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Bioshares
18 May 2012
Interest in Mesoblast’s Share Price
Mesoblast ($MSB: 6.85) is a company that has many shots on goal for its mesenchyal
precursor stem cell (MPC) technology. It has mid-to-late stage programs underway or
due to start in heart failure, Type 2 diabetes, spinal fusion, invertebral disc repair, the eye
disease wet AMD, and in bone marrow transplantation. Its lead program is a Phase III trial
that is due to be initiated soon by its partner Teva Pharmaceutical Industries. The
company’s Phase II trial in Type 2 diabetes is open for recruitment and this trial alone
could deliver a major result for the company.
Phase III Congestive Heart Failure Trial
The Phase III CHF trial clinical program is now being driven by and paid for by Teva.
Mesoblast has been involved in the trial design, discussions with regulators, and it will
manufacture the adult cells for the trial. Teva and Mesoblast have met with both European
and US regulators. The start of this trial by Teva, expected to be in Q2 2012, will be
a significant event.
Only one Phase III trial involving 1,500 patients may be required to gain product approval
and the timeline for product approval for CHF remains at the end of 2015.
Phase III Interim Analysis?
Depending on the significance in the results, there is the possibility of an interim analysis
of results, which could reduce development time by a year. It is anticipated that the
patient population intended to be treated has a 20% chance of not living beyond 12
months. If it is observed that the overall survival of patients in the trial is much higher
than the expected (i.e. suggesting that the stem cell treatment may be having a pronounced
effect on survival, as seen in the 60 patient Phase II trial), then an interim
analysis could occur. This could happen when 1,000 patients have been recruited. However
there is a risk it could compromise the data if there is a higher than expected survival
rate in the control group.
Phase II Type 2 Diabetes Trial
Mesoblast’s Phase II trial in patients with Type 2 diabetes is currently open for enrollment.
This will be a 60 patient trial, with three different doses and a control group (similar to its
very successful heart failure trial). There will be a 12 week end point in the trial. Results
should be rapid with the trial expected to be completed by the end of this year.
The three doses will be escalating, with the company anticipating the highest dose to be
most effective. Each dose will be monitored by a safety committee and there may be
interim data emerging from the trial.
There are a number of reasons the application of MPCs in diabetes may have merit.
1. Positive preclinical studies
In preclinical studies in 17 non-human primates with diabetes (the
monkeys live on sugar plantation), there was over a 60% reduction
in glucose levels in the higher doses over six months following
a single IV dose of the Mesoblast stem cells. There was also a
drop in CRP levels (a marker of inflammation). Elevated CRP levels
present a major risk of heart attack in people with Type 2 diabetes.
2. Role of Osteocalcin
What works out to be of benefit for Mesoblast is the role its
population of stem cells play in diabetes. The hormone osteocalcin
has been reported by others to promote beta cells in the pancreas
to release more insulin, while also directing fat cells to release
more of the hormone adiponectin which increases insulin sensitivity.
Type 2 diabetes is characterised by not enough insulin circulating
in the body and the body being resistant to insulin.
Mesoblast’s mesenchymal cells are the precursor to the osteoblast
cell that produces the osteocalcin hormone that promotes
beta cell function. Increasing the level of insulin produced in the
pancreas and increasing the body’s sensitivity to insulin can both
be very helpful in treating Type 2 diabetes.
3. Role of Inflammation
The second fortunate feature of the Mesoblast mesenchymal precursor
stem cells is that they have an anti-inflammatory action. It’s
the pro-inflammatory effect in diabetes, as indicated by the high
CRP levels, that can have fatal outcomes for patients with diabetes.
Other Clinical Milestones Ahead
Disc Repair
Mesoblast expects to complete its Phase II disc repair trial by the
end of this year. If this is positive, Mesoblast could move into a
Phase III trial, in 500-600 patients, running the trial on its own.
This application is preferable over the spinal fusion use (see below)
as there is no existing competition. An effective disc repair
product could also reduce the need for spinal fusion procedures.
Spinal Fusion
Mesoblast is completing two Phase II spinal fusion trials. They
are both fully recruited and are waiting on reaching six month
endpoints. Results from these trials should also be available towards
the end of this year. The spinal fusion market is more competitive
with an existing product, Infuse from Medtronic, on the
market. However this product has safety concerns and sales are
declining.
