Compassionate use for Covid19-ARDS Finished - Everyone's on the...

Compassionate use for Covid19-ARDS Finished - Everyone's on the trial now
@Lopez
The compassionate use programme gave some early, very positive results, and saved lives, but it wasn't a trial. There was no control group and it was small, so it was therefore not capable of meeting FDA approval requirements. The FDA actually asked MSB to increase the trial size from 240 to 300 patients so that they would have an approvable outcome. Of course, if the results of the Bayesian probability analysis of the first 30% or 45% are overwhelmingly positive the trial could be stopped early before the whole 300 are recruited.

There was no point continuing with this compassionate use programme (EAP) once the recruitment for the 300 person phase 3 trial started. Otherwise people would just stay in the EAP or compassionate use group as then they know they are getting the cells, rather than running the risk of being in the control group - it would make recruitment for the trial impossible and would at least slow it down.

Since the trial started recruiting, the EAP for Covid19-ARDS has been "No longer available":



It sounds harsh, but MSB is a small company, with limited production capacity, which is needed for 200 to 400 cases per year of paediatric aGvHD, starting in September and these trials are eating into the supplies of those cells for aGvHD.

My estimate is that it would cost MSB around $US30,000 to produce the cells for each patient on the ARDS EAP and that each 2 patients treated could potentially stop a kid receiving aGvHD treatment, due to limited supply of cells. The ARDS treatment is only one double-dose, whereas the aGvHD treatment is 4 weekly double-doses - but it would mainly be much heavier adults on the ARDS programmes, who are double the average weight of the sick kids under age 12 who have been very sick with cancer. So, two heavier adults on the ARDS programme could use as many cells as a child on the aGvHD programme.

Furthermore, keeping the EAP in ARDS going would hold up enrollment for the ARDS trial, and wouldn't be counted by the FDA in analysing the results. If it also eats into the Ryoncil (remestemcel-L) inventory being built up for the commercialisation of paediatric aGvHD, we wouldn't have enough cells to be able to treat the dying kids with aGvHD - that's harsh too. Furthermore, we KNOW it cures aGvHD, and while we're very hopeful it will cure ARDS, it seems overly harsh to potentially slow down aGvHD cures to treat adults with a more speculative disease.


I think most of the flipping of the placement has already been done

As we know, instos have many ways to flip stock before they own it, and I think this has already happened:
a. they could sell existing shares they have to take up new stock at a discount
b. they can buy put options or sell calls against the position which is about to be delivered
c. they could borrow stock and short it - the 10% annual borrowing cost is negligible for just a few days
d. there are any number of ways of doing swaps, CFDs and other ways of selling early

My best guess, from my experience with these kinds of deals, is that a few overseas instos would get 40-50% of the stock issued, and that they would be big guys known to MSB and therefore unlikely to be hedge funds covering positions or short-term flippers. Given the huge demand for this placement (reportedly 3x oversubscribed) and the big cutbacks I've been told about by contacts in the industry, I can tell you that MSB would've been carefully checking the identity of the big buyers and seeking assurances they were buying to hold not flip. Usually there is a balance between looking after existing instos and allowing new shareholders to build a foothold in the stock. Often a new shareholder will not start buying until they are sure they can get a start - they won't stick around trying to buy scraps to get started. If they get a start in a placement, they will often add to that position over time.

Remember that MSB was not desperate for this cash, there was no short-term cash deficiency nor pressure from banks, and MSB's long-term lenders do not require any capital repayments at present, and a lot of the interest is deferred until after Ryoncil is commercial. So there was no desperation for this cash and MSB could have been choosy about where it went. Bell Potter, a small broker, unconditionally underwrote the placement in a time of high volatility for MSB and the overall market - they don't have the balance sheet to take on that sort of risk unless the deal has been pre-sold. If it was pre-sold, MSB know where the stock is going.

That leaves around 40-50% for Aussie instos who are either new or existing holders. Again, I can't see MSB allowing hedge funds into this allocation and I personally know people who were cut out altogether after making reasonable sized bids, and were told "sorry, you can't get any, it was 3x oversubscribed". We have also heard on HC of people only getting 25% of what they applied for. I have other friends who were cut back heavily and received less than 10,000 shares (so it wasn't because they asked for extremely large allocations).

I would guess that 10% (maybe 20% at the outside) of the original placement, before it was expanded (ie 3m shares) could go to BP's high net worth clients (including BP staff or management) or to their professional investment contacts - some of these guys would sell the stock on to small hedge funds and other players unknown to MSB, but you can't stop a bit of this happening. I have also known brokers to take a small allocation of stock onto their own books to flip for a profit - not that I'm accusing BP of doing this, but it's not unheard of (though it annoys the hell out of instos).

