Hi All, Bought my final parcel today, a lot larger position...

Hi All,

Bought my final parcel today, a lot larger position than it was in 2020, we'll find out if that's a good thing on Thursday. If we get approval, then I owe CBER a beer for rejecting it in 2020.

I thought I might as well provide my 2c on the value of this stock at this stage. It’s a long one so I hope you can read this over dinner.

As with any investment decision, it comes down to risk vs. reward.

RISK:

As I have highlighted before, there are multiple risks associated with investing in a pre-revenue Pharma Biotech. I like to break these down into various broad categories. I have discussed these categories of risk below and provided excerpts from the Bell Potter Analysis (12 July 2023) for support:

1. Efficacy

- Does the drug/portfolio provide a significant quantifiable benefit?

I am not going to argue the drug’s efficacy, that’s been done to death and the arguments are cyclic. For me: Yes, all phase 3 assets have demonstrated efficacy, although some assets need to perform additional trials (not for GvHD) to satisfy confirmation requirements from regulatory bodies.

2. Safety

- Does the drug/portfolio's efficacy outweigh any potential negative side effects?

To my knowledge, there has never been a clinical serious adverse event demonstrated to be linked to modern stem cell therapy. She above for excerpt from Bell Potter's analysis discussing a “Clean safety profile”.

3.Scalability/Manufacturing

- Does the manufacturing process for the drug/portfolio scale to meet market needs? Is it financially feasible to produce a consistent product at scale?

Regarding Remestemcel-L for paediatric SR-aGvHD, yes, it is feasible, and the company can meet market needs. Similarly, the company has demonstrated the capability of developing a high consistent high potency requirement through recent potency data.

4. IntellectualProperty/FTO

- Does the drug/portfolio have freedom to operate, and does it have market exclusivity?

From my analysis, yes. Method of manufacture, method of use, and compositional patents are all in place. WO2023119239A1, US61/398950, US61/088898, etc. Exclusivity to 2030 - 2045.

5. Market

- Does the drug/portfolio have a respectable market opportunity?

Nutty market opportunity. Recent Bell Potter analysis states that it would only take 750 patients to earn US$230m to US$390m per year.

Something I also found interesting in the Bell Potter analysis was this statement:

So, without even having approval yet, Remestemcel-L has treated >250 children. 250 children represent US$75m to US$125m in revenue based on the above Bell Potter estimations. That means if we believe Bell Potter that the market is ~750 patients per year, the drug would already have ~10-20% market penetration on day 1 post-approval. This market penetration would be focused on the 15 hospitals responsible for 50% of all transplants also. Revenue growth should be expedited accordingly.

Also, the fact that this compassionate use program has been utilized in so many patients is massive validation that the drug works, the clinicians like it, and it is superior to existing therapies.

6. Financial

- Does the company have the cash runway or capability to raise the capital required to make it to market?

Has the cash runway for now. The above revenues would more than cover current cash burn rates. Dependent on not getting another CRL. Reimbursement should not be a problem, as also concluded by Bell Potter within the ‘Market’ excerpt.

7. Regulatory

- Will the regulatory bodies deem that the available evidence is sufficient for market access?

Various factors put me at relative ease with this, while it does remain a risk. If we use the stats that @Stellowe posted earlier as a benchmark, 75% of drugs that resubmit their application are approved upon 2^nd review. You could then also look at stats from “Clinical Development Success Rates and Contributing Factors, 2011–2020”, 92% of oncology drugs that meet their primary endpoints and file for approval get approval.

Using these as a baseline, let us then consider specific factors for MSB:

·As discussed in the excerpts above, the FDA is unlikely to have accepted the BLA if it wanted another clinical trial.

·Philip Krause's contribution with expert knowledge.

·Philip Krause’s support and buy-in with his reputation and connections.

·Strong physician support through the compassionate use program.

·Compelling potency assay.

·Previous compelling ODAC vote.

For me, if this is not at least given Accelerated Approval, the wrong decision was made or there is data I haven’t seen.

8. Fraud

- Has the company been above board with all material activities?

Hard to commit fraud with monitored clinical trial data. No reason to suspect any more than any other company.

REWARD:

MarketCap Estimations.

I have previously provided these examples of cell therapy companies, their stage, and their acquisition price. I have summarized these, with the addition of Juno, Reata, and Seagen, below:

	Company	Stage	Disease Area	Acquisition/ Partnership Value
1	Bluerock Therapeutics	Preclinical	Parkinson’s disease	US$1b
2	Fate Therapeutics	Preclinical	Non-Hodgkin’s Lymphoma	US$3b
3	Reata Pharmaceuticals	Approved	Friedrich’s Ataxia	US$7b
4	Juno Therapeutics	P3	Diffuse large B-cell lymphoma	US$9b
5	Kite Pharma	P3/Filed	Non-Hodgkin’s Lymphoma	US$12b
6	Seagen	Commercial	4 Non-Cell Cancer Therapies	US$43b

Obviously, there are differences in market opportunity in the above acquisitions relative to Remestemcel-L. However, humour me, I will get to this later.

