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Do you have a real relationship or just a non-binding letter of intent?
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Unknown Speaker
Incoming transmission.
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Matt
Hello, this is Matt and McKinley from History Dispatches.
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McKinley
We are the Father Son duo bringing you the weird, the wild, the wacky and the craziest tales from across time.
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Unknown Speaker
From the Ice bowl to the Great.
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Matt
Heathen army and the head of Oliver Cromwell.
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McKinley
The same head they kept on a pike for three years.
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Unknown Speaker
Yep.
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Matt
All here on History Dispatches.
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McKinley
New episodes every weekday.
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Unknown Speaker
Find out more@historydispatches.com or or wherever you.
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Matt
Get your podcast app.
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Mary Long
The market goes on a road trip and winds up right back where it started. You're listening to Motley Fool Money. I'm Mary Long, joined today by Nick Sepel. Nick, thanks for being here.
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Matt
Great to be here with you, Mary.
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Mary Long
So before we dive into some more specific stories that hit the news cycle today, we're going to park on the macro picture for a bit because I was seeing lots of headlines as I was preparing for today's show about the fact that The S&P 500 has done some wild round trip travel since the start of the year. It closed out yesterday at about break even with where it stood in early January. But you know, you dive into these stories and you kind of get folks calling out different starting points and how the market's moved since then. So I'm going to give you some windows about the S&P 500 performance and then ask you to pick which is the most valuable framework to look at. So from five years ago today, the S&P 500 is up 105% from January 1st of this year. It's effectively flat from April 2nd, aka Liberation Day, it's up about 4%. And from April 8th, which is when the market had touched into bear market territory, it's up over 18%. Nick, which of these windows paints the best, most accurate picture of the health of the overall market?
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Matt
Well, Mary, for me I'm looking at the five year chart. So if you think back to five years ago, we were in the depths of the COVID 19 pandemic, tariffs were in place on about 17% of US trade and there was a US presidential election six months away. So lots of potentially concerning macro headlines coming down the pike here. We are five years on from a lot of those valid concerns. The stock's up more than double and I think over the long term, lots of different macroecon economic headlines, whether it was COVID 19 five years ago or Liberation Day today. But over the long term, really what's important is how is the economy and the companies that operate within it going to perform? And over the long Term, the stock market has been up and to the right trajectory. And I would expect that to continue here into the future. And it's a great reminder that even though when you're going through all those macro uncertainties in real time, they seem really important over the long term, not as important as they seem when you're going through them.
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Mary Long
Yeah, it's become a bit of a bit to say that the word of the year is uncertainty. But it's important to remember uncertainty is a fixture of the market and of the world. There are certainly times where the uncertainties feel less uncertain, but they tend to always be there. Another piece of macro data that we got the other day has to do with inflation. It cooled a bit last month, so down to 2.3% from March's 2.4%. Nick, that's an itty bitty bit closer to the Fed's 2% goal. Notably, egg prices, which were sky high not so long ago, fell 13% over the course of the month. What happened to tales of a trade war induced recession? It might have taken us a while to get here, but okay, 2.3% isn't so far off from the stated goal of 2%. Have we gotten the soft landing that we've been teased, teased about for the past several years?
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Matt
Well, maybe for me, I think it's still too early to make definitive conclusions. Remember Liberation Day, April 2nd? So it's still kind of in the near rear view mirror and lots of companies took actions in anticipation of that. So you had builds up of inventory ahead of the announcement. You have uncertainty around how long the tariffs were going to be in place, which led companies to hold off on things like changing their supply chain or increasing prices, that sort of thing. And so it's still kind of to, to be determined on what the overall impact will be for tariffs on the overall macro economy. That said, basically every central bank worldwide has started cutting rates and you are seeing some improvement and the macroeconomic data here in the US So I think we're in a much more supportive environment with respect to rate cuts today than maybe we would have been, you know, at the start of the year. And so I do expect that, you know, if we continue on this, on this trend, that we are going to see some rate cuts this year.
