More Confirmation From Partners re technology and balance sheet strong = Up She Goes!
The two major problems people had with MSB in the past were
(1) constant capital raisings due to cash burn and weak balance sheet, causing constant shorting raids
(2) doubts about the technology - would the trials succeed, would we ever do a successful partnering deal
Both of those questions have been definitively answered since September last year after the Grünenthal deal on back pain and the October capital raising putting any further need for capital as strategic growth prospects rather than short-term desperation.
The company is a completely different prospect now - however it takes a long time for the market to realise that. The recent repricing has only returned us to the levels of 2015, yet we are now right at the end of the P3 trials in the major tier 1 products and have funding for years to come. We are finally moving ahead of the disappointment caused by Teva pulling out of their partnering deal (signed with Cephalon who were taken over by Teva). Teva made a massive strategic blunder, but they weren't an innovative drug discovery company, merely a generic drug maker, so they stopped all of Cephalon's drug discovery programmes. Mesoblast had the massive good fortune to receive funding from Cephalon and then receive the technology back from Teva for free.
It has taken near;y 5 years for the Mesoblast price to recover from this setback - but after creating a massive base in the share price, it is starting to move ahead again, fully funded, with new partners and the phase 3 trials now completed. It is in a stunning position. Add to this the potential that massive global demand for Covid19-ARDS cure has dropped out of the blue. Nothing is priced in for Covid19 - analysts don't have it in their models, and Mount Sinai hospital doctors have already noted "encouraging results" in the EAP compassionate use of Remestemcel-L and are looking forward to the P3 trial results which have been expedited by the US Government agencies (NIH) and the FDA and could start giving results as early as mid-July, but definitely by the end of September - amazingly fast for a P3 trial.
The lodging of the BLA for aGvHD in January and the approval for the other phase three trials to continue from the DMC also give us strong reason to believe the technology will continue the strong results seen in P2 trials into the mid-year readouts of the all important P3 trials in heart failure and back pain.
So, here are the latest comments from partners, showing the high esteem held for MSB. This should bolster the confidence of insto's who are likely to buy MSB for index inclusion.
1. Grünenthal glowing references to MSB in CEO's annual letter
Grünenthal recently released their "Letter From the CEO". It is in the appendix. In a long review of the company, t mentions Mesoblast right up front. I include relevant sections in the appendix and have cut it down to just include the parts referring to Mesoblast and relevant paragraphs around it.
The key section is a glowing reference to Mesoblast right at the start - surely this gives another huge shot of credibility to the technology and the company: Our strategic partnership with Mesoblast,1 a world leader in cell therapy, is another outstanding example. This is our first cell therapy project, and it encompasses co-development and exclusive commercialisation rights for MPC-06-ID in Europe and Latin America. MPC-06-ID is an innovative investigational treatment for chronic low back pain that is caused by degenerative disc disease. It aims to provide treatment for patients who have not experienced effective relief from available therapeutic options.
Furthermore, later in the letter they say how excited they are to have entered a strategic partnership with MSB and how the collaboration is a major milestone for Grünenthal.
They also give a time frame for the second European Phase III study, which they are jointly preparing with MSB and which is expected to start in 2021 after the "first results" of the US P3 back pain trial are expected to be seen "mid-2020".
See my comments in the Alofisel section below on why it is better from a pricing point of view to obtain US approval first. Furthermore, there's no real point in rushing European approval until manufacturing is set up. I imagine that part of the Prof's recent talks with governments and big pharma include manufacturing suites in Europe. The demand for cells is going to be enormous.
So, fulsome praise from a partner, and confirmation of the mid-2020 date for back pain results. Some people had been concerned that At the forefront of science: our partnership with Mesoblast in chronic low back pain
As a global leader in pain research, we are deeply committed to making a meaningful difference to patients. To achieve this, we focus on truly innovative approaches and we believe that we can only be successful if we team up with other innovators that share our vision of a world free of pain.
