MSB Trading - 2020, page-49

Mesoblast . Wow What a month we have just had !

Dedicated to @col69

Remestemcel-l is a treating an Ultra Orphan Indication . In treating sr aGVHD it cures a large percentage of patients for life. Very few therapies have in recent years have sought approval on this basis. One such alternative example would be Zolgensma, the new therapy for spinal muscular atrophy (SMA) for children under 2 years of age from Novartis, which has a price tag of $2.125m. A value based price for Zolgensma was estimated at between $1.1m to $1.9m per treatment based on a cost effectiveness threshold of $100k to $150k per life year gained. As Joshua Cohen wrote in Forbes Magazine dated June 5th 2019, “to arrive at a valuation you need to assess the value of the next best alternative, Spiranza, which is not a one off treatment. The latter does not even restore functioning to the same degree and over a 10 year period Spiranza costs would total $4m.”

The pricing for Remestemcel-L will of course have to wait until the FDA approve the BLA application and opine on what label indication is given. The only guidance provided by Mesoblast is that hospitalisation costs alone for a paediatric patient with Grade C/D severity typically are $500k with mortality rates as high as 90%. Indeed there are NO products currently available in the US for treatment of steroid-refractory aGVHD for children under 12.Indeed, the matched paediatric control patients taken from the contemporaneous database of Mount Sinai treated with the CURRENT best available therapy, show a Day 28 overall response of only 43% and Day 100 survival of just 57% and that is with only 80% of patients diagnosed with Grade C/D severity.

SO, next time you read an analysts note telling you the paediatric market for aGVHD is US$200m, just remember you are comparing apples with pears. Remestemcel-L CURES a substantial percentage of steroid refractory patients with Grade C/D..other therapies struggle to achieve half the short term efficacy and the patient is not cured....and don’t get me started on the side effects and toxicity of JAK inhibitors like Jakafi !

I am sure that some of you will now post that the Japanese market pricing of Temcell is much lower and is based on the weight of the patient . Yes, all Japanese pricing is set by a Government regulated body. Thissystem is not operational in the US ...full stop...In the US the pharmacoeconomicbenefit and pricing is based on the criteria i have outlined above. So , where does that leave us ? I believe that within 2-3 weeks Mesoblast will have submitted the last piece of paperwork relating to its BLA application...From the time a marketing application is submitted, the FDA has 60 days to perform an initial review. I will be surprised if it takes this long because the FDA has already had advanced sight of the main modules which have already been filed as part of the rolling submissions to date. During this time the FDA will determine if the submission is sufficiently complete to perform a more substantive review. The FDA has agreed to review the majority (90%) of BLAs within 10 months of the 60 day filing date.For priority submissions, (which i am certain will apply to Remestemcel-L with its fast track, orphan indication status) the dateline is 6 months of the 60 day filing date. I would anticipate the need for an ADCOM (Advisory Committee meeting) which will probably be held in month 4, which is normally required for therapies with a novel mechanism of action which would certainly apply. The deliberations of the ADCOM meeting will be closely watched by the market and the share price will often move decisively post its voted recommendations, assuming it has not already !

The FDA will need to decide what the the indications and usage section will be allowed to state . Although the FDA does not endorse any particular treatment for a condition, the terminologyit allows on the label should be well understood and easily recognisable by health care practitioners. Assuming the absence of any black box warnings for serious adverse events and a good label indication for treating an ultra orphan indication Remestemcel-L should be given substantial flexibility in product pricing. It is plausible that pricing in my opinion could range from anywhere between $300k per treatment to upwards of $1m.

Remember that up until only last week there was the prospect that Itacitinib , the second generation version of Ruxolitinib (approved May 2019) for steroid -refractory acute GVHD in adult and paediatric patients over 12 years and older) would prove to have a higher level of efficacy and put the prospects for Remestemcel under competitive pressure in terms of pricing and prospects for off label prescribing. We now know thatItacitinib has failed to reach its primary endpoint. (Note Incyte Gravitas 309 trial is still ongoing in chronic setting. Jakafi still has applications in myelofibrosis and polycythemia vera cancers. KOLs agree acute and chronic GVHD are different diseases with unique biology).*That news caused the price of Incyte to collapse by US$2 bn. The latter fall reflects the high hopes that investors had for this therapy to be used in a whole range of other inflammatory conditions...but the same argument should apply to Remestemcel. Indeed i would argue that post a successful BLAsubmission , the market capitalisation of Mesoblast should reflect a 3-5 times sales multiple for my estimate of prospective worldwide sales of at least US$400m for Remestemcel for calendar 2022. If i am correct the share price will appreciate dramatically on the basis of a successful application. Other than cocking up the paperwork, I really cannot see any reason why this therapy will not be approved. Leaving aside the outstanding clinical trial results , I once read that the success rate of BLA applications which had been accepted by the FDA was 92%.

