the company. And we have no restrictions on doing additional unsecured debt or any licensing activities. We're very pleased with this line of credit and believe it will strengthen our balance sheet to support an exciting growth period for Mesoblast. On the next slide, looking ahead to the second half of 2026, we anticipate full year Ryoncil net revenues to range between $110 million and $120 million on a full year basis. With that, I'll turn the call back to Silviu for additional comments.

Thanks, Jim. If we can go to Slide 12, I'd like to bring Marcelo Santoro, our Chief Commercial Officer, please.

Thank you very much. Next slide, please. So good afternoon, good morning, everyone. We are extremely pleased with the performance of the launch to date, and I couldn't be proud of the work, the commitment and the passion that our colleagues at Mesoblast demonstrate every single day towards these children. We have treated numerous patients since we launched and Ryoncil is having a transformational impact in the treatment of these children according to the feedback we received from treatment centers and treatment teams. In fact, we are on track to achieve 20% market share by the end of year 1 in the market. The commercial performance to date has been exceptional. This holds true not only against our initial expectations, but also when benchmarked against other successful rare disease launches. We have been laser-focused on building the infrastructure needed to ensure Ryoncil reaches its full potential. I am very happy to report that we have onboarded 49 treatment centers to date. In addition, Ryoncil is now listed on the formulary of 30 of those centers, a number that continues to grow steadily as more P&T committees review and approve its use. Formulary inclusion is critical, as you know, as it streamlines the adoption and use of Ryoncil when it's selected for a patient. Having these many formulary approvals in less than 1 year demonstrates the outstanding value of the product and the tireless commitment of the team to build the appropriate infrastructure to expand utilization. In addition, 13 hospitals have opted to use Optum Frontier, our specialty pharmacy partner, virtually eliminating their financial responsibilities with the product. On the payer side, we have also made exceptional progress. Ryoncil is now covered by insurance plans, representing over 280 million lives across both commercial and government payers. Medicaid coverage is in place in all states and a specific J-Code for Ryoncil, J3402 went into effect on October 1, allowing for more efficient billing and reimbursement for both sites of care and payers, along with CMS published rates. Commercial payer support has also been very strong. All major payers, including Aetna, Cigna, UnitedHealthcare, Anthem, Humana and Prime Therapeutics covering all Blue Cross plans have issued favorable coverage policies for Ryoncil. Notably, these policies do not require step therapy, which simplifies patient access significantly. All of this has occurred within the first 6 months post launch. Next slide, please. From a strategic priority standpoint, the Ryoncil team is 100% focused on 3 key strategic pillars. The first is to proactively identify and prioritize appropriate patients who may benefit from Ryoncil therapy. The second to reinforce our superior patient outcomes in first-line treatment right after steroids. And the third is to empower caregivers to demand Ryoncil for their children. We have been working with several advocacy groups and will soon launch a comprehensive campaign dedicated to supporting both caregivers and patients. With that, let me turn back to Paul.

Thanks, Marcelo. I'll hand over to Silviu, who's going to take us through the rest of the deck before we open it up to Q&A. Thanks.

