Hello, and welcome to Mesoblast's Financial Update and Operational Highlights Webcast for the Six Months ended December 31, 2017. 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 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 and such forward-looking statements. In addition, any forward-looking statements represent the company's view only as of this 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 now like to turn the call over to Dr. Silviu Itescu, Chief Executive of Mesoblast. Please go ahead.

Good morning and good afternoon, to our operational highlights and financial results call for the half year ended December 31, 2017. With me is our Chief Financial Officer, Paul Hodgkinson. If you could turn to slide four. Here is our investment proposition. Over the last six months, as you're about to hear, we've made tremendous progress in bringing much needed cellular medicines to patients with serious or life-threatening conditions. Next slide. We believe we have the most potent technology platform for regenerative medicine applications, with mechanisms of action that are now well established and have been validated clinically across multiple disease states. Next slide, slide six, our manufacturing processes are capable of delivering highly scalable industrialized products that are consistent and reproducible. We're proud that our team's management know-how in regenerative -- in regulatory activities and necessary for product approval will underpin the positive Phase 3 results for Graft Versus Host Disease, which we hope will mean that our product candidate MSC-100-IV will be positioned to be the first allogeneic mesenchymal lineage cell product launched in the United States. On slide seven, you see highlighted our mature and diverse product pipeline. We have three assets in Phase 3 and multiple assets in Phase 2. We believe that this is the most mature regenerative medicine product pipeline in the industry. United States continues to be the world's key market for our products. And the FDA has initiated a regulatory pathway for accelerated approval of regenerative medicine products, which address conditions that are serious or life-threatening. This is called the Regenerative Medicine Advanced Therapy designation and it's within the 21st Century Cures Act. We believe that our portfolio of advanced product candidates is very well positioned to access this -- the accelerated approval pathways under this act. Indeed, a major milestone for…

Thanks, Silviu. Turning to slide 36. Let's just touch on the cash position and cash flow for the half year. So at the top of the page, you can see the cash out -- net cash outflows and you can see a significant benefit of 11.2 million over the comparative period. So we can see that there's a reduction of 24%. There is two real drivers for this. One is, we've been constraining costs and there's a reduction of 4.7 million in payments to suppliers and employees. And on the other side of the fence in terms of inflows, as Silviu alluded to, we received 6.5 million on the upfront receipt from TiGenix as part of the patent license agreement with them. In terms of cash on hand, cash on hand is 47.4 at the end of December, pretty consistent with the June position. In slide 37, let's look at the P&L in the next two or three slides. So top-line revenue, revenue, there is obviously a significant increase over the comparative period. And there is a number of factors within here. There's been a sharp increase in the TEM cell royalties, going up 139% to 0.9 million through the income on sales increasing in Japan and the royalty derived from that. We also received sales milestones from the TEM cell product as well during the period. And then the last area is the recognition of both the upfront that I just mentioned in the cash flow from TiGenix as well as recognition of the second payment from TiGenix, which will be received within the next 12 months. Looking further down the P&L on slide 38, in terms of our cost management, we still continue to constrain our costs and you can see very clearly in terms of the boxes…

Thank you, Paul. And as we previously stated, in the milestones section, we've got some very important upcoming milestone and catalysts linked to our key Phase 3 programs. That for the MSC-100-IV product, we've completed the day 28 primary endpoint readout. We expect to readout a 100-day survival data in the second quarter and the 180 safety and survival data in the third quarter of this year. For the MPC-06-ID for chronic low back pain, we will imminently complete enrollment and we'll be in a position to then provide guidance on readouts of the program. For MPC-150-IM for advanced and in-stage heart failure, the Class IV heart failure program will have a 12-month readouts in Q3, early Q3. And the Phase 3 trial for Class II-III heart failure targets enrollment completion by the end of this year. In addition, of course, we continue to be in serious and advanced discussions with multiple potential corporate partners. On that note, I think I would like to open to any potential questions. Thank you.

Thank you. [Operator Instructions] Your first question comes from Mark Breidenbach with Oppenheimer.