With current shares on issue, every US$1b added to market cap would represent ~AUD$1.95 share price value for MSB.

With 4 Phase 3 cell therapy assets, and a Phase 2 asset, extensive gatekeeping IP, all in blockbuster indications (except GVHD), I estimate any acquisition post-approval would range between US$10b (super, super conservative) and US$30b (super, super ambitious) following approval. This gives an equivalent share value of AUD$19.50 and AUD$58.50. Otherwise known as a 17.9x or 53.7x multiplier respectively from today’s close of AUD$1.09.

I don’t know about you lot but I’m pretty happy with a conservative estimate that is well above 10x return.

However, while Allergan bought Tobira at a 1,532% premium (US$1.7b), most deals happen at a much more modest premium, see below.

Biggest biopharma premiums paid since 2015
Acquirer	Target (year)	Deal value ($bn)	30-day premium
Sanofi	Synthorx (2019)	2.5	282%
Allergan	Vitae (2016)	0.6	173%
Roche	Spark (2019)	4.8	143%
Nestlé	Aimmune (2020)	2.6	141%
Alexion	Portola (2020)	1.4	139%
Source: EvaluatePharma.

So, if acquired, MSB could break premium records, but I think it’s much more likely that there will be a substantial climb in SP before any acquisition is exercised.

A big part of that depends on the pathway for Rexlemestrocel in CHF for me. Leading cause of death in first-world countries, a single dose reduces composite MACE by 37% in at-risk populations combined with modest improvement in LVEF, my lord. This is a much larger indication, even in the at-risk subgroup, than the non-Hodgekin’s Lymphoma therapies listed in that acquisition table.

Remestemcel-L:

Rexlemestrocel is a future thing though, so let’s look more at Remestemcel-L as the relevant candidate for the upcoming PDUFA, and has a much more comparable market opportunity to those listed in the table.

For me, the opportunity for Remestemcel-L is a spectrum that hinges on labelling discussions. I have ordered this spectrum in order of likelihood below:

1.Grade C/D under 12 pediatric SR-aGVHD

2.Under 12 pediatric SR-aGVHD

3.All pediatric SR-aGVHD

4.Adult SR-aGvHD

5.All adult aGVHD

6.COVID ARDS

7.All-cause ARDS

8.Chronic GVHD

9.Crohn’s/Ulcerative Colitis

Do I think that there is a real shout at getting all of these on the label? No.

However, we have a Phase 3 RCT that shows a significant reduction in mortality and no negative side effects in a COVID ARDS sub-group. People have had label extensions for less.

Assuming approval, these indications could be added to the label as default or could be added to the label pending the execution of a confirmatory trial in the indication. While I always base investments on the conservative estimate, I acknowledge the potential upside this brings.

Revenue:

Now why did I include Seagen in that market cap table? It is a commercial company with four approved cancer therapies that aren’t cell therapies.

Pfizer announced the merger with Seagen 13/MAR/23. Seagen’s annual revenue last year was US$2b, with revenues from their more recent approvals ramping.

The Bell Potter table forecasting revenues estimates that MSB would have revenues of ~US$223m in FY25. This would have been based on their lower estimate for reimbursement of US$300k per patient. Reverse engineering that number, they estimate 743 patients to be treated by MSB annually in FY25.

…Can you see what I’m getting at regarding the label? Conservative estimates for label and reimbursement have US$223m revenue forecasts. If we work in a few more indications on that label, using the conservative reimbursement estimate, MSB only needs to treat 6,666 (funny) patients per year with Remestemcel-L to have the same revenue as Seagen of US$2b that just got acquired for US$43b (assuming the same reimbursement for all indications). This shifts to 4000 patients with the higher reimbursement estimate of US$500k per patient.

Yes, there will be differences in product margin, scalability, etc. etc. But I think you can catch my point.

SUMMARY:

In short, I perceive the risk for MSB as relatively small, with estimates of success over 75%. The potential (medium-term) reward for MSB, is likely over a 17x.

Again, I don’t know about you, but I’d far rather lose to those odds than bet on the Warriors.

As for approval on the day, I conservatively think that we will only get to about AUD$2.50 – AUD$3.50 per share, roughly around US$1.5b market cap. Do I think that’s where it should be valued? Clearly not. But it also clearly should not be at these levels. To be fair though, with >36 million short positions… things could definitely pop off.

Until after the PDUFA,

Gang gang.

Not financial advice, just my interpretations of risk and potential reward.