US analysis confirms MSB pathway to success

Dear fellow MSB shareholder sufferers - so much of the hammering of MSB over the past couple of days seems to have occurred on the back of appalling communication of the results of the LVAD study. To put a negative in the first dot point, especially when the FDA doesn't actually see it as a primary endpoint, is unbelievably incompetent. However see the US analyst communication below (my highlighting in red) which both puts the results in a very reasoned perspective and re-asserts a bullish share valuation of over triple the current price. Seriously considering topping up at the current very low price but I'd like to see evidence that MSB management is getting its communication act together. hang in there if you can.

1		MESO: Price: .48; Market Cap (M): 9 Rating: Buy; Price Target: .00
2	Jason Kolbert
3	Phase 2b LVAD Results Offer Potential for Regulatory Approval; Reiterate Buy
4	Click here for complete report and disclosures
5	Phase 2b LVAD data presented at AHA. At the American Heart Association meeting November 11, Mesoblast presented the trial data. The Phase 2b, 159-patient trial was a randomized, placebo-controlled study evaluating Mesoblast's MPC-150-IM (allogeneic mesenchymal precursor cells—MPC) product candidate in the treatment of end-stage heart failure patients implanted with a left ventricular assist device (LVAD). While the trial did not meet the primary endpoint of temporary weaning from full LVAD support (p=0.55 versus control), we note that a predetermined subgroup of ischemic heart failure patients (44% of the total trial population) did achieve the primary endpoint (p=0.02 versus control). Why not? It may be that the total trial population may have been skewed towards younger patients, a group that tends to have less ischemia and would therefore theoretically not benefit as significantly from the anti-inflammatory effects of MPC-150-IM. In discussions with the FDA this summer Mesoblast was notified that temporary weaning from full LVAD support should be considered a biomarker endpoint and therefore unlikely to lead to approval. Regulators advised Mesoblast that gastrointestinal (GI) bleeds, measured as part of the Phase 2b study, would be considered more clinically meaningful. The impact of GI bleeds. The trial succeeded in achieving statistically and clinically meaningful results on secondary endpoints including GI bleeds: reduction in cumulative incidence of major GI bleeding events (p=0.02 versus control); reduction in rate of major GI bleeding events (p<0.001 versus control); and reduction in rate of hospitalization for GI bleeding (p=0.03 versus control). It is worth noting that GI bleeds cost hospitals approximately $46K per patient and are the number one non-surgical cause of re-hospitalizations in the LVAD population. Improving technology around LVADs is leading to decreased mortality, which is leading to more focus on causes of morbidity in patients. We believe this shift in focus could lead to MPC-150-IM becoming part of the standard of care for prevention of GI bleeds, a major cause of LVAD morbidity. Path to approval. As GI bleeding is now deemed to be a clinically meaningful endpoint by the FDA it could be the basis for a BLA filing. Mesoblast is planning to meet with the FDA in 1H19 to discuss the next steps for MPC-150-IM in this indication. There are estimated to be approximately 5K LVAD patients in the U.S. It is considered to be an ultra-orphan, unmet medical need. This, coupled with the benefits of a Regenerative Medicine Advanced Therapy (RMAT) designation, could result in an expedited pathway to approval, with a small Phase 3 trial designed around a GI bleeding endpoint. Ongoing Phase 3 CHF trial. Patients in the ongoing Class II/III congestive heart failure (CHF) Phase 3 trial are more likely to be an older, ischemic population and therefore not eligible for transplant. We note that this group of patients saw a significant benefit in the Phase 2b LVAD trial. The 600-patient Phase 3 trial is approximately 85% enrolled. While GI bleeds are not as large a morbidity issue in the non-LVAD HF population, we see the anti-inflammatory effects observed with MPC-150-IM as providing rationale for a positive outcome in reducing the ischemia-related major adverse cardiac events in the Class II/III HF patients (the trial's primary endpoint). Valuation. Our valuation is based on our therapeutic models and reflects our assumptions for the product launch dates, product attributes, and pricing, to determine the future revenue streams. We maintain our view that MPC-150-IM is launched in 2024 for the Stage II/III CHF indication, and therefore believe that the recent selloff after this trial announcement is overdone. For Mesoblast we use our maximum discount rate of 30%, which is in addition to our therapeutic probability of success rate. We select 30% as the company is not yet profitable and most of the products are still dependent on the outcome of clinical trials. Our valuation conclusion is an equally weighted average of our FCFF, EPS, and sum-of-the-parts analysis. We use a fully diluted end-year share count and assume multiple raises. The conclusion is a $17 price target. Risks to our thesis, include the following: (1) clinical risks; (2) regulatory risks; (3) finance risk; (4) intellectual property risk; (5) partnership risk; and (6) commercial risk.
6	Jason Kolbert  646-975-6965  [email protected]