Hi, thanks for taking the question. Silviu, I have to ask. I think previously, you guys have been guiding that we would see a six-month LVAD weaning analysis sometimes in the near-term, I want to say either this quarter or at least in the first half of 2018. What happened with that readout? Is -- why is the decision to go to a 12-month analysis in the third quarter?

Look, I think this is a trial that is being run by the National Institutes of Health with oversight by the FDA. And again, the decisions on how to unblind and when to unblind are their decisions. To provide a six-month unblinding of the primary endpoint may potentially impact on and buy us the 12-months overall readout of the key endpoints of survival and hospitalizations. So at this point, the NIH is still considering whether there may be an early data readout, but I think ultimately, it's their decision not our decision. And we will be guided by them.

Okay. So what was the basis for that previous guidance that we might see that six-month readout? I'm just trying to gain confidence that that won't be another revision with the 12-month readout.

Well, no, the 12-month readout is the final full data readout of the whole trial. It includes the six-month analysis of the primary endpoint and it includes the full 12-month analysis of all survival and hospitalization readouts. The question was whether we could provide an earlier six-month readout of the product trial's primary endpoint. That remains a discussion point with the National Institutes of Health, but the overriding principle is to ensure that we do not disturb the integrity of the whole trial. So if at all possible, we may provide an update, but really that's in the hands of the --. Yeah.

Got it. No, I understand. I just -- with these investigator sponsored trials, I always worry that the investigator might choose to publish the full set somewhere and not even announce the results at a conference or --?

No, I can tell you that there is -- first of all, there is an obligation to share the data with Mesoblast, number one. And number two, these data will be slated for presentation in full at the American Heart Association Annual Meeting later this year. The expectation is that as soon as top level 12-month data are available, we will be making that information public. The issue here was whether six-month data on the primary endpoint could be made public without disturbing the integrity of the 12-month outcomes. And I think that remains an area for discussion between us and the NIH.

Okay, fair enough. And then since we just had a conversation recently about the GVHD results, I won't focus on them here. But I'm just wondering, if you could help a little bit more about the nature of your agreement with TiGenix and your IP protection over adipose-derived mesenchymal stem cells. Now that Takeda is purchasing TiGenix, are you in a position to potentially see additional products or additional licensing revenue come from Takeda in 2018?

Well, I can speak to the license agreement that is in place. And it is specifically for the use of their adipose-derived product in the local administration into fistulae. And the license to our patents supported their ability to launch their product both in Europe, which is where they've gotten positive responses from EMA and their intention to launch the product subsequently in United States. To the extent that that product may have applications beyond local administration to fistulae, we are open to have those discussions with Takeda. And -- look, I can't speak for what their plans are, but I think we're open and we've got patents that are very broad and that cover uses of mesenchymal lineage cells for a wide number of indications irrespective of their source and that -- their source could be of course adipose-derived, it could be bone marrow and it could even be IPS derived. So we have a very deep IP estate. And I think importantly, there are a number of other companies that are developing mesenchymal lineage products and providing that those products are not in our core strategic focus, we're very much open to negotiating potential licenses to our intellectual property.

Okay, thank you. I'll leave it at that and jump back in the queue. Thanks for taking the questions.

Thank you.

Your next question comes from Alethia Young with Credit Suisse.

Hi, this is Irene on for Alethia, thanks so much for taking the question. Just on the LVAD cardiac trial. Could you give us some context on your expectations on LVAD weaning and results that you'd view as clinically meaningful? And then also, how can we think about your RMAT designation playing into the heart failure regulatory process, particularly for the approval timelines of the different classes maybe after LVAD data? Thanks so much.