For this reason, we are very excited to have entered a strategic partnership with Mesoblast in 2019. This collaboration marks a major milestone for Grünenthal as it represents access to our first cell therapy programme. It grants Grünenthal exclusive commercialisation rights in Europe and Latin America. Through our partnership with Mesoblast, we are striving to deliver the first allogeneic mesenchymal stem cell therapy for patients with chronic low back pain associated with degenerative disc disease. Jan Adams, Chief Scientific Officer Mesoblast is a world leader in cellular medicines. Together, we aim to develop and commercialise MPC-06-ID, a highly innovative Phase III cell therapy with the potential to transform treatment of chronic low back pain associated with degenerative disc disease in patients who have exhausted available conservative treatment options. This patient population often suffers from particularly severe pain.
More than 7 million people in Europe alone are thought to suffer from degenerative disc disease,1-4 which often causes significant pain and can finally result in loss of function.5 Most existing therapies provide only limited symptomatic relief. As a result, patients typically suffer for several years without being able to sufficiently address their pain.6 Phase II data for MCP-06-ID showed that a single intradiscal injection using a unit dose of 6 million allogeneic MPCs resulted in meaningful improvements in pain intensity and functionality for patients for at least two years.7 Currently, a first Phase III study is ongoing in the US. We expect to see the first results by mid-2020. Together with Mesoblast, we are jointly preparing a second Phase III study for Europe, which we aim to initiate in 2021.
2. More partnering opportunity with Takeda's Alofisel in US Crohn's Fistulae
So, it would appear Takeda plans to launch Alofisel in the US - for fistulae, not C-19. Good for royalties, any thoughts?
In any event, some of the white papers I have reviewed do show that they are getting good results with the product... "life-changing results" for young adults who suffer from fistulae.
Meanwhile, Mesoblast results on the phase 3 Crohn's disease trial are pending... Perhaps we may not hear anything until after the PDUFA date, thoughts on that?
Yes, it is a fact that MSB licensed Takeda to treat Crohn's fistulae worldwide. However, MSB has retained the right to treat overall Crohn's disease. Fistulae are a subset, albeit a nasty and difficult to treat subset of Crohn's.
This is a revenue making opportunity for MSB as they will receive $US10m on positive Phase 3 results from Alofisel and royalties on commercial sales by Takeda.
The US is a big market for Crohn's fistulae, probably much bigger than Europe, where Takeda have probably made the mistake of seeking first approval and pricing the treatment too high (around $US60,000). The problem is, it is difficult to set a lower price that the EU will accept and then increase the price for the US market as the US will use the EU price as the reference price. Far better to follow MSB's strategy of approval in the US first and set the US price, then seek approvals elsewhere and charge what the market will bear. In my view, that is probably why the Grunenthal P3 trial won't start until after the US approval and pricing are sorted out (and EU manufacturing is contracted). Smart startegy by The Prof.
As the following link shows, US approval for Alofisel is "currently under review":
Alofisel received positive opinion from the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) and the Committee for Advanced Therapies (CAT) in December 2017.
The drug was granted orphan designation by the European Commission (EC) and the US Food and Drug Administration (FDA) in 2009 and 2017 respectively.
It subsequently received marketing authorisation (MA) in Europe from the EC in March 2018.
The FDA approval for Alofisel is currently under review.
A global phase-three clinical trial on Alofisel, named ADMIRE-CD II, was initiated in 2017 in support of the US Biologic License Application (BLA) submitted to the FDA.
The trial is a randomised, double-blind, placebo-controlled study aimed at evaluating the efficacy and safety of a single administration of Alofisel for the treatment of complex perianal fistulas in Crohn’s disease patients.
My thoughts on the MSB P3 Crohn's trial is that it is something which should come up in the conference call with analysts tomorrow, given the progress Takeda is making with Alofisel in the US.
As someone who formerly worked in funds management, I can tell you that capital raisings are cut throat affairs with everyone fighting for their slice of the action if the price is a discount to the current market price - particularly in a situation where the company needs the money for growth opportunities which will earn a return above the WACC (weighted average cost of capital). The difficult capital raisings are the ones where the copany is facing a near death experience and bankers are calling in the loans and demand more equity be raised. This current capital raising for MSB was the former - they only needed the money to ramp up production for the new high return opportunity in Covid19 and there was no pressure from lenders. Insto's can see a stock about to enter the ASX200 index and it is their only opportunity to grab some decent volume at a discount.