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Mary Long
Okay. We kicked off today's show with a look at the big picture. So now we'll take a second to zoom in on a company that's honestly far surpassed market trends over the past year. It's up about 80% year to date. The Business in question is a nuclear technology company, Oklo again, up 80% for the year, almost 20% today alone. Nick, why are investors so bullish on a company that doesn't have a reactor running quite yet?
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Matt
Yeah, I think there's a few things going on here. Over the past year. Plus which OCLO came public via a SPAC IPO back in May of 2024, we have seen just this huge surge in interest in nuclear technology that's really being powered by what's going on in AI of increased expectations for electricity demand through the end of the decade. OKLO came public, As I said, May 2024, right in the middle of that kind of hype machine, when infrastructure spending expectations were ramping up and there was new interest in nuclear power. At the same time. If you look at some of the former board members of OKLO that had been there at the time of IPO, you've got some big names, you've got OpenAI CEO Sam Altman, the current Secretary of Energy, Chris Wright was a board member until he took that, that, that seat earlier this year. And OCLO is a business that has some, some potential opportunity to, to be one of these leaders in emerging small modular reactors. Was founded in 2013 seeking to commercialize what it calls the Aurora Powerhouse, a metal fueled small modular reactor with a design built on the Experimental Breeder Reactor 2, which operated at the Idaho National Laboratory for 30 years from 1964. The 1994. It's designed to be able to run on fresh or recycled fuel and to produce power between 15 megawatts, up to 75 megawatts. But as you say today, while there has been a test reactor that the design is based on that ran back in the 90s, still have not built any of these reactors here today and are still at the early site, site preparation stage when it comes to getting these things ready to actually be built. So a lot left to prove for OKLO between now and really selling power into the market.
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Mary Long
You talk about OKLO breaking onto the scene right in the middle of this AI hype machine. Nuclear energy has entered into the mainstream interest as a result of that AI hype machine. AI companies need a lot of energy. A lot of tech giants turn to nuclear power to feed that energy. What is it about nuclear power that's so great?
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Matt
Yeah, it's reliable, clean, baseload power. So if you think about AI, you need expected to have substantial increase in power demand in the years to come. And that needs to be on all day long, all the time, right? You don't want to be able to log into ChatGPT and be like, hey, it's a, it's a cloudy day today. We're not going to be able to offer you the service. And at the same time, many of the companies that are leaders in AI technology, folks like Microsoft, Amazon and others, have taken the climate pledge, have said, we are going to reduce our carbon emissions over time. So if you need large amounts of baseload power that is clean, nuclear is the really your only option out there in the market.
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Mary Long
There's a lot theoretically to be excited about when it comes to this company, but it's, it's worth not just noting, but underlining, bolding, italicizing that it is still very much in the early stages of development, doesn't have a reactor quite yet. Also, financially, in the most recent quarter, it posted a net loss of $9.8 million. Granted, that's a significant reduction from a year ago when that net loss was over $24 million. But also importantly, this is a company that posts no revenue. Its income statement literally starts with its expenses. How do you value a company like this one, Nick? Something that, okay, yes, it has such obvious promise. It plays in an exciting industry, it's doing and making progress on good work. Financially, it's moving in the right direction, but it is still so young and so unproven.