Thank you. Those are very broad questions. With respect to the LVAD trial and its clinical endpoints, the primary endpoint of the ability to sustain circulation off the pump, so called weaning ability is actually a very important clinical endpoint. And so far, is it -- it is a reflection of both improvements in the function of the native heart and an improvement in functional capacity of the patient in the -- which is often a measurement of the circulation. And we showed an over two-fold increase in the proportion of patients who were able to successfully be weaned in this way in the pilot study using one-sixth of the dose of cells and those data previously published in circulation and we used by buyouts in our successful submission to the FDA to get the RMAT itself. So the primary endpoint has a real biologic and clinical meaning, if it's achieved. It is also, obviously, the pillar under -- on which we would hope to build what's called a bridge to recovery opportunity, meaning that if pace -- if we can increase the number of patients who can maintain their circulation successfully with the VAD turned off, then the next step is of course to attempt to explant the VAD. And all physicians and surgeons in this field have a dream that the point of these LVADs is to be a temporary option and for them to be removed after six months with patients potentially moving from end stage Class IV heart failure towards a much earlier stage Class II or Class III. If we can achieve that, then we've achieved a huge outcome for these patients who otherwise have a horrible demise. So that endpoint has great clinical Importance. In addition to that, the use of the cells as…

Yeah. Yes, I agree. Should we be thinking about the LVAD data as having implications commercially or regular -- from a regulatory perspective on the Class III patients or should we be thinking about waiting for that data coming soon? It makes sense that the translation should be clear, but from your conversations with regulators.

Well, again, I think this is a step-wise approach. We are focusing on the MPC-150-IM product for an initial accelerated approval in in-stage heart failure patients as a standalone commercial opportunity, and we will build -- we have built commercial models around that target market population. That in itself is a very large commercial opportunity for us. If we're successful, then I think that what you're looking at is the potential for an extension of the label into Class III heart failure on the back of positive results in the Class III trial. We see this is a step-wise progression and whilst we could build a relatively straightforward commercial team to launch the product for Class IV heart failure without the need for partners, it's clear that for a successful launch in Class III heart failure, there will be a requirement to have a major pharma company with a cardiovascular sales force to enter into a partnership to make that a successful launch.

Okay, fantastic. Thanks so much. It's very helpful.

Thank you.

Your next question comes from Ted Tenthoff with Piper Jaffray.

Great. Thanks for taking the questions. Silviu, just picking up on that. That was a good detailed explanation. When it comes to the commercial side, is there a way with kind of more targeted more severe patients for you to retain, some kind of co-distribution or something like that, is that your aspiration or would it really be to partner out wholly and focus your commercial efforts on other programs?

Look, I think it's a little bit early to be definitive. I think the opportunities in the heart failure space are huge. And there is room to have alternative commercial arrangements, including co-promotion rights, including retention of certain geographical rights. I think all of those are on the table. And we are exploring each of those with different partners. So I think -- let's see how things evolve, but I think the opportunity before us is tremendous and it's important to maintain optionality.

Yes, I agree totally. And to push it a little more, maybe take it on a higher level. I'm kind of trying to figure out, what Mesoblast looks like when you grow up because you've got all these late stage programs, obviously it's going to be somewhat data dependent? But understanding sort of where you guys intend to focus, I think will be helpful. I guess, it really just comes down to as the data rolls out, but trying to get a better sense of where you anticipate being commercially focused versus where you will continue to seek new partnerships as you've done in the past?

So I think this is the guts of the strategy, the Mesoblast strategy as we grow. Right? I think we've got three assets right now in the midst of having completed Phase 3 trials, that's a very mature pipeline. It gives us again optionality. We've -- the first Phase 3 trial has readout and it's positive. And that puts us on a clear trajectory to being a commercial revenue generating company. For the pediatric market alone, which is a substantial market for us, it does not require a very large investment in capital for building out a sales force. 50% of the -- of patients are in our existing under the PAP program and the Phase 3, wherein 15 transplant centers across the US. So it doesn't require a lot to service those sites. Having said that, I think we -- time is critical and resources are critical. And even with the GVHD, there will be a requirement to accelerate the adult label extension and even lifecycle management into chronic GVHD. And that's where a strategic partner would make a significant impact. With respect to heart failure and chronic low back pain, both of those Phase 3 programs are targeting multi-billion dollar markets, which will require substantial sales force, substantial commercial distribution capabilities, none of which are in the -- on the short-term horizon on -- in our plans because they require a lot of dedicated resources. So I would expect that even with successful readouts in the heart failure program and back pain program, we will be partnering those with appropriate players that have existing footprints in those areas. It wouldn't take much at that point then for us to consider keeping one or more additional products, taking them through Phase 3 and into registration on our own and building our own biologic sales force. And that's really the way I think I see that over time, Mesoblast will grow up. We will have some of the largest products partnered and some of the ones that are a bit more nimble in areas of high unmet need that we can keep and build a sales team around.