In this situtation, big shareholders demand that they not be diluted. ie if they own 10% of the company, they will demand at least 10% of the capital raising. The fact that retail was not included (and that the Prof probably doesn't have the money to add 8% to his already very large personal holding) means that the existing instos can generally get the amount of stock they want, and then new insto shareholders can enter without diluting the big holders.
So, I was amazed to see in the substantial shareholder notice that M&G only got 1,187,500 shares in the recent placement of 8% of the company's capital at $A3.20. If I were M&G, I would have demanded more than my 8% "entitlement" of their 70m share position, or 5.6m, however they only got just over 20% of that amount - further adding to some of the comments that people were heavily cut back in the allocations, and that many instos received none at all.
To answer another question about the substantial shareholder notice - most of the drop in M&G's percentage holding is the dilution of the capital raising, not the scraps of stock they have sold. they previously owned 13.15% of MSB, so an 8% dilution in itself would take their holding down by 1.05% even if they had not sold any shares. They did sell about 351,000 shares as ADRs prior to the capital raising, which could be due to the huge rise in the share price taking some of their funds above their limits that they can hold in one stock (after all, the share price had more than trebled in 3 months) and they also sold some stock after the capital raising, no doubt at prices above the $3.20 raising price. The net amount sold is only 815,000 which is only a rounding error in their initial holding of 70.636m shares.
I further suspect that some of the S3XT crossings off-market could be some rearrangements of M&G's holdings between funds, post the huge price price causing some funds to be more overweight than their mandates allow, and also post the big restructuring of M&G and Prudential. Seen in that light, M&G's small rearrangement of stock doesn't mean anything.
What means much more is confirmation that the biggest holder didn't get anywhere near its "entitlement" in the recent selldown. They presumably could've taken a much larger holding at a discount and then flipped it for a profit - they should be commended that they didn't choose to do this and still appear to be a strong supporter of MSB.
Finally, an observation on the ADR turnover. I believe that to get into the US Nasdaq Biotech Index, MSB will need to show an ADR market cap of $US250m. At last night's price of $US13, that means over 19m ADRs will need to be registered, or the share price will need to rise, or a combination of both. There are currently 10m ADRs on issue (each worth 5 shares). I also believe that further ADRs will hit the ADR register in the near future, related to the very high US ADR turnover on 24 April and subsequent short covering and ADR conversion in the Australian market. Let's say another 2m ADRs will be created when that Aussie stock is eventually lodged and turned into ADRs. That would mean around 7m extra ADRs need to be created to get the market cap of the ADRs up to $US250m. That could be done by M&G lodging some of their stock as ADRs (or even the Prof doing so) - there would be a small annual cost of 4c per ADR and a 5c initial setup - but this would be a tiny cost if it led to MESO being in the Nasdaq Biotech Index, with a possible jump in price of several dollars from instos who are buying because they are benchmarked to that index, and the extra analyst coverage it would bring.
Bottom line
We have a conference call and quarterly result tomorrow morning. It will be a great opportunity for an update on the timing of trial results and progress with partners and maybe even government agencies.
The Grunenthal CEO letter and the prospects for Alofisel approval for Crohn's Fisulae in the US and more payments to MSB are all big positives from our partners and add to the credibility of the technology.
The balance sheet is in rude health - as proforma cash should show tomorrow in the results presentation and the company is in a fantastic and unexpected position to be able to take advantage of the Covid19-ARDS opportunity.
The share price consolidation should be over soon - as we can see the massive demand from instos in the capital raising, confirmed by the M&G substantial shareholder notice. The June ASX200 rebalance should ensure this continues.
Share prices never go up in a straight line and there is always profit taking from traders - I'm trying to ignore this short-term noise as the longer-term valuations remain at multiples of the current share price - and there is much more potential upside to the valuations on a successful trial result in Covid19-ARDS.