Thank you. If we could move to Slide 14. This slide summarizes our plans for label expansion of Ryoncil into adults. A pivotal study of Ryoncil as part of second-line treatment regimen in adults with severe steroid-refractory graft versus host disease is underway with our partners at the NIH-funded Bone Marrow Transplant Clinical Trials Network. The basis for this trial is that 50% of adults who have severe GVHD fail existing second-line treatment, including predominantly ruxolitinib. These patients who fail have a 25% abysmal survival at 100 days. We have previously used Ryoncil under expanded access in patients aged 12 and older, in many adults as well, 18 and older who have failed ruxolitinib or other second-line agents and use of our product in this patient population was associated with 76% survival at day 100, a remarkable result. As a result of these results, the final protocol design for the registrational study in adults has been locked down and has been worked through with the FDA recently in a meeting with the FDA agency. We expect that following Central Institutional Review Board approval coming up in March, site initiation and patient enrollment will commence. Next slide, please. Further extension strategy for Ryoncil is focused on various opportunities in pediatric and adult inflammatory diseases. The team is currently evaluating multiple indications to unlock value, including in the inflammatory bowel, neurodegenerative and respiratory conditions. Our portfolio will be prioritized to maximize shareholder return by utilizing either internal investment strategies versus external partnership initiatives. Next slide, Slide 16. Now I'll be updating you on our second-generation platform, rexlemestrocel-L currently being developed for discogenic chronic low back pain and chronic ischemic heart failure. Slide 17, our Phase III chronic low back pain program, a first 404-patient randomized controlled Phase III trial has already completed, and that included about 40% of patients who are opioid dependent. We met with the FDA recently and received positive feedback on potential filing of a BLA based on achieving a clinically meaningful reduction in pain intensity at 12 months between the treatment arm and placebo arm. The robust result in opioid reduction from at least one adequate and well-controlled trial could be included according to our meeting with the agency as part of product labeling, which is a very, very, very important outcome. We, in fact, do already have an RMAT, Regenerative Medicine Advanced Therapy designation for rexlemestrocel-L as a potential opioid-sparing therapy in chronic lower back pain. Next slide. The confirmatory Phase III trial is recruiting currently 300 patients across 40 sites in the U.S. with a primary endpoint, 12-month reduction in pain. As I've mentioned on multiple occasions, FDA has confirmed that, that is an approvable endpoint. The enrollment of these 300 patients is expected to be completed in March or April. Data readout and BLA filing are expected in calendar year 2027. We have, at the same time, undergoing commercial manufacturing in order to leverage our existing capacity and cost efficiencies. I will reinforce that there are many patients who are suffering from this terrible disease. Over 7 million patients across each of the U.S. and EU5 are due to generative this disease, patients who are otherwise have run out of options other than surgery. This is a large unmet need for a potential blockbuster opportunity. Next slide, Slide 19. Now I'd like to update you on Revascor, our product based on our rexlemestrocel-L platform that is being developed for chronic heart failure with reduced ejection fraction and persistent inflammation in either patients with Class II/III heart failure or very end-stage heart failure patients who are being kept alive with a ventricular assist device in the left ventricle. We can go to Slide 20. LVAD implantation improves overall survival in these end-stage patients, and that's well established. However, the underlying causes of heart failure in these patients, notably inflammation, persists. And whilst the left ventricle improving the left side -- the LVAD is improving on the left side of the heart, the right ventricular pump function remains vulnerable and continues to deteriorate. Therefore, progressive right heart failure continues to occur in up to 30% of patients and is the primary cause of multi-organ failure and death in this group of patients, mortality occurring within the first 12 months. In addition, life-threatening major mucosal bleeding due to progressive right heart failure and portal hypertension occur in about 30% of patients and is the major morbidity in this group, the main cause of recurrent hospitalization. Next slide. Now we performed 2 randomized controlled studies in this patient population. The more recent study was called LVAD Study II, and that randomized 159 patients in a 2:1 randomization to provide primary evidence of Revascor's efficacy in reducing major bleeding events. A second study, LVAD Study I, an earlier study, is a supportive study for LVAD II, randomized 30 patients in a 2:1 fashion and provided supportive evidence also of Revascor's efficacy in reducing major bleeding events. Intramyocardial injections in both of these studies of either Revascor or control were performed at the time of LVAD implantation. Importantly, both trials, both randomized controlled trials showed the Revascor reduced cumulative incidence of major bleeding events, life-threatening GI bleeding, the trial's primary efficacy and safety endpoint and related hospitalizations through 6 months, both were significant. We go to the next slide, Slide 22. This provides you with some new data that we have not previously presented. This slide demonstrates the total number of major