Excellent, that's very helpful, that additional color. I appreciate it.

Thanks, Ted

Your next question comes from Tanushree Jain with Bell Potter Securities.

Hi, Silviu and Paul, thanks for taking my questions. Just a few quick ones from me. Paul, one is for you. For the EUR5 million upfront receivable within 12 months from TiGenix, can you tell us what the trigger for that is?

Thanks very much, Tanu. Yeah. There is -- the reason it's recognized as a receivable as of today, even though it will be received latest in 12 months' time is because there are no conditions that we have to satisfy today in order to receive that. So there is no risk of not having it, there's a chance of getting it earlier if they get approvals quickly in the market. So I'm fully expecting the cash to come through at worst 12 months exactly from the date of signing and potentially earlier for that. And that's why it was recognized today. And there is a very clear understanding from us and the audit team that the cash is without risk of being received.

Great. And Silviu, just for you on the RA trial. So you've mentioned, I guess, the natural progression in the further development of that would be to have a higher induction dose and perhaps look at all higher durability benefits because of that, so in terms of Phase 3 development or a Phase 2b next for that, when do you see the timelines or your strategic priority there?

Yeah. I think that the key item here is that efficacy is determined by early response, meaning within the first 12 weeks. That 12-week endpoint is an acceptable endpoint for all product approvals by the FDA. And in our own Phase 2 studies, we've demonstrated peak responses within the first four to eight weeks and certainly by 12 weeks. The durability was obviously very pleasing and that -- the durability after 39 weeks. But the objective is to increase the proportion of patients achieving a low disease activity state, and perhaps even remission within that first 12-week period. So that's our focus and that's where we would go with the next program evaluating even higher induction dosing or repeat dose therapy in that first 12-week period. And so what we are considering is what a Phase 2b, 3 design would look like with an adaptive design around it that would allow us to evaluate additional induction regimens to allow them the idea want to move into Phase 3. Obviously, that is dependent on both additional resources and partnering.

Right. Great, thanks so much.

Your next question comes from Mark Sinatra with Lodge Partners.

Good morning, Silviu and Paul. Listen, first question from me, the manufacturing spend is obviously dropping quite quickly. Where do you guys see manufacturing at in terms of a final product sort of now in the medium-term and in the longer-term? I mean, obviously, you think that technologies will improve over time. Just could you -- and I know it's a broad question, but if you could just give us a little bit on that, that would be great.

I think we'll both have our own -- we both have views on this. But I think the important point around the reduction in spend on manufacturing reflects the fact that we spent a quite amount -- quite an amount of money in the previous few years to ensure that we made all the sufficient material necessary for our ongoing Phase 3 programs, number one. And number two that we invested sufficient capital to optimize the manufacturing process. I think what you're seeing now is some of the results of that. So for example, we successfully transitioned the manufacturing process for MSC-100-IV from a very old process that had not been -- had not made product since 2009. And when we took over the product, we transferred its process into the Singapore facility, we optimized the manufacturing process, we made substantial changes and modernized the process. And as a result of that, the current process provides a very robust and reproducible and consistent product that we think underpins the great results that we just reported in Phase 3. Same sort of robustness and consistency is across our whole pipeline. And as an example that for exam, we've achieved a high level of purity and consistency of the product. And that flows across the MPC product for heart failure, for disc repair and for intravenous delivery for inflammatory conditions. Moving forward, I think that we're now into the commercialization phase and, of course, there will be different levels of investment for commercial manufacturing, for inventory build-out and the like, but that's now a new phase we're moving into. Paul?