Grünenthal achieved its best ever financial performance in 2019. Sales increased by 9 percent and our adjusted EBITDA grew by about 60 percent to reach a total of more than € 340 million. We can look back on this achievement with a deep sense of pride and look forward to the future with great excitement – because our strategy is clearly taking us in the right direction. We made progress in moving towards our vision of a world free of pain. In 2019, Grünenthal achieved record financial performance and added two exciting new projects to our pipeline – a Phase III cell therapy programme for chronic low back pain and a label extension that we submitted for Qutenza™ for diabetic peripheral neuropathic pain. These successes were made possible by our highly committed teams. Looking beyond financials, we can also be proud of the entrepreneurial steps we took in 2019. We realigned our R&D strategy and implemented a new R&D model to strengthen our position as a science-based, innovation-driven company. This strategy underscores our commitment to addressing areas with high unmet medical needs, with a specific focus on our four core indications: peripheral neuropathic pain, chronic postoperative pain, chronic low back pain, and osteoarthritis. It also emphasises our passion for exploring promising new therapeutic modalities and engaging in collaboration with external partners. The creation of our first Innovation Hub in Boston is a strong example of this approach in action.
Our strategic partnership with Mesoblast,1 a world leader in cell therapy, is another outstanding example. This is our first cell therapy project, and it encompasses co-development and exclusive commercialisation rights for MPC-06-ID in Europe and Latin America. MPC-06-ID is an innovative investigational treatment for chronic low back pain that is caused by degenerative disc disease. It aims to provide treatment for patients who have not experienced effective relief from available therapeutic options.
... Research & Development
Being a leading innovator in pain
In 2019, Grünenthal made decisive steps in Research & Development (R&D) to drive progress towards our vision of a world free of pain.
In an extensive and cross-functional process, we redefined our strategy for pain. Our R&D activities now focus on four strategic indications: peripheral neuropathic pain, chronic postoperative pain, chronic low back pain, and osteoarthritis. In all of these indications, there are still significant unmet medical needs that we aim to address through highly innovative medicines that truly make a meaningful difference to patients.
As well as redefining our therapeutic area strategy, we also transformed our R&D organisation and operating model to be much more flexible and focused on differentiating capabilities. We put particularly strong emphasis on human and clinical validation, translational sciences and deep disease understanding. In addition to our internal small-molecule capabilities, we leverage partnerships to draw from a wide range of therapeutic modalities, such as biologics and peptides, as well as cell and gene therapy. This enables us to pursue our priorities with a solution-agnostic mindset.
In addition, we continue to embrace the external innovation ecosystem and open ourselves up to even more collaboration with external partners around the world. We are committed to entering strategic partnerships with leading institutions and scientists to shape the field in pain research.
In this spirit, we offer our expertise in pain R&D and our end-to-end capabilities to interested partners. The recent opening of our Boston Innovation Hub marks an important milestone in getting us even closer to the global research community. “As a leader in pain research and development, we focus on highly innovative approaches to work towards our vision of a world free of pain.” We also made significant advances in progressing and strengthening our pipeline. With our new collaboration with Mesoblast and a submission to the US Food and Drug Administration (FDA) to expand the label for Qutenza™, we added two major late-stage opportunities to our portfolio. This allowed us to mitigate the setbacks we faced from terminating our Neridronate and Neosaxitoxin programmes. We also made good progress in our preclinical and drug discovery projects. Embracing external innovation
Today, innovation and value creation take place in a decentralised and networked manner that involves interaction between pharma companies, start-ups, biotechs and academia. Grünenthal has a strong track record of forming successful research and development partnerships. As a key part of Grünenthal’s strategic realignment, we want to move even closer to scientific communities around the globe by implementing Innovation Hubs in global research hotspots. In line with this, we opened our Boston Innovation Hub in 2019.
Innovation Hubs are centres of excellence for pain research, and an open invitation to scientists and institutions who are dedicated to addressing pain to team up with us as we work towards our vision of a world free of pain. They feature teams of high-profile scientists and medical doctors who operate virtually to initiate projects and drive them forward. Although each of our Innovation Hubs is equipped to conduct these projects independently – from target identification through to clinical proof of concept – they naturally work together with the R&D unit at our headquarters in Aachen to offer our partners the best of both worlds.