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Matt
Yeah, I mean, this is going to sound glib, but I'd say you don't value it. There's really not a metric to use. I mean, the most charitable metric you can give is price to revenue. There is no revenue. Right. There is no business. So I'd argue OKLO isn't really a business today. It was founded in 2013, been around for 12 years, still not producing revenue. For me, that's a science project with a business plan attached, not an actual business. And like any science project, something I'm certainly interested to follow, but not something that I personally want to invest in, at least if I have any expectation of a return. And really, OCLO says this as much, and it's 10K, the very first risk factor in the 10K filing right there in bold type says, quote, we have not yet constructed any powerhouses or entered into any binding contract with any customer to operate a plant or deliver electricity or heat. And there is no guarantee we'll be able to do so in the future. So for me, you know, until they have built a plant, have some kind of revenue or cost structure we can model, I don't really know if there's really a great way to, to put a valuation on, on this company. You could do something like price to total addressable market price to price to hype. But, but there's not really anything you can value it on, which is part of why I think that the stock is so volatile on this earnings report, moving up and down, you know, 10 plus percent. You know, it's super Vol. Throughout the year it's really been driven on headlines right when they filed their press release ahead of the earnings said hey, we've completed initial bore drilling on our site. That sounds super great, super technical. I could also rephrase it as breaking. OKLO has dug a hole in the ground when that's your most significant news you can put out there. For me, it's too early stage to put money to work. Although I think there's certainly, if they can deliver what they've promised to the market, lots of opportunity in the future. But we'll also have lots of opportunity in the future to invest in that as there is more credible demonstration of what their technology can do.
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Mary Long
Perhaps part of what drove up oklo's price to hype ratio, as you put it, so much is that once upon a time, Sam Altman, the CEO of OpenAI, was the chair of the OKLO board. He stepped down only a couple of weeks ago, which theoretically frees up the company to pursue relationships with AI companies that aren't named OpenAI. But on that news, the stock dropped about 12% that same day that Altman announced his resignation. Do you read much into this departure? Do you view it as a win or a loss for OKLO in particular?
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Matt
In general, I would say it's not super meaningful. What's super important for the business is actually getting these reactors built and deployed in a cost effective way. That said, you could spin it positively. Altman announced when he left that his departure was in part to give the company more flexibility to pursue partnerships with OpenAI, which he is, you know, the CEO of or a number of other hyperscalers involved in AI. That said, as kind of I let off earlier, signing another non binding letter of intent with another AI company doesn't get them any closer to actually generating real revenue. And I am much more interested in seeing them turn those letters of intent into real cash coming into the business.
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Mary Long
So you don't seem too hyped about this company. Is there any other business in the nuclear space that you like better than this one?
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Matt
So yeah, for me, I've been following nuclear since at least 2021. My biggest personal position, the one that we've put on the scorecard and Motley Fool Canada is BWX Technologies. Unlike many other nuclear companies, Oklo NuScale, there's some others out there, they're hyping a business plan that haven't built any reactors yet. BWXT has real results, generating real revenue today. So for decades, BWXT has been the sole source supplier of nuclear reactor components and fuel for the US Nuclear Navy. The US Navy has built more nuclear reactors than any entity in the world year to date through that business building nuclear reactors for US nuclear submarines. Just for that alone, you've got over 80 small modular reactors that have been built and deployed out there in the world. In the commercial business, they've also got a robust business already today, one of just two fuel suppliers for the Canadian nuclear fleet and important contributor to the nuclear life extension projects going on in Canada. If you look at commercial small modular reactors, which is the business that OKLO is involved in, and others, BW XT is manufacturing the reactor pressure vessel for the small modular reactor set to be deployed at Canada's Darlington site, which will be the first commercial small modular reactor deployed in North America that actually received its final construction permitting approval here earlier this month in May. So we've got shovels in the ground on this project. At the same time, BW XT is part of the group working with the Tennessee Valley Authority to deploy a small modular reactor at the Clinch river site, which is over here in East Tennessee, close to where I live. And they're also positioned as a merchant supplier to lots of other smaller modular reactor companies. Lastly, like oklo, BWXT is involved in medical isotope production. But unlike oklo, which is not currently selling, medical isotopes are generating revenue. BW XD already generating meaningful revenue supplying products to partners like Bayer Actinium 225. They're one of the only commercial suppliers of that radio isotope. And so when I look at BW xt, I look at a company that is already an operating business, is a sole source supplier in its most important markets, and is positioned to grow as more commercial nuclear reactors are deployed, regardless of which design ends up being the one that comes out on top.