Re the CHF trial .. some of the enrolment criteria have strong predictive relevance to calculating mortality curves and non fatal cardiac events. As an appetiser.....no one has ever commented on how a positive remodelling of the left ventricle (which was provento have been achieved in the 150m dosage cohort) is a proven factor in dramatically reducing mortality rates. Please read the section detailing the conclusionsof the BEST study which can be found on Page 9 on the firstlink below (or refer back to data provided from the “Vasodilator trials” found in any cardiovascular bible)....then look at the changes achieved to systolic HF patients with lower ejection fraction achieved in the 150m treatment arm of Mesoblast’sphase 2 results. (See tables in Figure 3 in the second link for the remodelling impact) Ifyou cant see the correlation go to an optician or see a shrink.

https://www.ahajournals.org/doi/pdf/10.1161/CIRCHEARTFAILURE.115.002962

https://www.ahajournals.org/doi/full/10.1161/CIRCRESAHA.119.314951

Furthermore when you cross reference the findings of Kramer et al, re improvements in ejection fraction from successful LV remodelling and then add re the prognostic capabilities of only enrollingpatients high levels of the biomarker NT pro BNP levels (in excess of 1000pg/ml or 1200pg/ml for patients ifatrial defibrillation ) you may come to the same conclusion as me .

If the cohort receiving Mesoblasts therapy was not responding well to the therapy the trial would have been concluded a long time ago. (This my sincere non professional opinion) . Please feel free to make an alternative case. There are other ways of looking at this conclusion, if you take the decompensated heart failure results of various large CHF trials such as CHARM, or PARADIGM.Look at the average number of non fatal events over a 36 month period remembering to stratify the Grade 3 ischemic subset. OK, most of you are lazy so i will quote from the Circulation Research article:

“The CHARM-Added trial (Effects of Candesartan in Patients With Chronic Heart Failure and Reduced Left Ventricular Systolic Function Taking Angiotensin-Converting Enzyme Inhibitors) enrolled patients with HFrEF who were stratified by ACE inhibitor (yes or no) and then randomized to candesartan versus placebo. CHARM-Added followed 2548 patients for a median follow-up of 41 months. There were 649 cardiovascular deaths; 703 patients presented with a total of 1402 HF hospitalizations, of which 699 (49.9%) were repeat. The predefined primary end point for the trial was the composite of first HF hospitalization and cardiovascular death. “

So, put simply most patients suffering from advanced CHF experience an average of 2 non fatal cardiac events before death. Now remembering we have a particularly enriched patient population who were recruited with arguably worse symptoms than for the CHARM trial many of which have been enrolled on the DREAM CHF-1 for a median of over 4 years ( the median is 36 months in DREAM) ...I would speculate that there may well bemortality rates upward of at least 55% in the control, plus others who may have suffered a non fatal event and still be alive.

I decided to use a back of the envelope crude hypothetical illustration of a possible outcome not allowing for non cardiac related terminal events (which will undoubtedly occur )

SIze of control group in our current CHF trial is 283 patients out of a total of 566. If50% mortality is applied at this stage of the trial, this equals 142 patients times 2 non fatal hospitalisations each = 284 ...with perhaps half of the remaining patients from the control having 1 event each on average which adds a further 70 non fatal events = 354. On the scenario above (which is completely hypothetical and should not be used for any other purpose)in order to have reached the 513 non fatal events required to stop the trial .....the MSB treated cohort would have to have experienced 159 events representing a 55% reduction compared to control).

So how does this illustration compare to observations about our phase 2 & 3 trials made byKenneth M Borow, our trial organiser and a paid Mesoblast consultant.By way of introduction , I should add that this is the same K Borow who acted as consultant for Amarin Corp, who recently obtained approval for Vascepa...the first and only FDA approved medication for reducing cardiovascular risk beyond cholesterol lowering therapy.(Don’t worry Vascepahas little proven effect in Grade 3 patients ).

