Thought I would share this article
Mesoblast's Trial Data In AGVHD: An IOMachine Runthrough
Sep. 3, 2018 8:52 AM ET|1 comment | About: Mesoblast (MESO)
Summary
Mesoblast produced excellent results in its aGVHD trial.
It has been previously accused of trial data manipulations and so on.
However, these data, compared to similar trials, show that it has strong potential.
This idea was first discussed with members of my private investing community,
When I think of Mesoblast (MESO), the negatives I have are: one, this company is based outside US so there’s that much less scrutiny, two, the hyperbole surrounding stem cells, as a Seeking Alpha contributor put it two years ago, and three, these serial accusations of trial data manipulation made here on Seeking Alpha by a known and self-acknowledged short writer.
On the positive side, we have the immense theoretical potential of stem cells; we also have the positive data from a phase 3 trial of Remestemcel-L, unlike the two allegedly manipulated trials which were earlier phases; and we have just enough cash to see it through the PDUFA and eventual approval. We also have the same product approved in Japan, a country whose FDA equivalent is no pushover either.
So we ran Mesoblast through our IOMachine in early July. If you recall, the IOMachine is a device used at the Total Pharma Tracker that uses a four-factor test on biopharma stocks to arrive at a tentative investibility opinion. The entire material is produced below - I have made some changes based on further research.
Catalyst:
The critical catalyst is the 180-day survival data for MSC-100-IV in acute graft versus host disease (aGVHD) in children following allogeneic bone marrow transplantation due in 3Q 2018. This phase 3 trial has already declared positive results, meeting the primary endpoint. This followup data will bolster the story further.
Besides this, there’s also two other phase 3 trials in chronic heart failure and chronic lower back pain that are completely enrolled, so data should be due this year.
RA phase 3 needs partnership so no point in investing based on RA at this time.
Trial Data:
They expect to have the first industrially manufactured allogeneic mesenchymal lineage cell-based product launched in the United States. The Phase 3 trial using their product candidate MSC-100-IV in children with steroid-refractory acute graft versus host disease successfully met the primary endpoint of Day 28 overall response in February 2018. Based on interactions with the FDA, Mesoblast believes that successful results from the completed Phase 3 trial through Day 100, together with Day 180 safety and quality of life parameters in these patients, may provide sufficient clinical evidence for filing for MSC-100-IV in the United States under an accelerated approval pathway.
The two critical elements from this aGVHD trial data are:
“1. In the 55 children enrolled in Mesoblast’s open-label Phase 3 trial conducted across 32 sites in the United States, the Day 28 OR rate was 69%, a statistically significant increase compared to the protocol-defined historical control rate of 45% (p=0.0003).
2. Among patients who received at least one treatment infusion and were followed up for 100 days (n=50), the mortality rate was 22%. This is in contrast to Day 100 mortality rates as high as 70% in patients who fail to respond to initial steroid therapy.”
Now, if we compare these ORR numbers with other aGVHD trials, we see that MESO’s drug has done comparatively well. For example, a phase 2 trial of Jakafi had an ORR of 55% at day 28. ABX-CBL, a monoclonal antibody from Abgenix saw a 51% ORR rate in a phase 2 trial. An Anti-CD3 antibody named visilizumab had an ORR of 32% and was abandoned. An Anti-CD52 drug Lemtrada from Roche, trade name Alemtuzumab, initially showed an ORR of 83% but later studies only saw 50%, with all 10 patients dying after therapy at a median of 40 days range. Other Anti-CD25 antibodies like Daclizumab, Enlimomab, Basiliximab etc have shown ORR of between 40 and 67% in various studies. Anitumor Necrosis Factor Alpha (TNFα
Therapies like Infliximab and etanercept have shown ORR of between 50 and 67% as well. Although we need to also focus on the CR/PR breakup, and remember that an open-label study like Mesoblast did, without a control, cannot be easily compared, (there are other differences: age, typeof aGVHD and so on) we still see that these comparisons do show that Remestemcel-L has done quite well in its trial.
