Ann: Mesoblast Keynote Presentations at ISCT Annual Meeting, page-46

♥ MSB first submission to FDA re Biologics Licence Application is a world first for stem cells

♥ Dr Joanne Kurtzberg very positive re prospects for Remestemcel-L if it is approved by FDA

♥ Time to start valuing MSB on the positives, rather than pricing it for potential negatives

I'm convinced. This will be my last report for a while. There's nothing more to say!
While this story has always sounded like an amazing opportunity to get in on the ground floor of a new global technology, there has always been that nagging doubt that the company could run out of money, that trials may fail, that the FDA approval process may be delayed, or maybe just that The Prof was blinded by his belief in his baby. These things have happened (and more) to countless other stocks and investors kick themselves and say "never again". So, we are sceptical and nervous, we take profits on small rises and jump at shadows, because this is a sector of the market with great upside, but with bodies strewn around like the Battle of the Somme. We protect ourselves by discounting a lot of what the companies say (they are all promoters after all) and we prepare for the worst, while hoping that 1, 2 or 3 in 20 may pay off and rise enough to offset the losses on the disasters. We don't price the shares of these stocks anywhere near their real potential, because risks are so high, and we pile discounts on discounts in our valuations. Then a time comes when most of the risks are mitigated and we can tentatively start to consider the upside. That leads to a long period of price rises which go hand in hand with corporate success.

I think we're far enough through that period of risk for MSB now that we should be thinking of the upside rather than worrying about the potential downside. Why? Isn't there still some risk? Sure there is, but after the first stage of the BLA was lodged today and after talking to Dr Joanne Kurtzberg about the phase 3 trial and the massive potential demand in the US market, I'm happy to work with the upside and start to discount the downside.

I've previously written extensively on how to value MSB, the upside (multiples of the current share price), the downside (not much if you consider other takeovers in the sector, even of companies which have "failed" trials), the shorts and how they manipulate the price and the path forward. I just don't think I can add anything more after today's effort.

I have tried to avoid guessing (or at least pointed out where I am guesstimating) and tried to remain even-handed about the prospects of this company, but I'm now a convert! I don't like commenting just for the sake of it and always try to add some facts and figures to back up what I'm saying.

I suggest you follow @otherperspective in future to get an unbiased view of MSB. I find his remarks very insightful. There are many others who also make high quality contributions here, and I'm thankful that most of the negative and nasty commenters seem to have moved on!

So, what has happened to convince me?

Dr Joanne Kurtzberg has been presenting at the ISCT conference in Melbourne and is participating again tomorrow in several sessions. She is the Co-Chair of the ISCT's Hematopoietic Stem Cell Committee. She is a world leader in stem cell research. She was the lead investigator for the MSB phase 3 aGvHD trial and she was the presenter of the 28 day results of the phase 3 trial at the 2018 International Society for Cell and Gene Therapy (ISCT) plenary breakout session held in Boston in May 2018. She has also treated patients in the phase 2 trial and under the EAP.

Dr Kurtzberg is the Jerome Harris Distinguished Professor of Pediatrics and Director of the Pediatric Blood and Marrow Transplant Program at Duke University Medical Center.

She is truly inspirational, especially when she talks about the lives she has saved, and she is an enthusiastic supporter of MSB's cells. Of course, you could've said that a year ago when she presented the stunning results of the phase 3 aGvHD trial. So, what she's saying isn't particularly new, but it completely backs up the claims made by MSB and gives them credibility.

For those of you who seem to have lost faith in Prof Itescu, here are a few comments from a leader in the field who is researching and treating patients:

1. "You're not going to have to convince anyone to use this"

2. "It's effective, doesn't have other toxicities and is going to save lives"

3. "Once approved, it will be used off-label extensively"

4. "The community [I think she means the sufferers of aGvHD and their families] is excited and want it approved already"

5. She thinks the FDA is probably accepting of all this, but they have long processes which must be gone through

6. She thinks there could be 20-30 extensions into off label diseases once it is approved, including adult aGvHD, chronic GvHD, and that it could go as far as studies into autism

7. The worst cases of paediatric aGvHD (grades C and D) make up 50% of cases - they are children with a combination of horrible painful blisters all over their bodies, liver failure, immune system failure - they are going to die. How many of these kids would she recommend take Remestemcel-L? "All of them, and the takeup will probably be 99%" - if it is approved by the FDA.