bleeding events resulting in hospitalizations over 6 months on the left-hand side and over 12 months compared to controls in the entire study LVAD II. As you can see both on the left-hand side and the panel B on the right-hand side, Revascor reduced major bleeding events and hospitalizations by about fivefold, a very significant reduction throughout a 12-month period compared to MPC treatment compared to control treatment. Next slide, please. Now moreover, particularly in the ischemic group of patients, what you can see is that on the left-hand side, in controls, in red, the ischemic controls had approximately a three to fourfold increase in hospitalizations due to right heart failure. The non-ischemics had a very low incidence and risk of heart failure hospitalization. In contrast, on the right-hand side, by 12 months, you can see that the MPC treatment reduced the right heart failure hospitalization events in ischemic patients back to background levels, the same levels as I see in non-ischemic controls. And again, those reductions of hospitalization from right heart failure were significant. Next slide, please. This slide focuses on the risk of death from right heart failure in controls on the left, and in Revascor-treated patients on the right. As you can see in Panel A on the left, amongst patient controls who have at least one hospitalization from right heart failure, the presence of -- sorry, amongst controls, the presence of right heart failure hospitalization, at least 1 right heart failure hospitalization in red was associated with a mortality risk and a hazard ratio of 7 or more than 7 compared to patients who did not have right heart failure. So in controls, particularly early within the first 4 months after LVAD implantation, the presence of a right heart failure hospitalization was a very strong predictor of death. In contrast, what you can see on the right-hand side, amongst Revascor-treated patients, the risk of death, particularly in that early period 4-month period is almost completely abolish. And you can see that the overall survival over a 12-month period in Revascor-treated patient was the same, irrespective of whether they had a right heart failure hospitalization or not. So what this means is that Revascor not only reduces the incidence of hospitalization rates, but protects these patients against death from right heart failure. If you go to the next slide, please. So the summary of these new data, data that I haven't shown you here, but we have also observed is that Revascor reduces the inflammatory cytokines and through inflammation reduction protects the at-risk right ventricle in these patients, the same right ventricle that continues to fail despite the fact that there's an LVAD in the left ventricle. The strengthened right ventricle reduces hospitalization rates in the intensive care unit due to right heart failure and improves survival. The strengthened right ventricle decreases the risk of portal hypertension and therefore, decreases GI bleeding events. This leads us to think very carefully about how Revascor beyond its potential use in patients with left heart failure problems, also has the potential to be used to improve right heart failure function in patients not only with ischemic heart disease, but other causes of right heart failure, including primary pulmonary hypertension and chronic lung diseases. Next slide, please, Slide 26. So let me give you an update on our CHF program, particularly our plans to file for approval. With these new data and our existing orphan drug designation for treating this group of high-risk patients with high mortality as well as FDA's stated preference for randomized controlled trials, Mesoblast is moving from filing for an accelerated approval to filing for a full approval. Unlike an accelerated approval, full approval does not require a confirmatory study. Aligned with FDA on items required for filing the BLA regarding CMC potency assays for product release and commercial manufacturing, we now have these activities well and truly underway, and we expect to file our BLA for full approval for this indication in the next quarter. Let me summarize our highlights and our upcoming milestones. Ryoncil is the first and only FDA-approved MSC product. It delivered net revenues of USD 49 million in the first half of FY '26. As you heard, 49 centers have been onboarded, 64 centers account for 94% of the entire pediatric bone marrow transplant population, so well underway to achieve that in record time. We're initiating label expansion to adult acute GVHD, a market that is 3x larger than the pediatric market. We are currently prioritizing our portfolio, which includes the potential to go into the inflammatory bowel disease, neurodegenerative diseases and respiratory conditions, and we will update the market as we focus on certain areas in priority over others. Our second-generation rexlemestrocel-L is enrolling the second trial in back pain with full enrollment expected to complete by the end of March or end of April. BLA filing next quarter is in line for full approval for patients with right heart failure and end-stage heart failure with LVAD. And we're actively optimizing manufacturing logistics to support commercialization, both of the rexlemestrocel-L pipeline and obviously, to have further inventory for the projected growth in Ryoncil sales. With $130 million in cash on hand as of December 31 and the new credit line that you heard about, which still has the potential for $50 million available to draw down, we're in a very strong financial position. And as you heard earlier, we are projecting full year fiscal 2026 Ryoncil net revenue to range between USD 110 million and USD 120 million. And I think I'll stop there. And hopefully, there are some questions that we can all address. Thank you.