As for mortality rates, here’s an excellent review article of the aGVHD pipeline scenario that has this to say: “The weighted 6-month survival was 63% [confidence interval (CI) 50–74%] compared with the weighted average of 49% from 29 non-MSC studies of American Society of Blood and Marrow Transplantation (ASBMT) that were used to formulate guidelines for recommended second-line therapies.” Although the article cautions against reading too much into the comparison, MSC therapies haven’t done badly. Osiris Pharma, whose stem cell division was bought out by Mesoblast a few years ago, was actually mentioned in this article as conducting a trial that “were reported to have significantly improved response rates (76% versus 47% and 82% versus 68%, respectively; p = 0.03 for both).” despite not meeting the primary endpoint.
Competition:
Even Incyte's Jakafi is a competitor in GVHD. There are others.
This is true, but as we have just seen, Remestemcel-L has a competitive profile, so, if approved, it will be able to create a niche market for itself. Note that Mesoblast is the clear leader in the area of mesenchymal stem cells for aGVHD, as the following chart of ongoing trials in the area shows (the last, and only phase 3 trial, is Mesoblast’s):
The market potential is decent if not substantial. “According to the January 2018 Market Forecast Report by DelveInsight Perspective, projected annual sales in the 7 major markets (the U.S., Germany, France, Italy, Spain, the U.K. and Japan) is estimated to be more than USD $408 million in 2018, and could grow to approximately USD $1.3 billion by 2027.” Other assessments are more conservative: “The global graft versus host disease market is expected to grow at a CAGR of 7% from 2016-2021 and CAGR of 3% from 2021-2027. The market is expected to grow at a CAGR of 6% from 2016 to 2027. The market is estimated at $0.36bn in 2016, $0.51bn in 2021, and $0.64bn in 2026.” The 2016 number is actually correct.
Finances:
The company has about $100mn in cash and $75mn in burn per year.
Opinion:
My opinion in July was as follows:
A very disruptive technology from this Australian company. Claimed excellent results in multiple indications, including RA. Many upcoming catalysts. Products approved in Japan and Europe in partnerships. Decent cash runway to see the GVHD product through PDUFA, although a dilution is by no means going to be a surprise. I would take a pilot at $6, and watch this closely for both profit taking and averaging down. CAVEAT - accusations of trial data reporting fraud have been labelled against the company. I don't have an opinion on that so be careful.
I have modified the CAVEAT based on extended research; see below.
Risks
Now, I have studied all the negatives surrounding the trial data from Mesoblast. SeekingAlpha contributor AlphaExposure has written a series of articles against the company. The financial aspects of his short thesis are not important any more. The company is not cash-strapped now. The author commented on trial data from the Rheumatoid Arthritis trial, where apparently, a data point was changed in two reports. Another author, who appears to be involved with a competing company, commented on Mesoblast’s trial data from a chronic back pain trial. The entire report can be found here. This author does a more thorough job with the science. However, I have dismissed both studies as more or less irrelevant for the current trial because they both relate to different trials, and for what the legal fraternity terms as cause.
My main concern here is dilution, and there’s a real risk that successful data from the upcoming catalyst may cause one. However, the stock has been fairly stable over the last year, except for couple incidences of sudden spikes. Overall, this looks like a company that could use some more DD, if not an outright pilot position, based on the potential approval of its Remestemcel-L product in aGVHD.
This idea was discussed in more in-depth with our subscribers. What does that mean, exactly? It means that long before the catalyst became news, back when the stock was unknown and undervalued, I told Total Pharma Tracker members why they should buy it (or not buy it as the case may be), and so on. I discussed the catalyst, ran the stock through our IOMachine, gave them price targets, and generally guided our members as the stock went through its pre-catalyst phase. What you are getting here is after - or almost after - the story is done. To get these ideas before everybody else - with follow on updates and so on - you have to subscribe to Total Pharma Tracker. That may mean the difference between making 5% by buying today or making 50% by buying early
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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