Grünenthal is looking forward to further leveraging its end-to-end R&D capabilities – such as deep disease understanding, clinical and technical development capabilities, market access and commercialisation – in many more promising R&D projects with partners from around the world. “We are committed to entering strategic R&D partnerships to drive progress in pain research and create solutions for patients’ unmet medical needs in pain.”**riel Baertschi, Chief Executive Officer
Progressing our pipeline: our lead programmes
Nociceptin/orphanin FQ (N/OFQ) peptide receptor agonist (NOP) Despite different treatment options being available, many patients with neuropathic pain still suffer from treatment non-response or insufficient pain relief. With our NOP receptor agonist programme, we are pursuing the development of a selective oral treatment with a unique mechanism of action for chronic peripheral neuropathic pain. This programme is based on many years of intense and groundbreaking research at Grünenthal in the field of NOP receptors, and creates a unique opportunity for a transformative first-in-class treatment. In 2020, we aim to bring the front-runner compound into clinical development. Glucocorticoid receptor modulator (GRM)
Glucocorticoids such as cortisone are known to be highly efficacious anti-inflammatory drugs. However, they come with several significant side effects that limit their use, particularly in chronic indications. With our GRM programme, we are pursuing the development of clinical candidates for oral treatment with broad anti-inflammatory efficacy but significantly fewer side effects than glucocorticoid-based therapies. Our team is aiming to bring our front-runner compound into clinical development during 2020.
MPC-06-ID (Mesoblast collaboration)
More than 7 million patients in Europe suffer from chronic low back pain associated with degenerative disc disease.1-4 Many patients still suffer from significant pain after exhausting available conservative treatment options. Together with Mesoblast, we are pursuing the development of a highly innovative mesenchymal precursor cell (MPC) therapy for patients with chronic low back pain associated with degenerative disc disease who have not found effective relief from available treatment options. In 2020, we expect to receive the first results from an ongoing Phase III study in the US. Based on these findings, we will progress towards a second European Phase III trial.
Qutenza™
Qutenza™ is a cutaneous patch (capsaicin 179 mg/8%) that is approved for the treatment of peripheral neuropathic pain in Europe and for the treatment of neuropathic pain associated with postherpetic neuralgia in the US. Currently, the US FDA is reviewing our supplemental new drug application to expand the label for Qutenza™ to include treatment of pain associated with diabetic peripheral neuropathy. We expect a decision from the FDA by 19 July 2020. We are also considering additional lifecycle management ideas to further demonstrate the benefits of Qutenza™. 1Andersson GB. Epidemiological features of chronic low-back pain. Lancet. 1999;354:581–585. 2Freburger JK et al. The rising prevalence of chronic low back pain. Arch Intern Med. 2009;169:251–258. 3Malanga GA et al. Epidemiology. In: Cole AJ & Herring SA, eds. The Low Back Pain Handbook: A Guide for the Practicing Clinician. 2nd ed. Philadelphia, Pa.: Hanley and Belfus, 2003:1-7. 4DePalma MJ et al. What is the source of chronic low back pain and does age play a role? Pain Med. 2011;12:224–233. At the forefront of science: our partnership with Mesoblast in chronic low back pain
As a global leader in pain research, we are deeply committed to making a meaningful difference to patients. To achieve this, we focus on truly innovative approaches and we believe that we can only be successful if we team up with other innovators that share our vision of a world free of pain.
For this reason, we are very excited to have entered a strategic partnership with Mesoblast in 2019. This collaboration marks a major milestone for Grünenthal as it represents access to our first cell therapy programme. It grants Grünenthal exclusive commercialisation rights in Europe and Latin America. Through our partnership with Mesoblast, we are striving to deliver the first allogeneic mesenchymal stem cell therapy for patients with chronic low back pain associated with degenerative disc disease. Jan Adams, Chief Scientific Officer Mesoblast is a world leader in cellular medicines. Together, we aim to develop and commercialise MPC-06-ID, a highly innovative Phase III cell therapy with the potential to transform treatment of chronic low back pain associated with degenerative disc disease in patients who have exhausted available conservative treatment options. This patient population often suffers from particularly severe pain.
