Mesoblast Limited

Melbourne, Australia (10 May 2016); and New York, USA (9 May 2016): Mesoblast Limited (ASX: MSB; Nasdaq: MESO) today reported its consolidated financial results and operational highlights for the third quarter and nine months ended 31 March 2016.

In line with previous guidance, the Company has maintained a significantly reduced operating cash burn. Substantial progress has been made in the Company's Tier 1 clinical programs, which brings these product candidates closer to market and supports potential new strategic collaborations.

Financial Highlights

At 31 March 2016, the Company had cash reserves of US$100 million.

Operating cash outflow for the third quarter of 2016 was US$22 million. The total cash outflows of both the second and third quarters of 2016 was US$42 million, a reduction of 25% in comparison to the total outflows of both the first quarter of 2016 and the fourth quarter of 2015 of US$55 million.

For the nine months ended 31 March 2016, the Company's loss before income tax improved by 14% (US$9 million) as compared to the comparative period in FY2015. The main items within this overall loss reduction, which impacted our cash reserves, were a 19% reduction in research and development expenses and a 21% reduction in management and administration costs.

Operational Highlights

• MPC-150-IM for advanced heart failure: The Phase 3 trial is recruiting well across North America, and is expanding to Europe this quarter.
• Phase 3 trial was significantly reduced from 1,165 to 600 subjects following FDA meeting.



• The trial's primary endpoint is a comparison of recurrent heart failure related major adverse cardiac events (HF-MACE) between treated patients and controls.



• The trial's Data Monitoring Committee (DMC) convened in April 2016. After reviewing the clinical data from the trial's first 175 patients, the DMC recommended that the study should continue according to its protocol.



• MPC-06-ID for chronic low back pain: The current 360 patient Phase 3 trial continues to expand across US sites.



• In line with FDA written guidance, the trial uses a composite primary endpoint with thresholds for pain and function and a follow up period of 24 months.



• MPC-300-IV for biologic-refractory rheumatoid arthritis: Top-line Phase 2 results released from the first cohort of rheumatoid arthritis patients who have previously failed one or more biologic agents showed that a single intravenous infusion of the lower dose of MPC-300-IV resulted in early and sustained clinical responses, with no cell-related adverse events.



• TEMCELL: Mesoblast's licensee in Japan, JCR Pharmaceuticals Co. Ltd. (JCR), launched the first fully-approved allogeneic regenerative medicine in Japan, TEMCELL® HS Inj. (TEMCELL) for acute Graft Versus Host Disease (aGVHD) in children and adults in Q3 FY2016.



• Japan's National Health Insurance has set reimbursement for TEMCELL at ¥868,680 (approximately US$8,100) for 72 million cells.



• A four-week, multi-dose treatment course of TEMCELL for an average adult is expected to be reimbursed at ¥13,898,880 (approximately US$130,000), or at ¥20,848,320 (approximately US$195,000) if symptoms persist and additional dosing is required.



• Mesoblast is entitled to receive royalties and other payments at pre-defined thresholds of net sales, first royalties recognized in Q3 FY2016.



• MSC-100-IV for steroid-refractory aGVHD: Results from 241 children treated in an Expanded Access Program for children with steroid-refractory aGVHD, conducted across more than 50 sites in North America and globally, demonstrated clinically meaningful responses associated with significantly increased survival.



• Mesoblast is recruiting an open-label single Phase 3 trial in 60 children with aGVHD as first-line therapy after steroid failure.

Public Presentations and Peer Reviewed Articles

• MPC-150-IM and MPC-300-IV: Phase 2 trial results in CHF and Type 2 Diabetes were published in leading peer reviewed journals, Circulation Research and Diabetes Care, respectively.



• Technology developed at Harvard University and exclusively licensed by Mesoblast was shown in a preclinical study in the journal Stem Cells to enhance homing properties of mesenchymal lineage cells to sites of inflammation and to induce durable reversal of Type 1 diabetes.



• MSC-100-IV: Data from 241 children presented at the tandem annual scientific meetings of the Center for International Blood & Marrow Transplant Research and the American Society of Blood and Marrow Transplantation in Hawaii in February. These data were also presented at the third International Conference on Regenerative Medicine held within the Vatican in April.