So this could be a source of a bit of flipping, but not the full 3m, and MSB has been turning over between 10m and 22m shares per day in the past 3 days - so there's very strong buying which would easily soak up any of this relatively small potential selling.

Have a look at the following graphs in the MESO ADRs traded in the US and MSB shares traded in Australia. They show that volumes picked up after the trading suspension was lifted on Wednesday - with total turnover of 43.9m shares over those 3 days in Australia (including Chi-X) and 24.2m shares equivalent trading in the US (ie 22.6m shares per day over those 3 days). That adds up to more 58% more turnover in just the past 3 days than the total placement of 43m shares. Most of this volume was on Wednesday night and into Thursday, and it was dropping off by Friday. I most people who were going to flip have already done it. The placement wasn't a huge placement - it was only 8% of the shares on issue even after expanding the size due to phenomenal demand.

Compare the past 3 days' turnover to the turnover from the start of May up to the suspension of only 920,000 ADRs per day (equivalent to 4.6m shares per day) and Aussie turnover was 8.3m shares per day or an average of 12.9m shares per day for those 6 trading days (nearly half of the daily volume in the 3 days after the placement), which indicates a bit of post-placement flipping has already occurred.

Note that all these trading volumes are massively higher than the 1.1m shares per day traded in 2019.

The graph below shows the big pick up in volume in MSB in the past three days since the trading suspension ended - note how much bigger the volume is than the preceding period from 1 May up until the trading halt (volume is in the bottom panel):



And here is the same situation for the MESO ADRs traded on the Nasdaq market - again indicating the bulk of any flipping by professionals has probably already happened - leaving potentially only a few retail investors to flip on Monday or Tuesday:




MSB has changed dramatically and is much more attractive to insto buyers

I think that is evident from the huge demand for this placement. It is based on several big changes since last September.

MSB's nature has changed dramatically since the Grunenthal deal in September 2019 and the first placement in October 2019 confirmed the value of the technology through a big independent partner and also secured the balance sheet from cash burn through to 2022.

Trading volumes picked up strongly in September 2019 after the Grunenthal deal and then with the first of the two recent placements in October. The final exit of Capital late last year and later the apparent sale of Tasly's holding has combined with these placements to put a lot more stock onto the market and MSB is now much more liquid - this is attractive to instos who don't want to be trapped in a small illiquid stock. Another 8% of stock on issue from the current placement is probably already adding to liquidity.

This liquidity has exploded in the ADR market and another 1.673m ADRs were recently added to the ADR register as a result of conversion of MSB ordinary shares into MESO ADRs on a 5:1 basis (ie takes 8.4m shares of the Aussie market and puts them on the US market).

The likelihood of an approval of paediatric SR-aGvHD in the US market by the end of September gives US analysts something more proximate to analyse. I have spoken to Aussie domestic healthcare analysts at big investment banks who currently don't cover MSB at all. Their reasoning is that they aren't experts on the technology, so can't add anything on that front and that they are financial analysts - but there are currently no financials to analyse and the prospects for revenues and profits depend totally on the science and then management's commercialisation execution which is still unproven. That means there is a big pool of analysts who will be forced to start covering MSB either when it enters the ASX200 in June or when they see certainty from more positive phase 3 trial results and an approval from the FDA.

US analysts are more experienced in this endeavour, but since we have never before seen a US allogeneic stem cell product approved and sold commercially, they are placing very high probability discounts on the potentially enormous profits - because they just don't know. It looks great, and most of them are happy to put out valuations well above the current share price, but they aren't going anywhere near the full potential to avoid looking silly if something goes wrong. This leaves a lot of upside fat in the valuations, and I expect analysts to continue to lift their valuations and price targets as the share price rises.

As well as most analysts not including anything for Covid-19 ARDS in their estimates, some also leave out products like European back pain from valuations (even though MSB already has a partner for this) and probability discounts are being used of 70-75% for products which have already performed strongly in phase 2 trials and have survived the interim analyses of the phase 3 trials by a Data Management Committee which would stop the trial if it showed underwhelming efficacy. One US analyst estimates the company's value using an 8x multiple of sales forecast in 2022 even though most of the products won't have a full year of sales by then - and Covid-19 ARDS is not included - multiply the potential Covid sales by 22 and see what that does to your valuation! A lot of the valuations leave out more than they put in - there's multiples of upside in these valuations if MSB' s trials and commercialisation are successful.

So, instos can see these changes occurring in MSB and they also know it is likely to be included in the ASX200 Index in the June rebalance (unless the index committee exercises its discretion like when they abandoned the March rebalance) and also in the Nasdaq Biotech Index in December.