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Mary Long
Sounds a lot more like a business plan than a science project to me. We'll move on to a story that's slightly lower stakes than nuclear energy. Disney is rolling out its standalone sports streaming service, espn. The offering will be available before the NFL season kicks off and it'll cost 2999amonth. Okay, Nick, I am not the person who's going to be paying probably any amounts of money to watch live sports. But the most expensive service in my own box of streaming offerings is max at 1699amonth. Again, I'm not one to shell out 30 bucks or really any amount of money for a live sports streaming service. So this feels pricey to me. But what do you say? How do you think Disney landed on this 30 bucks a month number?
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Matt
Yeah, so when I look at the 2999 and also importantly 35.99, if you bundle in Disney and Hulu with live ads, I think that seems about right. I mean, remember that this new ESPN offering is going to include ESPN, which is already out there in the market at $11.99 a month. So if you look at the ESPN networks that you're. This new service is kind of an incremental $18 a month that the core sports fan might already be paying for ESPN and might already have that as part of their budget. ESPN wants to make the price attractive enough that you can get people to sign up, but not so attractive that they're antagonizing their cable partners who are still going to be the primary distributors of these networks. I think even after you open up this over the top subscription, I think this is clearly targeted at the customer who just wants sports and really isn't that interested in the rest of the cable bundle. In preparation for this podcast, I looked around to try to find the cheapest cable bundle or over the top bundle you could find. The cheapest one I could find was Sling Orange, which is more or less your kind of basic cable channels with the addition of ESPN, ESPN2 and the Disney Channel that's priced at $46 per month. So if you really don't care about cable news and some of those other networks, which you're going to get a lot of that content through that bundled in Hulu with offering that you would get at the 35.99amonth tier. It actually brings your costs down a little bit. And so I do think it's priced attractive enough to bring in that person that only cares about sports, but not to pull off, you know, the person who is fine, you know, wants to watch some CNN and things like that away from, from the cable bundle. So, you know, when you, when you break it down kind of by its parts, I do think that this pricing makes a little bit of sense.
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Mary Long
I kicked off this segment by leading with my own biases and revealing the fact that I likely would not be shelling out $29.99 a month for ESPN. What about you, Nick? Are you going to be adding this to your own bundle of streaming services?
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Matt
You know, we'll see. When it comes to college football season, that's when I'll really have to decide. Usually every year about August, I'll turn on YouTube TV and then right after the super bowl is over, it gets turned right back off. So listen, if ESPN can give me access to those things, right, college football and NFL football that I, that I get from YouTube TV at a lower cost, then I certainly would be a willing customer. But as I mentioned earlier, I want to watch all the games, right? I want to watch Sunday Ticket and I want to watch NFL Red Zone, which I'm not going to get with this, with this service. So I think it's going to take a while for me to switch over to an ESPN app only to be a subscriber to just this app.
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Mary Long
Nick Sepel, always a pleasure. Thanks for coming on the show this morning.
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Matt
Thanks, Mary. Anytime.
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Ricky Mulby
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Mary Long
How do you put a price on a treatment that cures a life threatening disease? Mesoblast is a regenerative medicine company that's developed a cure for inflammation based disease. What makes this medicine different from many others is that once you get a few injections, you're theoretically done with treatment. Up next, Mesoblast founder and CEO Dr. Silvio Otescu joins Ricky Mulby to talk about how the company prices its products, what's next in their development pipeline and the future of regenerative medicine. Heads up that this conversation was recorded before President Trump's executive order on implementing most favored nation pricing for prescription drugs that are bought in the US we're actually going to have more on that topic on the later half of tomorrow's show, so tune back in if that's of interest.
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McKinley
Mesoblast is a regenerative medicine company doing some very incredible things, finding essentially cures. And last year you became the first company to get FDA approval for a treatment with mesenchymal stromal cells or msc. I Think I pronounced that right. I'm sorry if I didn't. These are cells from the bone marrow of unrelated donors and they end up getting transformed into a drug that go into kids and adolescents who get a bone marrow transplant and then have a big problem where donor cells start attacking the recipient's body and cause life threatening problems. I think that's the layman's way of explaining how that works. But can you explain how Ryan Sil treats this problem and why it's such a big deal?