Yeah. I thought I would add a couple of comments to that. So in terms of manufacturing, you're absolutely right, as we completed manufacturing of the products for the current trials, the manufacturing spend has come through. Obviously, as we said in terms of the commercial launch trajectories for GVHD, we've got commercialization readiness programs to do. So that's for example spending money with our manufacturing partner, getting the ready -- the site ready for an FDA inspection. That's a typical example. And actually preparing the CMC dossier will be a typical component of that program. So I will expect to see manufacturing to come up a little bit. But at the same time, trials such as GVHD is coming to a conclusion in terms of R&D spend. So overall, I'm not overly concerned about an increase in costs in the near-term. And obviously on top of that, as we get closer to market, there will be working capital impacts on us as we start projects for inventory and advance the launch. Okay.

That's great. Now second and last question for me. You said that you're going to be meeting the FDA soon to discuss the LVAD trial and where that might head. I mean, obviously that discussion would be greatly helped by the six-month weaning trials. I guess, Silviu, how do you see those discussions heading without that number?

Yeah. No, I don't agree with that. In fact, the whole point of the discussions with the FDA are to agree before all the data have been readout or any of the data have been readout on what their expectation would be for accelerated approval, not after any of the data. This is a key pivotal trial and any results that come out of this trial need to be pre-specified to the requirements of the agency. The discussions that we are now having with the FDA are all built on the data that has -- have already been generated in the prior early Phase 2 trial. Yeah.

Yeah. No, I got it. That makes perfect sense to me. Thank you very much. Have a good day, guys.

Thank you.

Your next question comes from Dennis Hulme with Edison.

Well, good morning, Silviu. Can you -- in relation to the [indiscernible] approval in Europe, can you tell us a little about the anticipated timelines and what the plans might be there?

Yeah. So we've already had previous interactions with the European Agency. And it is clear to us that the data from the expanded access program together with new phase data would be sufficient for what they would call a conditional approval in Europe. I think there is a central body for approval, but then you need to proceed on a country-by-country basis for additional approvals, prior to launches. And that's quite a complex regulatory process and I think from Mesoblast's perspective, we're prepared to focus very much on the US approval and launch, which is the central administrative body. And I think with respect to Europe, we would -- our strategic focus would be to work with a partner that has already a major footprint and a regulatory infrastructure to address all of the potential markets in Europe.

Your next question comes from Elemer Piros with Cantor.

Yes, thank you very much. Silviu or Paul, I was wondering, if you could help us understand a little bit about the -- how many patients have been actually treated in the Japanese market? So what does odd 2.6 million or so royalty revenue correspond to in terms of numbers of patients treated by JCR?

Thanks very much for the question. Yeah. If I am -- obviously, our data isn't provided explicitly by JCR, but if you work it backwards off the royalty rate and make an assumption that we're in the mid-20s on the royalty, which is a public number because it's described in the F1 prospectus on our past US listing, you can back calculate and you'll get to somewhere between 150 and 200 patients must have been treated lifetime to-date.

So during the last six months or so?

During lifetime to-date for the six quarters. Yeah.

Okay, okay. Thank you very much for that. And maybe just a little bit of a follow-up, Silviu, on the LVAD results. Do I understand it correctly that the NIH will actually conduct the six months analysis unblinding it, but won't make -- won't necessarily make the information public in order to avoid bias and then they will move on and wait another six months until the entire cohort could be assessed at 12 months?

Look, I -- again, I can't speak precisely for the way they're going to do the analysis, but that's about right. That's about right.

Okay. I mean, what I'm trying to understand is if they don't conduct the six months analysis, but at 12 months they look back how did it look at six months and now 12 months, what sort of use would that have?

The primary endpoint is six months. Yeah.

Okay.

That is the primary endpoint. So for weaning, there is no primary analysis beyond six months. The question is, when do they provide us with those six months data?

I see. Okay, understood. Thanks for the clarification.

Thank you.

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

Thank you very much for your presence today. We are very excited by the tremendous progress we've made in the last six months and we hope to update you all with further positive news in -- over the next few weeks and months. Thank you very much.

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