Furthermore, over 15 years of trials are coming to fruition with the US phase 3 aGvHD trial already successfully completed (smashed the primary endpoint) and a biologic licence application fully submitted and accepted on the FDA's "priority review" process and the final phase 3 CHF Heart Failure and DDD Chronic Lower Back Pain trials due to read out results by the end of June. The Covid-19 ARDS trial could potentially have a result by July if it shows overwhelming efficacy and is stopped early, or it could complete by early September.

Most big instos ignore experimental drug or biologic companies until they have successfully completed their trials and then there is something to analyze - before that it is speculation. Some smaller instos or specialists in this area have PhDs with industry experience and will buy 20 or 30 of these speculative companies, hoping that the few which pay off at least offset the losses on those which fail, but most just ignore these companies.

Many of these pivotal events are now only 6 weeks away and ASX200 Index inclusion is only a month away. This should put pressure on instos to buy MSB - and any liquidity event like the recent placement is a reason for index funds and quasi-index funds (which is most of the market these days) to accumulate or start to build a new position. It is not a situation in which big funds would try to buy and flip stock for a few cents profit.

Competing treatments

There are still a lot of posts about "competing" treatments. When you look into them you find a bunch of different problems - there are animal trials, phase 1 and phase 2 trials, underfunded companies, breaches of MSB's patents and some results that aren't statistically significant to name some of the bigger problems of these "competing" trials.

I would say to all the people fretting about other trials going forward on ARDS and Covid-19 that no other drug or biologic (apart from MSC's) has been able to treat all of the pathways of the cytokine storm in Graft v Host Disease and therefore it is unlikely anything else will be able to treat the cytokine storm in Covid19-ARDS.

Top medical professional Joanne Kurzberg has previously praised Mesoblast's cells for their efficacy, lack of side effects and tolerance in the trials she ran at Duke University for aGvHD - she has stated she is going to recommend the MSC's for all of her paediatric SR-aGvHD patients who fail to respond to steroids. Mt Sinai doctors have said they were encouraged by the recovery of severe Covid19-ARDS patients under their care and were looking forward to the phase 3 trial starting (since started). These are top medical professionals that are backing MSB - compare the reaction to top doctors advising caution on hydroxychloroquine and remdesivir due to lack of clear statistical RCT results.

Furthermore, Mesoblast holds the key patents (over 1,000 patents) in MSCs for composition of matter, diseases treated and advanced manufacturing - and those patents have already held up in the European courts (unanimous decision) and Takeda and JCR are paying royalties based on these patents - no-one else has that.

Furthermore, MSB's Covid19-ARDS trial is large with 300 patients, is paid for by the US NIH, is phase 3 and has two big advantages in that MSB already had been stockpiling cells for commercialisation of aGvHD in October and can apply for a label extension of the aGvHD approval to treat Covid19-ARDS. No-one else is in that position.

I've noticed that one of the crazies from CYP has been stirring people up in MSB again. For the "noobs" who may be disconcerted by these attacks, consider how this poster has constantly run down MSB while his own company has struggled. I can understand his frustration, but please don't take it out on us! MSB is now extremely well funded after last week's placement of $A138m for a 2c dilution from $3.44 to $3.42 (on the expanded $A138m issue) and the share price has since shot up above the pre-placement price. Compare that with CYP raising $A5.5m recently and having to knock the price down more than 20% to get it done, with no bounce back. CYP's total market cap is only $A70m and there's no way $5.5m would go anywhere near funding phase 3 trial. From all the rantings, you'd think that CYP was going to somehow come up with a phase three trial (even though they've never even started a phase 2 trial) and beat MSB to the punch on Covid19, or anything else they are attempting. It's laughable - they are so far behind, so underfunded and will end up with patent challenges on their MSCs (where MSB has patents over composition of matter and diseases treated). This same rooster was very disparaging last year when MSB was $1.49 and CYP was $1.79. So for people who haven't read his analysis, here it is from 23 July 2019 at 20:10:25 in response to one of my posts (which has turned out pretty close to the truth). I don't want to embarrass him by mentioning his name:

Reems of writing for what...nonsense

"It hopes to start 3 lots of phase 2 trials by the end of this year, but it clearly doesn't have the money to fund this as well as its normal quarterly cash burn. Their potential partner Fuji Film has so far failed to take up their option, which they appear to have been prepared to let lapse before CYP extended it."....

I can't read even past this due to your total ignorance
You best stick to MSB and try not to understand the Cynata business model, as it just makes your whole post worthless.

As I said before, all I need is the 1, 3 and 5 year charts to know I backed the right horse.

Well, maybe he backed the right horse based on his backward looking price charts, but that means he now has an investment worth 65c, when he could've sold his CYP back in July for $1.79 and bought 1.2 MSB shares which would now be worth $4.38 - on that logic, he could be sitting on nearly a 7-bagger vs his current holding. So, maybe looking backwards at 1, 3 and 5 year graphs to make your decisions has its drawbacks. I wouldn't personally bother listening to this sort of simplistic "analysis" and I would expect any of these companies to regard MSB as the gold standard and explain how their trials can possibly hope to come up with results that will be superior to those of MSB.