Mr Borow comments in the Circulation Research article (provided above) that only seven out of a control group of 15in the phase 2 trial were Grade III and presented with baseline LVESV >100ml . Of these seven control patients , five (71% ), had died by 6 months...see extract below :

“Figure 3B shows the change from baseline to month 6 for LVESV and LVEDV. The left (diagram) includes all patients in the control and 150-million groups. MPC treatments resulted in beneficial LV remodeling whether analyzed as absolute or control-corrected change from baseline. In the right, which includes only data from patients with baseline LVESV >100 mL, MPCs at the 150-million dose demonstrated enhanced therapeutic benefit on LV remodeling. These data were characterized by statistically significant increases in LVESV and LVEDV for the control group compared with modest reductions in the MPC patients. For the baseline LVESV >100 mL patients, 71% of the control group had either died by 6 months post the index cardiac catheterization or had nominal increases in LVESV and LVEDV (month 6 minus baseline). In contrast, the MPC group had no cardiac deaths at month 6. “

Furthermore, the article reveals that the at the time of the interim futility test in April 2017, 123 of the 270 patients had been enrolled with Grade 3 heart disease. Owing to the high mortality rates experienced by the latter group ( he reports thatthe total cardiac events were 3.5 times higher in class III patients compared to class II) so the decision was made that only grade III patients would be subsequently be enrolled to provide sufficient data to power the trial to conclusion.

Current Phase 3 trial protocols.

Lastly let me clarify the role of the DMC. During the course of the current DREAM CHF-1 trial, the DMC has regularly monitoredfor both adverse events and futility by regularly undertaking interim analysis on an unblinded basis every 6 months .The DMC was not responsible for the calculations which were part of the formalinterim futility test which occurred in April 2017. This was when separate statisticians calculated their findings from unblinded datato calculateposterior probabilities of success ...( the chances of the trial meeting its main endpoints) to allow Mesoblast with the benefit of unblinded data to decide if they should continue with the trial.)

In the words of Mr Borow :

“...the DREAM-HF trial showcases, from a statistical and analytics perspective, the JFM, which evaluates recurrent nonfatal HF-MACE in the presence of TCEs, thereby accounting for increased risk of nonfatal HF-MACE and TCEs after the occurrence of a nonfatal HF-MACE. This innovative approach allows for integration of efficacy, safety, and pharmacoeconomic data into a comprehensive assessment of the patient’s overall disease burden over time.”

To put it simply the DMC has been monitoring theoverall safety, independence and veracity of trial results. All HF events, deaths and heart transplants events are compiled by the DMC. If they discern any trend which concerns them between the two cohort groups they are instructed to make further investigation. If,for example, more patients have died in the control but there are slightly more non fatal events in the Mesoblast group , they might decide to continue on with the trial. ..because the treatment effect is clearly superior in group receiving the Mesenchymal cells. Alternatively, if the Mesoblast treated group fails to show a pre agreed meaningful percentage reduction in decompensated heart events versus the control(this number is never made public) over a period of time , the DMC should stop the trial for futility.This is why the last statement from the DMC to say the trial should continue without alteration is so significant . Their opinion is after all the key events for the trial had been evaluated Although they are only looking at the raw numbersof cardiac and non cardiac events , they are looking at the most crucial components of this trial.It is worth remembering that even if Mesoblast were to fail to hit its primary endpoint (which i do not believe for one minute has happened)...it could still have a massive success, if key secondary endpoints, such as lowering significantly ( relative to control) Total Cardiac Events (TCEs) and All Cause mortality were demonstrated by the results. If there is any meaningful reduction in terminal events it is unlikely that Mesoblast would be required by the FDA to undertake a confirmatory trial before launch BUT would undertake one in parallel.

What happens next ?

When the last patient is interviewed at the end of January, i believe the database will be locked and sent to a separate group of statisticians who will compile all the data analysis over the coming months. Mesoblast will then get back the final report ,at say the end of March/April and should then have access to unblinded results. At this stage there is the possibility that headline results will emerge from the trial...but only I believe after consultation with the FDA. Fingers crossed . OP

Disclosure. I have a large position in Mesoblast a small percentage of which has been purchased in the last few days. I will periodically trade in and out of positions. I tried to give an accurate representation at all times but please do not rely on any opinion ,fact or interpretation when making an investment decision.