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Unknown Speaker
Sure. So we're extremely happy and pleased that we're the first and only mesenchymal stromal cell that has been approved by the FDA for any indication. We're a company that's developing cell based therapeutics to target severe and life threatening diseases caused by inflammation. And this pediatric disease is the first of many others that we're targeting. So when a child gets a bone marrow transplant after they've had chemotherapy to treat an underlying leukemia, and a bone marrow transplant is performed to rebuild their immune Systems, unfortunately, about 50% of the time the bone marrow attacks, their body recognizes being foreign. And when it attacks the body, you can maybe treat it with steroids, but if in half the cases steroids don't work, then really you've got a big problem because the bone marrow is attacking the gut, the liver, and the risk of death approaches 70, 80% plus for these kids. There was nothing approved under the age of 12 until Raionsil was approved. And the reason for its being approved was that In a phase three trial, we showed that as early as 28 days, 70% of the kids had responded or were in remission and five years out, we have something like a 50% survival rate. And so those kids who have an early rapid response are really cured of this disease. That's a fundamental basis of the approval process. This disease is also in adults, and we're moving forward with a study to extend these findings in adults with this disease. But I think today we have a product that is available. It was launched formally about six weeks ago. Any, any clinician and institution can order this product. For children with this devastating complication, there's.
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McKinley
Some controversy around the pricing on this. And part of this, there's also controversy for pharmaceutical companies who just develop treatments for issues and not don't develop cures. In this case, you've developed essentially something you take a few times and then hopefully you don't have that problem anymore. And the price for this is almost $200,000 per infusion, a total of almost 1.5 million per treatment. Can you explain how you got to that pricing for this?
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Unknown Speaker
Of course, of course. So this is all about the cost of healthcare and how we reduce the cost of healthcare. A child with GVHD who dies of this devastating disease lingers in intensive care for weeks and months and actually costs the hospital and the healthcare system about $1.8 million more to treat than a patient that is rescued and remains alive. So fundamentally right, this is all about reducing healthcare costs. On top of that, a child who's cured of this disease by Ryensol, for example, the quality of life measures for every life years saved beyond the disease. And we're talking about children who are 5, 6, 7 years old. What is the value to community over 10 years of saved lives? You can put a value on that and that's about another three to four million dollars. So by any number of measures, our therapy, which is curative in 50, 60% of children from day one, is substantially valid in terms of the economic value to the community. But really that's not even the issue so much. We're talking about a life saving therapy. Without it, you die. And we now have Medicaid, federal Medicaid coverage for all children in July 1st it becomes mandatory to cover the product fully for every state that Medicaid is in. And beyond that, we have already the largest health care providers, insurers. We now have about 100 million lives covered by private insurance plus Medicaid on the basis that the cost of treatment here saves lives and substantially reduces the healthcare costs and the burden to the community. So, you know, this is the way all medic medicines are priced based on what is the value to the patients and to the institution and the community.
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McKinley
So I have no doubt that your company is actively saving lives. And it is significantly easier for me as a person on the Internet, as a podcaster, to raise questions about this and see some concern about this.
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Unknown Speaker
Let me also add, you know, no patient is going to not receive our therapy. We've just provided, you know, to a patient that had no coverage. And of course we provided that at our cost. So if there is no coverage, we will make this product available. It's not. It's a question of how does an institution get coverage. And there will be no burden on the institution, the physicians or the patients and their families. We will make this product available to everybody.
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McKinley
I appreciate that commitment and I, I applaud you for doing it. One more question about this because I, I saw in, in Japan in 2015, I think mesoblast was a part of getting approval for, for Temcell, which seems to be a similar treatment. It's an MSC treatment for bone marrow issues. The total treatment cost for that is about $115,000. That was back 10 years ago.