Bottom Line

I expect to see a little bit of flipping next week - maybe 3m shares or less. There is probably also likely to be a bit more profit taking by nervous nellies who like to cut their profits but let their losses run - a common reaction by retail investors after share prices have big falls and then finally get back into profit. I also expect this selling will be gobbled up by hungry instos in a day or two and that it won't put any real pressure on the price. The selling was already starting to abate in both Aussie and US markets on Friday. Trading volumes are still very high, but after high volume on Wednesday and Thursday it was starting to settle down on Friday.

Over the past 3 weeks, MSB has been filling the price gap left between the 24 January high of $A3.21 and the big gap up to $A3.70 left by frantic trading on Friday 24 April in the US Nasdaq market and replicated in Australia on Monday 27 April after the release of data summarising the New York Mount Sinai Hospital compassionate use of remestemcel-L for moderate to severe ARDS patients. The first week of this consolidation saw the price work around $3.25 and the low that week was just above $3. The second week consolidated 25c higher around $3.50 and last week's truncated traded was disturbed by the two day suspension due to the placement at $3.20 - but Thursday and Friday's trading between $3.51 and $3.92 has continued to work at the upper end of the gap. We may spend some more time filling the gap and giving profit takers a chance to get out, and new insto investors a chance to get in, but then we'll be ready for the next big move up.

Whether enough volume has gone through to satisfy all of the profit taking and the people who missed out on trading the gap between the January high of $3.21 and the $3.70 lowest point of the crazy trading on 27 April remains to be seen, and we may continue trading in that range for a while longer, but the gap has now filled.

The fact that the price did not drop back to the placement price of $3.20 immediately after the placement tells you how much unfulfilled demand there is. It's a great sign.


I think that, rather than worrying about what other trials might beat MSB, other companies should be asked to justify how their trial can possibly beat what MSB has. As I've said before, I'm not including vaccines nor antivirals in this comment, as there may well be something which comes out of that research, but I'm yet to be convinced that these treatments won't be like the normal seasonal 'flu - leaving more than enough people (over 100,000 pa) who will need to be treated for the deadly effects of Covid-19 ARDS even if there are antivirals or vaccines available eventually. The Prof stated 120,000 in one of his recent interviews.

IFF this Covid-19 ARDS treatment works, it is potentially worth $ billions to MSB. Partnering deals can be expected quickly after the trials complete (if successful) either with governments or big pharma. I expect approval could be rushed through as a label extension to aGvHD, possibly via an AdComm in July, but at the latest by September and that new advanced manufacturing could be in place for the first quarter of 2021. Maybe this could be a couple of new suites with Lonza, or possibly also one of the other US manufacturers. Eventually, we may even see a site in Australia to give us a high tech manufacturing sector and some biosecurity (although we generally aren't very good on these considerations - and don't get me started about the logic of having the Australian strategic petroleum stockpile in the US).

If Covid-19 doesn't work, the US analysts have cited a share price of $A2.00 to $3.00 as justified by aGvHD alone (so that's the downside) and they have conservative average valuations of $A5.20 assuming 70-75% probability discounts on Heart and Back Pain products (even though Grunenthal has already partnered back pain for Europe and Latin America) and they have nothing for Covid19, except maybe Bell Potter. That means there are multiples of 3x-4x of upside in these valuations of over $A5.20 if these major products succeed and analysts are already starting to upgrade. Of course, if Covid19-ARDS works, the upside is many multiples above this (see my previous notes on HC and also some of the work done by @wombat777).

Finally, I'm not being put off by all the negative commentary and sniping both from our own posters and posters who don't even own MSB (but some of whom are no doubt shorters) or those who are promoting competing companies.

I can't see that any short term flipping will affect the big upside available in MSB and I really haven't seen another company with such advanced prospects for treating Covid91-ARDS, with solid comments of "encouragement" from the doctors treating the disease at Mount Sinai in New York and with the good luck (and years of hard work and heart breaking financing) to have already met primary endpoints in a phase 3 MSC trial, with adequate supplies of high quality commercial cells on hand to meet the needs of a 300 patient Covid19-ARDS trial.

So the risk/reward tradeoff still strongly supports MSB at this point. This isn't a recommendation to buy - it's just stating the facts of the US analysts' reports. And there's plenty of long-term upside when you consider all the underlying numbers and discounting in their reports. Sure, something may go wrong, but MSB is a "story stock" at the moment, with several major announcements due in the next 6 weeks and it's hard to see the price reversing while all that is going on. MSB has become attractive to insto buyers - and they're buying - a word to the shorts - if you don't get out of their way, the instos are going to bulldoze right through you.