• MPC-75-IA: Results released from our Phase 2a trial in patients with post-traumatic knee injury to the anterior cruciate ligament, which showed that a single intra-articular injection of our MPC product candidate, resulted in improvement in pain, function, cartilage thickness, and joint structure over 24 months. The study results were presented at 2016 Osteoarthritis Research Society International World Congress in The Netherlands, in March.

Financial Results for the three months ended 31 March 2016 (the third quarter) (in USD)

Loss before income tax improved by 5% for the third quarter of 2016 compared with the third quarter of 2015. Within this overall loss reduction, the main items which impacted our cash reserves were as follows:

• Revenue: Revenue was $4.1 million for the third quarter of 2016 compared with $4.2 million for the third quarter of 2015, a decrease of $0.1 million. This decrease was primarily due to a decrease in interest income as we increased the proportion of cash reserves held in U.S. dollars to reduce currency risk which is offset by the royalty income earned on sales of TEMCELL in Japan since the launch of the product on 24 February 2016 by our licensee, JCR.



• Research and Development: Research and development (R&D) expenses were $12.0 million for the third quarter of 2016 compared with $13.4 million for the third quarter of 2015, a decrease of $1.4 million. This decrease primarily reflects a reduction in expenditures of our Tier 2 products and product support costs as management reduced costs in line with our corporate strategy.



• Manufacturing Commercialization: Manufacturing commercialization expenses were $7.7 million for the third quarter of 2016 compared with $5.3 million for the third quarter of 2015, an increase of $2.4 million. This increase was primarily driven by an increase in the number of production runs to meet the clinical supply demands of our Tier 1 products and preparing the facility for commercialization.



• Management and Administration: Management and administration expenses were $5.4 million for the third quarter of 2016 compared with $6.7 million for the third quarter of 2015, a decrease of $1.3 million. This decrease was primarily due to lower share based payment expenses and favourable exchange rate movements as the U.S. dollar strengthened against the Australian dollar. The majority of management and administration expenses were incurred in Australian dollars.

The overall loss reduction before income tax also includes reduction in items which did not impact our current cash reserves, such as: fair value measurement of contingent consideration, foreign exchange movement within other operating income and expenses and finance costs. Our net loss attributable to ordinary shareholders was $16.9 million, or 4.49 cents per share, for the third quarter of 2016, compared with $22.2 million, or 7.00 cents per share, for the third quarter of 2015.

Financial Results for the nine months ended 31 March 2016 (the nine months) (in USD)
Loss before income tax improved by 14% for the nine months of 2016 compared with the nine months of 2015. Within this overall loss reduction, the main items which impacted our cash reserves were as follows:

• Revenue: Revenue was $15.7 million for the nine months of 2016 compared with $15.6 million for the nine months of 2015, an increase of $0.1 million. This increase was primarily due to higher milestone revenue received during the nine months of 2016 compared with the nine months of 2015 and royalty income earned on sales of TEMCELL. This is offset by a decrease in interest income as we increased the proportion of cash reserves held in U.S. dollars to reduce currency risk



• Research and Development: R&D expenses were $35.6 million for the nine months of 2016 compared with $44.2 million for the nine months of 2015, a decrease of $8.6 million. This decrease primarily reflects a reduction in expenditures of our Tier 2 products and product support costs as management reduced costs in line with our corporate strategy.



• Manufacturing Commercialization: Manufacturing commercialization expenses were $22.0 million for the nine months of 2016 compared with $16.8 million for the nine months of 2015, an increase of $5.2 million. This increase was primarily driven by our increased production runs to meet the clinical supply demands of our Tier 1 products.



• Management and Administration: Management and administration expenses were $16.7 million for the nine months of 2016 compared with $21.2 million for the nine months of 2015, a decrease of $4.5 million. This decrease was primarily due to lower share based payment expenses, a reduction in legal and professional advisor activities and favourable exchange rate movements as the U.S. dollar strengthened against the Australian dollar. The majority of management and administration expenses were incurred in Australian dollars.

The overall loss reduction before income tax also includes reduction in items which did not impact our current cash reserves, such as: fair value measurement of contingent consideration, foreign exchange movement within other operating income and expenses and finance costs. Our net loss attributable to ordinary shareholders was $52.4 million, or 14.76 cents per share, for the nine months of 2016, compared with $65.7 million, or 20.68 cents per share, for the nine months of 2015.

For more information, please visit http://doc.irasia.com/listco/au/mesoblast/halfyr/2016/int3qpress.pdf.

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