Chances of Covid Trial being a success

We know the results of the Covid trial should have a big impact on the share price(short term) over the next few weeks. If it fails the price may fall by half? If it succeeds it may rise many fold.

So for new investors like me, what are the odds of the trial succeeding? I have reposted posts from Ecool2(hope that is OK) so us new investors can get an idea of what bulls think of the data. It would be good to get the opinions of other holders as to what they thought of the data. Are they as confident or do some investors see gaps?

Is it wrong to assume below is 100% relevant for Covid or are Covid problems different? If it is different are we just relying on the great results of 10 out of 12 patients recovering from Covid recently?


Posts from ecool2

11/05/18

For me, the really big date is sometime in the 3rd quarter this year when we get the 12 months readout on the 159-patient trial in end-stage heart failure with LVADs. RMAT designation from the FDA for these patients with LVAD's has already been granted - and MSB has said they "intend to meet as soon as possible with the FDA regarding the company's development strategy and seek approval on an acceptable regulatory approval pathway".

Obviously, each approval and meeting of endpoints makes a big partnering deal more likely, and heart would be a much bigger deal than aGVHD.

To those who are still debating debt vs equity vs partnership deals - the landscape is very different now compared to even 12 months ago. They are now well advanced on phase 3 trials. They have plenty of cash to get through to key trial results where it is proved up and de-risked enough for big pharma to be prepared to consider offering big bucks. So debt is appropriate (if required) - as equity dilution is far too expensive at this point, potentially just in front of a big deal. Of course, a deal may not happen, but obviously people like Hercules think it is likely - or they'd be at risk of getting their loan repaid, and they don't have the equity upside.

So, the final dates that are important are the dates that a big heart deal might be announced. That could be any day, but more likely around good results from the heart trial in the 3rd quarter. MSB have disclosed in their quarterly cash flow statements that partnering could happen as early as the next quarter - this isn't new to the latest statement , but it show they consider themselves ready to complete a transaction if the right one comes along, and continued good trial results can only make that more likely, not less: "Mesoblast is in advanced negotiations with selected pharmaceutical companies with respect to potential partnering of certain Tier 1 product candidates. If Mesoblast enters into a binding transaction in the next quarter, it expects that one effect of the transaction is that its cash reserves are likely to increase. Mesoblast does not make any representation or give any assurance that such a binding transaction will be concluded."

We're getting close, but even if there is a considerable share price rise upon announcement of the first partnering deal, the upside will still be potentially huge after good results are released in coming years for other indications. We are only at the first stage of what could be history making technology - i.e. starting small - the GVHD will start in kids, then gradually move to adults (a market twice the size), heart will start with co-injection of MSB's cells along with an LVAD (US market size 5000 patients), then gradually go out beyond this to all stage 4 and a significant proportion of stage 3 CHF sufferers (market size over 1million patients). Then back pain (market size 3 million). Then the 2nd tier products! And this is all just for the US - imagine what will happen if the Chinese decide this should be a high tech growth area that they want to grab in the early stages (like they have with solar panels etc).

So don't get too tied up on timing in the next 3-6 months - it will be important in establishing the company on solid funding ground, and proving if the technology works but it is very early days - there could be a multi-year continual appreciation in the value of the company as new indications go through trials and as analysts remove big discounts on the valuation of these new treatments.


21/6/18

The results were even better than the 28 day results. 75% survival rate is higher than the day 28 response rate of 69% (which was already well above the required response rate to meet primary endpoint). That means survival for an extra 6% who didn't show sufficient response at day 28, but obviously had improved by day 100. Possibly because they just fell slightly short of the required response at day 28.

So why sell now?

Debt funding in place to cover cash burn thru to next year.

Negotiations with potential partners just got easier.

Only stem cell company in the world with an FDA phase III trial that has met its primary endpoint

No other approved treatment for a kids' disease with a terrible death rate - so accelerated approval got to be an even better chance after today

24.5m short as of 1 week ago = 5.16% of company. That's hard to cover without pushing it up. Average monthly turnover 24.8m shares from Dec to May 2018. So far this month only 11m. April was 10m, May was 18m. What pushed the monthly average up to 24.8m? Feb and Mar volumes averaged 40m each as price went from a low of just under $1.20 to a high above $2.00.

Most US analyst valuations (and Coppo) are looking for it to at least double in price. My rough analysis of the forecast profits in 3 years says it should do much better than that if it continues to derisk the technology and can manage to fund the cash burn - just waiting for a partner now!

SI has done a great job so far - the man's a pioneer and has succeeded in funding this company and advancing the technology against great odds. I think now's a good time to acknowledge that and I hope he gets a standing ovation at the conference





21/09/18
The difference made by yesterday’s 180-day survival data

The data is in line with previous studies and the company has ongoing survival data from the Expanded Access Programme and Japan – so does this make a difference? The answer is a big YES!

It is the first US FDA study in the stem cell landscape to meet its primary endpoint (involving 28-day response and 180-day survival). It is ground-breaking. It is proof of concept for MSB – for the cells, the technology, the manufacturing process and highly efficient treatment using allogeneic cells.