Operator, if you could please open the lines for questions. Thank you.

[Operator Instructions] Your first question comes from Edward Tenthoff with Piper Sandler.

Congrats on all the great progress across the board. Could you just repeat the guidance you broke up a little bit for this coming year?

Yes. Yes. What we're projecting for the full fiscal year are net revenues ranging from $110 million to $120 million again, on a full year fiscal basis 2026 hitting June 2026.

Your next question comes from Olivia Brayer with Cantor Fitzgerald.

I have a few, if you don't mind. Maybe just first on Ryoncil in peds. You all mentioned potentially hitting 20% penetration of that pediatric population by the -- I think it was by the end of your fiscal year, if I heard that correctly. So can you maybe just run through what those assumptions include to get to that 20%? And how high of penetration do you think you can realistically reach in this specifically peds population over time? And then I've got a couple more on your pipeline programs.

Yes. So thank you. So let me start with the second one and then go to the first, right? So the second one, we assume a 40% peak share. And you have to understand, we believe it should be 100%. This is a product that should be used by everyone. But let's be responsible and realistic, a 40% share is reasonable, right? So if you assume a range of patients, and obviously, that's dynamic of 375 patients, that's what the 20% is based on. It's 20% until the end of our fiscal year. That's what we aim on achieving at that point.

And is that specifically for the fourth quarter of your fiscal year? Like if I'm kind of doing the math.

Yes.

Okay. That's helpful. And then for your Revascor BLA next quarter, how is the FDA viewing the ischemic versus non-ischemic phenotypes? And have they given any input on to or around potential labeling language around the ischemic etiology or inflammation biomarkers?

Well, so I think it's important to note that in the 159-patient trial, we achieved the principal endpoint of -- in overall in the full patient population without having to go to any subgroups in terms of the cumulative incidence of major bleeding events over 6 months. Also, we achieved a significant reduction in hospitalizations for major bleeding events across the entire patient population without having to go to subgroup. So our position is that we will be seeking a label for the entire patient population, especially given that the confirmatory study, LVAD I, also achieved the same endpoint across all patients. There's no question that the patients at greatest risk are those with ischemic etiology. And those patients have a higher level of inflammation, they have a higher risk for bleeding, right heart failure and death. And interestingly, we saw the very same sort of thing in the larger trial in Class II/III heart failure, where, again, we saw patients with ischemic heart disease as an etiology had high levels of inflammation, greater risk of 3-point MACE and greater treatment benefit. So we will be providing the FDA with the totality of the data that confirm the supportive trials, demonstration that ischemic patients are at greater risk and treatment with our cells is even more effective in that subgroup, but we've achieved the endpoint around the prespecified bleeding endpoint and hospitalization endpoint across the entire population. So that remains to be negotiated.

That's helpful. Understood. And then last question is just on the chronic back pain. Can you just clarify what data you're submitting to the FDA? Is it just a new analysis of the pre-existing data? And is your ongoing Phase III not actually going to be part of that submission package? Maybe just some clarity around that update because I do think that is a new disclosure.

No, no, no. I didn't mean to say that we wouldn't be submitting the data from the new trial. The new trial, the second trial, which completes enrollment by over the next month to 6 weeks is the plan to complete enrollment. That trial becomes the primary data set and the previous trial becomes a supportive data set. That's certainly our intention. We have spoken with the FDA about looking at the subgroup of patients who are opioid dependent and that's a discussion that is ongoing with the agency. But with respect to the primary endpoint in all comers of pain reduction, we will be using the 2 trials to present full data sets.

Okay. But that additional Phase III readout is coming in 2027, correct?

That's correct.

So will you -- you're kicking off filing before actually having that data?

No. The objective is to complete that trial, get the readout and move to a filing with those data in the primary file.

Your next question comes from Madeleine Williams with Canaccord.