More than 7 million people in Europe alone are thought to suffer from degenerative disc disease,1-4 which often causes significant pain and can finally result in loss of function.5 Most existing therapies provide only limited symptomatic relief. As a result, patients typically suffer for several years without being able to sufficiently address their pain.6 Phase II data for MCP-06-ID showed that a single intradiscal injection using a unit dose of 6 million allogeneic MPCs resulted in meaningful improvements in pain intensity and functionality for patients for at least two years.7 Currently, a first Phase III study is ongoing in the US. We expect to see the first results by mid-2020. Together with Mesoblast, we are jointly preparing a second Phase III study for Europe, which we aim to initiate in 2021. 1Andersson GB. Epidemiological features of chronic low-back pain. Lancet. 1999;354:581-585. 2Freburger JK et al. The rising prevalence of chronic low back pain. Arch Intern Med. 2009;169:251-258. 3Malanga GA et al. Epidemiology. In: Cole AJ & Herring SA, eds. The Low Back Pain Handbook: A Guide for the Practicing Clinician. 2nd ed. Philadelphia, Pa.: Hanley and Belfus, 2003:1-7. 4DePalma MJ et al. What is the source of chronic low back pain and does age play a role? Pain Med. 2011;12:224-233. 5Rider SM et al. Molecular mechanisms of intervertebral disc degeneration. Spine Surg Relat Res. 2018;3:1–11. 6Grünenthal Internal Data on File. 7Mesoblast. Trial Results: MPC-06-ID Phase 2 Chronic Low Back Pain Due to Disc Degeneration Clinical Trial. Available at: https://www.mesoblast.com/clinical-trial-results/mpc-06-id-phase-2. Accessed: April 2020. Exploring the role of cell therapy in degenerative disc disease
What is degenerative disc disease (DDD)?
DDD is a common condition which involves inflammation and degeneration of the intervertebral discs due to various factors, including age, trauma or genetic predisposition.1 The lack of ‘cushioning’ can result in spinal instability, mechanical stress and bony changes of the spine, which can eventually cause significant pain and loss of function.2
Clinical studies are exploring whether therapies involving MPCs could deliver meaningful, lasting improvements to people with chronic low back pain due to DDD.
Most existing therapies do not address the underlying mechanisms of the disease and provide limited symptomatic relief.
Consequently, people with DDD can suffer for several years at a relatively young age, without being able to sufficiently address their pain.6 MPCs have the potential to deliver meaningful lasting improvements to patients with DDD beyond symptomatic treatment. What are mesenchymal precursor cells?
MPCs can differentiate into tissues such as bone, cartilage, fat, tendon and muscle.7
How could MPCs be used in treating DDD?
Potential treatment effect
Scientists believe that the injection of MPCs into a damaged disc can trigger three biological reactions:
1Freburger JK et al. The rising prevalence of chronic low back pain. Arch Intern Med. 2009;169:251–258. 2Rider SM et al. Molecular mechanisms of intervertebral disc degeneration. Spine Surg Relat Res. 2018;3:1–11. 3Andersson GB. Epidemiological features of chronic low-back pain. Lancet. 1999;354: 581–585. 4 Malanga GA et al. Epidemiology. In: Cole AJ & Herring SA, eds. The Low Back Pain Handbook: A Guide for the Practicing Clinician. 2nd ed. Philadelphia, Pa.: Hanley and Belfus, 2003:1-7. 5DePalma MJ et al. What is the source of chronic low back pain and does age play a role? Pain Med. 2011;12:224–233. 6Grünenthal internal data on file. 7National Institutes of Health (U.S. Department of Health and Human Services). Stem Cell Information: Stem Cell Basics IV. Available at: https://stemcells.nih.gov/info/basics/4.htm. Accessed April 2020. 8Mesoblast. Trial Results: MPC-06-ID Phase 2 Chronic Low Back Pain Due to Disc Degeneration Clinical Trial. Available at: https://www.mesoblast.com/clinical-trial-results/mpc-06-id-phase-2. Accessed April 2020.
MSB Price at posting:
$3.81 Sentiment: Buy Disclosure: Held
(20min delay)