8. The US phase 3 trial was open label - and some people have criticised this as not being a randomised trial - she said "researchers wouldn't randomise kids with this disease, even for 2-3 weeks - it would be unethical to not treat them [a control group] with anything over that period and the FDA agreed with this"

9. Especially inspiring was that the trial was a series of simple infusions, which the kids tolerated well. 89% of the phase 3 trial was grades C & D (the worst) - being 42% Grade C and 47% Grade D. The mortality for Grade C is 70% and Grade D is 100%. Close to 80% of the kids in that trial would be dead now, if not for MSB's cells

10. The transplant patients are followed for life. After a year there is hardly any risk of relapse - they are cured

11. Will Remestemcel-L become the first line treatment? Doctors will always start with steroids, which work on 20% of kids with aGvHD, and the doctors will know in 2-3 days if the kids are responding. After that, they will move quickly onto Remestemcel-L if it is approved

12. Are there any other similar treatments - whether stem cells or anything else? Nothing else comes close

I would also note that there are nasty side effects from steroids, and that some kids need to be on steroids for a long time. That gives  problems with immune system suppression over a long period, blood pressure problems, cataracts, weight gain, etc etc. What about Jakafi? See my note from 28 May:

Jakafi is only around half as good as MSB (approx. 40% vs 70% Day 28 overall response) for the 50% of adults with grade 3/4 (C/D) disease where mortality is as high as 90% and Jakafi is not approved in children under 12 due to safety issues (bleeding and infections in both children and adults). Mesoblast looks superior in terms of safety and efficacy for children and for the 50% of Grade C/D adults where mortality is very high.

MSB responses were much higher in all grades of aGvHD, including a very important 62% response in Grade D liver - which is the biggest mortality problem. MSB's survival was equally good for complete responders (CR) and partial responders (PR) at Day 28. These results walk all over Jakafi, and Jakafi isn't available to kids under 12.

MSB has very high visibility in the US - they have requests from adults, from chronic GvHD sufferers and from other potential off label diseases. At the moment there is still some limited access under the EAP, but I get the feeling MSB will be flooded with demand once they get FDA approval - look at points 1. 2. 3. and 4. above.

How quickly might it be approved now that the first submission has gone into the FDA. Note that CAR-T was approved within 3 months of the final BLA filing. Remestemcel-L is on fast track with the FDA and that means a maximum of 6 months from the final submission for approval (or not) and that the FDA is working on it from the day they receive the first submission, so the combination of rolling submission and fast track means it can be over in less than 6 months from the final submission.

That means it's reasonable (at this stage) to expect a decision from the FDA by Q1 or Q2 in calendar 2020. MSB will be ready to go as soon as the approval goes through. They are already preparing the sales force, they have ample manufacturing capacity and they can be ready to launch the product in Q1, if the approval comes through that quickly.

Also in Q1 next year, we will get the readouts on the Chronic Heart Failure and Chronic Low Back Pain phase 3 trials. I've previously gone through how much to expect in upfronts and milestones and how enormous these markets could be. However, you can already justify multiples of the share price based on aGvHD - which looks like beginning selling in the US in the 2020 financial year (and I reckon Europe won't be too far behind). So the other indications are riding for free, and if successful  could propel valuations well above the optimistic US analyst valuations (which are still currently heavily discounted).

So that's why I'm much more confident about this stock and its global prospects. Does any of this necessarily move the share price in the near term? Probably not, and someone seemed to be quite keen today to push it down on the open to try to negate the good news of the BLA - it was probably a short trying to protect their position by pushing down the price and thus  implying that the news release wasn't good (though that's a guess). However, most of the doubts raised on this stock over the past few years have now been erased (ie stem cells don't work, cash will run out, they will never complete a successful phase 3 trial etc).

The lodgement of the world's first US BLA with the FDA is a major step forward in the credibility of this company and the strong conviction of researchers like Dr Kurtzberg give me great confidence that this could be that 1 in 20 biotech stock that makes it through. Then we start to consider the potential upside rather than being fixated on how bad it could be if it goes wrong, and we see that the long term upside could be many multiples of the share price. For me, todays news and global stem cell experts meetings (which continue in Melbourne tomorrow) give the confidence to consider that The Prof may have been right all along...now what about those partnerships!

I'll be off now, I can't see the point in saying the same thing over and over again, so GLTAH

Cheers
Ecoool2