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Unknown Speaker
It's a lot more. It's a lot more than that, actually. But. Okay, let's, let's talk about it for a minute. Right. Temcell in Japan is a very old product. It was an old product that was developed something like 10 or 15 years ago. First generation product. Ryonsil in the US is a second generation product, is way superior, has different potency. It's substantially better in terms of improvement in survival than the first generation product. The original product that Temcell was based on was a product called Prochymal that was being developed in the U.S. the Rionsa product is significantly new and superior to the old Prochy. For example, in children with grade DGVHD, which normally has about a 10, 15 to 20% survival rate, Procymal gave a 40% or so survival, while Ryonsol gives us a 74% survival. And that's because of the changes that we've implemented in terms of manufacturing potency and reproducibility. So, yeah, the original product, Procymal and Temcell in Japan is, was available. Is available, but we're talking about apples and oranges in terms of potency and efficacy. And on top of that, of course, the cost of health care in countries other than the US Are substantially different. So when you're talking about a US Health care system that is far more expensive, the impact, the economic impact of a treatment that gets a child out of the ICU and out of the hospital quickly and saves their lives is very different in this country than it might be in, you know, in European, African, Japanese, Asian countries. We're talking about a completely different system.
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McKinley
Yeah, I'm aware of some of the expense that goes into the American health care system. I want to talk about Reviscor, which is in phase three. This is another treatment you're developing. This would treat hypoplastic left heart syndrome. So it's a really tough, congenial heart defect. And you have a drug that could potentially treat that. What's your, what's your hope for Reviscore?
- [26:47]
Unknown Speaker
So Reviscor has got, has completed two randomized phase three trials in adults with inflammatory ischemic heart failure, all the way from what's called Class 2 3, which are people walking around, but have a high risk of heart attack, strokes and death. All the way to patients who are really end stage and are being kept alive by an artificial heart. In those two studies, one was 500 or so patients, the other one was about 160 patients, randomized, controlled. What we found was in the big study somewhere between somewhere close to an 80% reduction in heart attacks and strokes over a three year period and overall a 50% reduction in deaths as well. And we saw the same thing reduction in deaths in the patients who were in end stage with one of these devices inside them. The fact that we've also had a nice study that showed an improvement in the size of the heart in children with a rare congenital heart disease is just an extension of the breadth of applications of this product in cardiovascular disease. But in the adult patients, which is really the biggest unmet need, and the most common patients with ischemic heart failure and risks of heart attacks and strokes and death, in that group of patients, on top of every other drug that's available, the substantial reduction is unheard of. We will be meeting with the FDA to talk about the pathway to an accelerated approval in patients with the most severe end stage form of the disease. And we will continue to study and do one more study to validate and confirm the initial findings of an 80% reduction in heart attacks. If we see that again, then this drug will be approved as an injectable into the hearts of adults with most severe form and highest risk of mortality. And in children with this rare congenital heart disease of hyperplastic left heart syndrome, similarly, we think that a single injection at the time of reparative surgery will facilitate the ability of the surgeon to do a procedure that is life saving and that will provide long term cure for these kids as well.
- [29:01]
McKinley
And Dr. Itescu, when you think about the future of mesoblast, the future of regenerative medicine, what's your hope for the next three to five years?
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Unknown Speaker
You know, this is, this, it's a brand new industry, right? The fact that we got the nod from the FDA and it's the first of its kind, it's a first in class medicine and we've only begun to understand the potential of these kind of cells. So the diseases where inflammation curtails long term survival and has an impact abroad, right. I mean, we, we've only started looking at the tip of the iceberg in terms of GLP1 drugs for obesity and for inflammatory diseases in general, Cardiovascular disease being the number one problem of inflammation. But talking about inflammatory bowel disease, inflammatory lung disease, there's a whole raft of diseases that we're looking at targeting now with both Ryont and our second generation products like Rivaspor. The next five years are going to be about growth, about sales, and about new products that will address sort of this burden of disease with a whole new class of medicines that until now have not existed.
- [30:11]
Mary Long
As always, people on the program may have interest in the stocks they talk about. And the Motley fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For the Motley fool money team, I'm Mary Long. Thanks for listening. We'll see you tomorrow.