Key Teva Advisor Joins Mesoblast board
Although it was only a one page announcement by Mesoblast,
the appointment of Dr Ben-Zion Weiner to the board of Mesoblast
is an important move. Dr Weiner replaced Kevin Buchi, who
was formerly CFO and then CEO of Cephalon which was acquired
by Teva. Buchi has now left Teva.
Dr Weiner was formerly head of R&D at Teva and is now a special
advisor to the CEO of Teva. His placement on the Mesoblast board
indicates Teva wants to stay very close to developments at Mesoblast..There have been questions by some of the commitment of Teva to
the Mesoblast programs following the acquisition of Cephalon.
Mesoblast CEO Silviu Itescu said Teva is very committed to the
Mesoblast partnership and believes it will not sell its 19.9% stake
in Mesoblast.
Teva, which was built around a generics businesses, is in the
process of transforming into a branded (drug development) pharmaceutical
company. In January it appointed a new CEO, Jeremy
Levin, who was formerly a senior executive at Bristol Myers-
Squibb, which is not a generics business. Mesoblast’s technology
has the potential to help transform Teva into a drug discovery
and development company.
We understand that what were Arana Therapeutics’ drug discovery
assets and acquired by Cephalon, were being considered for a
spin out from Teva. However that option has been removed with
the focus now from Teva to build its branded drug business.
Learning from the Osiris Experience
Overnight US stem cell company Osiris received approval from
the Canadian drug regulator for its stem cell therapy Prochymal
for the treatment graft-versus-host disease.
Graft-versus-host disease occurs when a patient receives a bone
marrow transplant but the match is not quite exact, resulting in the
transplanted immune cells in the bone marrow attacking the patient’s
organs. First line therapy is the use of steroids to dampen
the immune system.
In 2009 Osiris failed in two pivotal late stage trials in graft-versushost
disease. The therapy is believed to be more effective in more
severe cases of the disease. The Canadian regulator has approved
the therapy for children who have failed steroid treatment.
Osiris is also trying to commercialise its treatment for Crohn’s
disease, type 1 diabetes and heart failure although has also had
some setbacks here as well.
The Mesoblast technology differs from the Osisris stem cells in
that its population of cells is much more concentrated. Mesoblast
has learnt from Osiris’ mistakes in commercializing its own stem
cell technology. Osiris started with a systemic, broader acting
therapy (graft-versus-host disease, Crohn’s disease) and has then
pursued more targeted therapies.
Mesoblast has proven first that its technology works in specific,
targeted therapies such as heart failure and bone fractures. Having
achieved its proof-of-concept here, it will now expand into
less targeted or directed, intravenous formulations for disorders
such as diabetes.
Osiris was once the commercial leader in the stem cell space with
a market value of over $1 billion. It is now capitalised at only
US$182 million and Mesoblast has become the global leader in the
stem cell space with a market value of $2 billion.
Developments such as the approval of Osiris’ allogeneic stem cell
product in Canada, pharmaceutical group Baxter commencing a
Phase III study in January in 450 patients with chronic myocardial
ischemia using its autologous stem cell therapy (see Bioshares
446), and the widespread progress at Mesoblast indicates the commercial
development of stem cell therapy is gaining momentum.
Summary
There are many significant milestones ahead for Mesoblast. These
are summarised below. The outcome from the company’s Phase II
trial in diabetes could be a major event for the company. Not only
does it have the potential to open up an extremely large market
opportunity for the company in Type 2 diabetes, but it will support
other systemic therapy applications including rheumatoid
arthritis (caused by inflammation), which is over a $10 billion a
year market as measured by existing product sales.
Mesoblast is capitalised at $1.95 billion. It had $226 million cash at
the end of March.
Forthcoming Mesoblast Milestones
• Dosing of first patient in Phase II Type 2 diabetes trial (60
patients) – imminent
• Start of Phase III heart failure trial by Teva – Q2 2012
• Results from disc repair trial – end 2012
• Results from two spinal fusion trials – end 2012
• Interim Phase II diabetes data – end 2012
Bioshares recommendation: Speculative Buy Class A...............Always good news around the next corner Vin