For newer investors This is part of what was happening at Mesoblast some 14 months ago so keep in mind lots of Change ...............................................................................What’s what at Mesoblast
Mesoblast’s approved therapies are for the aforementioned Temcell in Japan, as well as for perianal fistulas in Europe (renamed Alofisel for that market).
The fistulas are the number one surgical complication for Crohn’s disease sufferers, occurring in about one in every 10 patients.
Ahead of a commercial launch in Europe, Mesoblast’s global partner Takeda is negotiating pricing and reimbursement and also undergoing phase III fistula trials in the US.
“It’s not one of our core products but it demonstrates that our intellectual property [IP] is the dominant IP in the mesenchymal stem cell space,” Dr Itescu says.
Mesoblast is funding two phase III trials off its own bat in view of FDA filings: a whopper 566-patient one for chronic heart failure and a 404-patient effort for chronic lower back pain caused by disc degeneration.
Via its Chinese partner Tasly, Mesoblast is seeking Chinese approval for a phase III chronic heart failure trial.
Have a heart
The key motivation for the heart trial is that current medications such as beta blockers and statins have been around for 20 years or more. Meanwhile, heart disease is growing at a faster rate than ever with eight million new patients expected by 2030 in the US alone.
“We are targeting patients with class three or four disease, the sickest 15 to 20 percent of patients who have failed standard-of-care drugs,” Prof Itescu says.
“Once you are in class three heart failure the likelihood of death over the next two years is as high as 20 percent. Once you are class four or end-stage heart failure, your chance of mortality in 12 months is 50 percent.”
He says any Tasly heart trial should generate data to support an FDA filing, or the US data could be used to support a Chinese application. “The closer they are in terms of patient population and endpoints the easier it is to use both filings,” Dr Itescu says.
The point about endpoints
“Primary endpoint” is a sensitive term at Mesoblast’s Collins Street HQ after a 159-patient trial of Revascor for end-stage patients using left ventricle assist devices (LVADs or heart pumps) came a cropper last year.
Well, in the eyes of the market it did, because the shares tumbled 28 percent.
In short, the trial - carried out by independent investigators at New York’s Mt Sinai School of Medicine and funded by the US Government National Institutes of Health - did not meet its primary endpoint of temporarily weaning patients from the LVADs.
But Prof Itescu stresses the “academic” endpoint was set by the investigators - not Mesoblast - and was never viewed by the FDA as clinically relevant.
“That [weaning] was not something of any interest to us,” he says. “What we were interested in, based on FDA guidance in writing, was reducing the major clinically meaningful problem of recurrent hospitalizations from major gastrointestinal bleeding.”
“And we did. We reduced bleeding rates by 76 percent and hospitalization by 65 percent and these numbers were identical to an earlier pilot trial.”
Mesoblast is now using an “innovative” endpoint that measures hospitalizations - a measure not targeted in early stage heart patient trials because thousands of patients are required to show a statistically valid result.
Under what’s known as ‘joint frailty’ model commonly used in cancer patients, the total burden of the disease is taken into account.
The secondary endpoint - the time to and incidence of mortalities - is simple enough. The ideal data package will result in reduced deaths and hospitalizations, but not reduced hospitalizations because more of the patients are dying.
Finances and performance
Mesoblast lost a cool $US44.1 million during the half, on revenue of $US13.5 million (including $US11 million of milestone payments from Tasly).
But with a cash balance of $US92 million, Mesoblast is well placed to absorb inevitable further losses as the phase III trials advance. The December end balance of $US77million was bolstered by a payment of $US15 million in January from Hercules Capital, triggered after the company met its bleeding and hospitalization secondary heart endpoints.
Given Mesoblast’s sickly share price, management has steered clear of equity funding in favor of innovative non-dilutive debt funding.
One is a facility with Novaquest, by which the capital is not paid until the company reaps revenue from Remestemcel in the US.
“This sort of financing does not exist in Australia but is commonplace in the US,” Prof Itescu says. “When we have a strong share price we would probably do equity. The good news is that in the US structured financing is very attractive.”
Over the last decade Mesoblast’s ASX shares have traded as high as $9 (October 2011) and as low as $1.03 (December last year).
Around eight percent of Mesoblast stock is ‘shorted’ which means it’s in the hands of arbitrageurs who have sold the stock in the hope of buying it at a lower price.
NASDAQ ‘victory’
When Mesoblast dual-listed on the Nasdaq in November 2015 - accompanied by a $US63m capital raising - it was assumed the American depositary receipts would benefit from those sophisticated Yankee investors re-rating the stock.
It didn’t pan out that way - the shares dropped by one-third - but the company claims victory anyway.
Why? The primary aim of the exercise was to enhance liquidity and this is what occurred. The twist is that the boosted volumes have related to the ASX ‘home’ stock, not the Nasdaq ADRs. But the Nasdaq listing has removed the impediment of most US funds being confined to stocks subject to US governance.....
Mesoblast has its fans and detractors - possibly not much in between - and finally the company is at a juncture where one camp will be proved right and the other wrong.
The US institutions covering the stock are firmly in the bullish camp: Cantor Fitzgerald ascribes a ‘price target’ for the ADRs, currently trading at $US4.39 a share, of $US23. Maxim Group and Oppenheimer guesstimate they’re worth $US16 and $US14, respectively.
Despite its zeal, Cantor Fitzgerald cites the heart failure program as the biggest market opportunity, but ascribes only a 40 percent chance of success. It also notes that Mesoblast’s core patents expire in 2029.
The short-term proof lies in whether the FDA does indeed approve Remestemcel-L for GvHD and then whether it bestows fast-track status on the gastrointestinal bleeding program.
Meanwhile, the back-pain program offers a potential solution to the US scourge of opioid abuse.
Prof Itescu says the brutal truth is that 50 percent of drugs will fail at phase III stage. Even so, Mesoblast is confident of joining the pantheon of ‘Aussie global biotech champions’ alongside the likes of CSL and Cochlear.
“Australian investors need to understand [that drug development] is not for the faint- hearted,” he says. “It’s expensive, but this is how you build an industry. You can’t skimp on it and it’s not for short term returns.” .....Cheers V
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