I appreciate that many canny investors will be looking for a pullback after such a sharp rise. Indeed the outbreak of a corona virus serves only to remind us how markets might suddenly go “risk off” based on contagion risk (pun intended) I note ,with relief by the way, the comments of an expert on the BBC in the last hour saying this virus does not look as dangerous as first feared. The natural inclination of most traders is to “
sell the news”..but which news ? ...
the expected BLA submission for GVHD, or the phase 3 trial results for CLBP or CHF ?
It would be dangerous toassume that we even have to wait for the headline results of either of the blockbuster trials before a major announcement. We have already seen very good terms achieved with the Grunenthal deal.
..this is surely a template which could be used in other geographical markets and with other therapies. I note
no one ever mentions the opportunity for MSB’s treatment for refractory Crohn’s disease sufferers (8-20% out of 600k US patients are unresponsive, resistant or intolerant to existing treatments) despite Takeda using our IP for peri-anal fistula which has already received European approval and the fact our randomised controlled trial is described as “ongoing” despite the fact that it started in 2007 according to the clinical trials register NCT00482092. The switched on amongst you, will be aware ,that if trials these trials are unsuccessful, you would expect to see IP written off in Impairment Reviews.
I believe that the overwhelming efficacy of Ryoncil/Remestemcel-L in treating paediatric steroid refractory is the tip of an enormous iceberg. Firstly, the absence of any existing approved therapy for this condition where mortality rates are as high as 90% for Grade D patients , calls into question how analysts are modelling the revenue opportunity. There are many ultra orphan therapies in the US priced well in excess of $300,000 per year for recurring treatments
which do not cure the patient ...Ryoncil in the majority of cases provides a cure and there is precedent to suggest Mesoblast will be entitled to charge its pharmacoeconomic benefit, which has been quantified to be close to $500,000 of hospitalisation costs per patient.
https://repository.upenn.edu/cgi/viewcontent.cgi?article=1037&context=ace“Pricing of the orphan drugs is unique in that it is designed to retrieve the costs of R&D from a
small number of patients, compared to the pricing model of other drugs, where pricing is often
based on the capacity of the customer to pay.
Given this, the marketing exclusivity, and the lack
of therapeutic alternatives, orphan drugs are relatively expensive. Spark Therapeutics’ Luxturna
costs $850,000 for a one-time gene therapy treatment for a rare, inherited retinal disease that can
lead to blindness (Tirrell). One of the reasons for this is that patients with rare diseases often have
a high willingness to pay, given the limited therapeutic alternatives and the life-threatening or
chronically debilitating nature of many rare diseases. Pricing is also influenced by the change in
quality of life in a more cost-effective approach.
In other words, a drug that could provide a cure
will be priced higher than a drug that provides just symptomatic relief or treatment. Therefore,
third-party payers (insurance companies) are generally forced to pay the manufacturer’s high price.
In addition,
the free pricing scheme in the U.S. allows the manufacturer to set the price at their
discretion. In comparison, in different European countries, pricing is controlled by a single-payer
system and cost referencing with other nations (Gammie et al.).”
We will of course need to wait until we see what label is assigned for Ryoncil , assuming a successful BLA application, before Mesoblast will determine its pricing strategy...but the failure of Incyte’s second generation therapy itacitinib, leaves the door open for much more aggressive pricing than i think has been previously assumed by the market . Pricing is likely to be between 25-40% cheaper in European markets, but the larger number of patients there still makes me believe there will be an approx split of 60/40 in revenue terms between the two sales regions (I assume a year lag for European approvals process) I therefore conclude that pricing upwards of $500k is perfectly plausible for Ryoncil in the US, before discount. On that basis, the world market for paediatric srGVHD could easily exceed US$700m annually. In the US, i understand the adult market is three times the size the size of paediatric by number of patients...but Incyte’s Jakafi which has a superior efficacy in low grade skin cases, might slightly constrain the pricing advantage of Ryoncil despite the high side effect profile. What I am trying to convey is that the total US market opportunity for Ryoncil in adult and paediatric might well end up being well in excess of US$1bn if they widen the label to the adult market BEFORE we take the chronic GVHD opportunity into the equation. Even if this scenario was to occur, we do not know
when or if, Mesoblast will give revised guidance as to pricing..(up until now many analysts appear to have been guided towards treatment costs of around $250-300k). Even if none of the above happens, I agree with Jason Kolbert that Remestemcel-L as a treatment for
srGVHD could turn out to be worth the current market capitalisation on its own. SO why should the price pull back ...
.other than the fact that is often does for profit taking.
Now, be honest and humour me for a second. If Mesoblast does turn out to be the leading regenerative medicine company in the world which it may well wish to claim should they be successful with their Phase 3 trials for chronic lower back pain and advanced heart disease ...what are the chances of other inflammatory and auto immune diseases also being treated successfully with Mesenchymal cells ? I think we all know the answer. Forget about the passive funds buying in anticipation of ASX 200 entry...ask yourself how many of the leading biotech funds appear on our shareholder register ? How would they look as specialist investors, if Mesoblast announces a successful results from a pivotal heart trial and they did not have any equity involvement ? I think the market for Grade 3/4 CHF (reduced ejection fraction) globally will be in excess of $5bn and chronic lower back pain at least two billion on top. Let’s say that there was only a 50% chance of the results meeting their primary endpoints ...you might say that a fair risked value for the stock right now, before results are known, would be at least 1 times US prospective sales of $2-3bn for both conditions ....plus a billion of value for srGVHD ?
I think , with good reason last month is just the start of the beginning . If you seek to profit by going short of a company providing salvage therapies for orphan indications, I should make you aware of one thing ...Karma is a bitch !
(20min delay)