FWIW, HC Wainwright's update.. (haven't seen this yet?)
H.C. Wainwright – 12th August 2020
Mesoblast Limited MESO: Price: $11.33; Market Cap (M): $1,323 Rating: Buy; Price Target: $21.00 Swayampakula Ramakanth, Ph.D. Arthur He, Ph.D. Sean Lee Sean Kang
We Remain Bullish on Ryoncil Approval; Reiterate Buy, Risk benefit ratio is still in favor of Ryoncil.
On August 11, the FDA published the briefing documents for the upcoming Oncologic Drugs Advisory Committee (ODAC) meeting to evaluate Mesoblast’s biologics license application (BLA) filing for Ryoncil (remestemcel-L) for the treatment of children with steroid-refractory acute graft versus host disease (SR-aGVHD), which is scheduled for this Thursday, August 13. Recall, the company submitted the BLA application in March and the agency has designated a PDUFA date of September 30, 2020.
After reviewing the FDA briefing documents, we believe that Ryoncil is likely to be approved before the PDUFA date due to a strong combination of safety and efficacy, while the main issues raised by the FDA are addressable. At the same time, we note that the agency could request the company to complete a post-marketing study in order to provide additional data on these issues.
Stellar safety record in over 1,100 treated patients. In our view, safety has always been the FDA’s top concern, and in the briefing documents, the agency highlighted that Ryoncil has been used across over a dozen clinical studies without outstanding safety issues. The FDA examined the safety data from 14 Ryoncil studies covering 1,141 treated patients and found that there were no remarkable differences in safety between patients treated with Ryoncil and placebo.
For adverse events of special interest to the FDA, including acute infusion reactions, serious infections, and ectopic tissue formation, the agency concluded in the report that: (1) infusion reactions all resolved without intervention; (2) rate of serious infections remained compatible to historical reported rates; (3) in the pediatric SR-aGVHD study, there were no fatal infections within 30 days of patients getting their last dose; and (4) there was no substantial difference between patients treated with Ryoncil and placebo in ectopic tissue growth.
Strong and consistent benefit in a difficult indication.
Ryoncil has also demonstrated remarkably consistent efficacy in pediatric SR-aGVHD patients, which is a particularly difficult-to-treat indication with a high mortality rate.
In the pivotal GVHD001 study, despite Ryoncil treatment, only 37 out of the 54 patients survived beyond 180 days. Looking at the pediatric patients across the GVHD001, 280, and 275 studies, the FDA found that treatment using Ryoncil resulted in 28-day overall response rates (ORR) ranging from 64-69%. The agency also conducted sensitivity analyses of the key GVHD001 results by: (1) excluding the one patient who withdrew from the study; (2) excluding the six patients who received concomitant medication and the four patients who showed improvement before the first dose; and (3) assuming all excluded patients were treatment failures.
In all three analyses, the FDA found that the resulting 28-day ORR was still significantly higher than the 45% control rate. Another key metric of clinical efficacy is the duration of response (DOR). Here, the FDA raised the issue that the DOR of 70.5 days reported by Mesoblast was not determined based on the agency’s preferred definition (assessed on the basis of one or two consecutive assessments).
However, we also note that the agency’s reanalysis of the result using the one assessment method still resulted in a DOR of 54 days, which is significantly higher than the DOR of 0.5 months achieved by ruxolitinib when it was approved for the treatment of SR-aGVHD in adults in May 2019. Therefore, taking into consideration the FDA’s new analyses, we believe the benefit of Ryoncil for pediatric patients with SR-aGVHD continue to significantly outweigh its risks.
Agency concerns are addressable.
In the briefing documents, the FDA raised two key issues with the BLA application that we feel the company is well-positioned to answer.
In the morning session briefing, the agency focused on the Ryoncil manufacturing process and whether or not the critical quality attribute (CQA) standards identified by Mesoblast can result in a consistent, efficacious product.
While we agree with the agency’s argument that the connection between CQAs and clinical efficacy has not been directly established and their assessment that mesenchymal stem cells can be highly heterogeneous, we also note that, as potentially the first allogeneic stem cell therapy to be approved in the US, both the science and the regulatory guidance on how to assess these cells have been lacking.
Moreover, Mesoblast has many years of clinical data demonstrating that the company’s production method can result in an efficacious product and in vitro assays that link the CQAs to meaningful changes in cell behavior.
In the afternoon session briefing, the FDA focused on the relevance of the 45% control response rate used in the GVHD001 study. Based on the agency’s investigation, they found that: (1) in the 280 study, the placebo treated pediatric patients had an ORR of 38%; (2) according to Mount Sinai GVHD database, the ORR for the 30 pediatric patients was 43%; and (3) in a 2019 retrospective study, the median ORR for patients <18 years old was 34%.
In our view, while the agency remains skeptical of how accurate the 45% control rate reflects the real world experience due to the very limited datasets available, the data provided by both the company and by the agency suggest that 45% is a reasonable estimate of the ORR using standard-of-care treatments.
Finally, we also note that ruxolitinib was approved in 2019 for the treatment of adult SR-aGVHD based on the results of a single-arm study using a historical control ORR of 40%.
Valuation.
We maintain our Buy rating of MESO and our 12-month price target of $21.00 per share. We derive our price target based on an NPV analysis of projected product revenues through FY2030. We assume a 8.9% discount rate and a 0% terminal growth rate. We derive an NPV of $4B and add pro forma net cash of $63M to arrive at a 12-month price target of $21.16, which we round to $20.00.
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