Just in regards -- just going back to the pediatric Ryoncil and just the FY '26 guidance. Can you speak a little bit to sort of how you're seeing repeat utilization among centers or just how that kind of shakes out over the remaining of the year and sort of just trying to dig into more.

Yes. No, we'd be happy to do that. Yes. So we see the continuous growth in the centers, continuous adoption, not only by more centers, but also repeated use by the current centers we already have, which shows that they are finding utility in the products and repeating the treatment in other children, right? So that's one component. The second component, we're also seeing very big, very large centers coming on board, which will substantially increase our confidence in this guidance. And it's a reality that is happening every day.

And I would add to that, I think a major additional components moving forward is continued physician education. We've shown both in our previous Phase III trials and in the real-world data that the earlier this product is used, the greater the survival. it's unquestionable. And so a lot of the effort by the team will be to educate physicians. Physicians have their own practice habits. And they all believe that their particular way of doing things is standard. Nothing is standard in this disease, especially given that only Ryoncil is approved by FDA for treatment of children. So I think a major focus and an area of growth is to educate the majority to use the product as early as possible after steroid failure. Do you agree, Marcelo?

For sure. And I would add 1 more, right? So as a father, unfortunately, my child had something like this horrible disease, I would like to know that this option is available. So it's our obligation to empower them to empower the caregivers, make sure that they understand that this product is available and it's the only FDA-approved product so that they can talk to their treatment teams and ask for this as a potential therapeutic option for their child.

That's helpful. And just maybe 1 more for me. Just in regards to Revascor and the full approval -- filing for full approval rather than accelerated. I'm just interested, you've obviously discussed the additional data, but I'm assuming there's sort of been some sort of constructive discussions with the FDA. And just sort of if you can provide more color about what your confidence is in receiving that full approval?

Well, we've had multiple discussions with the agency. We understand what they wanted to see and the data that I've highlighted to you today, particularly as it relates to mortality is the #1 area of focus. And the recent guidance by the agency to focus on randomized controlled trials rather than single-arm trials where major endpoints are being targeted like mortality give us the sort of confidence that particularly in an orphan disease indication where a single trial should be viewed as sufficient for approval, full approval.

[Operator Instructions] Your next question comes from Michael Okunewitch with Maxim Group.

Congrats on all the progress. I guess just to kick things off, there's obviously been a lot of changes at the FDA since you first launched the Phase III in chronic lower back pain. So I wanted to see if you've received confirmation from the current FDA administration that the 12-month pain-only endpoint is sufficient for approval?

Yes, we have. Absolutely. That's exactly why we had the meeting recently to gain confirmation from the current administration that, that endpoint is an approvable endpoint, and that's exactly what we received. Moreover, the recent guidance from the FDA that a single well-conducted randomized controlled trial is sufficient for approvals in various indications also gives us great confidence that if we achieve that endpoint, this is an approvable trial and approval endpoint.

And then just 1 more for me, and I'll hop back in the queue. I wanted to ask when it comes to the upcoming filing in the Class IV heart failure programs, are there any outstanding items that FDA has requested that you need to finalize before you can submit that next quarter?

Well, commercial manufacturing is always a very important component of this. And that is something that we are heavily engaged in. The product rexlemestrocel-L and its Phase III trials was all made at Lonza in the same facility where Ryoncil was made and which was approved for Ryoncil. And we believe that the vast majority of the manufacturing process is quite similar to the Ryoncil process. So I think that will be an advantage in our filing, but that remains -- we need to get some more confirmation from the agency. Nonetheless, we expect that the long history of manufactured product for back pain trials, cardiac trials will hold us in good stead.

That brings us to the end of today's call. I'll hand back to Paul, please.

Thank you. As you heard today, we're in a strong position with a number of significant milestones in this current second half through the period. We look forward to keeping you updated on the progress and the achievements. I'd like to thank everyone for their interest in Mesoblast and participation in the call today. Thank you, and have a great day.

That does conclude our conference for today. Thank you for participating. You may now disconnect.