The 180-day survival data was important for the FDA to see that there was an ongoing survival benefit from the MSB treatment and makes it very likely that the FDA will approve this for refractory aGvHD in children, with possible extension to adults later. There is no other treatment for these kids who have failed to respond to steroids. It is already saving lives.

This indication is on FDA fast track (i.e. FDA must approve or not within 6 months of formal process starting with a BLA filing – i.e. by around June next year at the latest). Pre-BLA meeting likely before the end of this year, approval by June 2019, first sales in Dec half 2019 – i.e. CASH FLOW from US sales of aGvHD in less than 12 months.

There is also the possibility that this will spur one of the big pharma into doing a partnership deal on other indications. Obviously, that could mean a lot more cash in the next 12 months. The fact that a US FDA study has succeeded removes some of the risks for big pharma. There have been other stem cell studies which have failed for various reasons. Those problems have been overcome by MSB. A big partnering deal at this late stage is a risk for big pharma as it usually involves big upfront payments, so they will want to see it de-risked as much as possible. The Tasly deal was $US20m cash up front, but there are also the 6 milestone payments which could be many multiples of that (starting with US FDA approval for heart).


The no. 1 difference is for the kids we have saved and their families
Shorts should wake up to themselves and to their obligations to humanity

Overall Day 180 survival for the entire remestemcel-L treated group was 69%. Historical survival rates in patients with Grade C/D disease and failure to respond to steroids have been only 10-30%. In this group of 55, that means 17 in this study have died vs 38-50 in other groups. There are up to 29 kids out of the initial 55 who are still alive due to the Prof and our funding.
Short sellers who have tried to wreck this stock by pushing down the price and thus attempting to close off avenues for funding should hang their heads in shame. This isn’t a game – it’s life and death. I think they lose sight of that to make a few lousy bucks. Surely, they haven’t thought through the full implications of what they’re doing or they couldn’t sleep nights.

No. 2 difference is that the company is now dramatically derisked

Despite the facts that MSB has now brought a successful phase 3 FDA trial to its endpoint, that funding is in place for more than 12 months, that a new partner has been announced in China and that there are more phase 3 trials with more announcements pending in the Sep quarter and Dec quarter, MSB is trading below where it was in 2006!

Despite all of this progress, MSB is just at the starting gates when it comes to commercial success and the share price is acting as if probability of success is very low. At the current share price, I think the market is pricing in probability of success at 30% or less ($A1.80 divided by $5 consensus share price which is already discounting most of the product candidates’ probability of success).

Cash flows coming within the next 12-months, including potential partnering deals are now much more likely. If/when cash flows offset cash burn, the company won’t be priced as speculative any more and the roller coaster ride on the share price should settle down into a long-term uptrend.


US analysts have not yet upgraded despite positive developments.

According to www.analystratings.com, Mesoblast has an analyst consensus of Strong Buy, with a price target consensus of $18 (~$A5 per Aussie share), a 180.0% upside from current levels.
In a report issued on September 18, H.C. Wainwright maintained a Buy rating on the stock with a $17 price target. The key point to note is that this is unchanged from June, prior to Tasly and prior to these aGvHD results. For GvHD, they used 70% probability – you’d have to think that has upside, if not from the 180-day results, then in the next few months when the BLA is filed or when the FDA gives approval (probable before June 2019). In June, when they put a 12-months $US17 price target on MESO, Wainwrights said…

“Our therapeutic models are patient-based and reflect our assumptions for the product launch dates, product attributes, and pricing, to determine the future revenue streams. We apply a probability of success in these models. For GvHD we use 70% as the product is approved today in Japan and already reported positive top-line data from the current Phase 3, registrational trial. For all the other indications, CHF (class II, III and IV) and for CLBP we use a lower 50% as the basis for these trials was small Phase 2 studies, albeit with good results. These metrics then flow into our valuation models. For Mesoblast we use our maximum discount rate of 30%, which is in addition to our therapeutic probability of success rate. We select 30% as the company is not yet profitable and most of the products are still dependent on the outcome of the clinical trial. Our valuation conclusion is an equally weighted average of our FCFF, EPS, and sum-of-the-parts analysis. We use a fully diluted end-year share count and assume multiple raises.”

I find it hard to see how they won’t increase their probability of success and reduce their extremely high 30% discount rate over time as MSB progresses. Thus, the $US17 target price is likely to increase dramatically.

Cantor Fitzgerald has also not changed their 12-month price targets YET! They said…

“We arrive at our 12-month price target of $23/share by assessing the after-tax, risk- adjusted NPV of future cash flows from Mesoblast’s MLC platform. The probability- adjusted, fully taxed NPV (15% discount rate) of future cash flows through 2030 is $2.3 billion (~$23 per ADR), in our calculation.”

This valuation (equivalent to $A6.30 per Aussie share) hasn’t changed in the past few months despite the Tasly deal and yesterday’s 180-day survival data. Yet both of these announcements should increase the probability adjusted cash flows. Furthermore, within the next year, I would expect funding to become cheaper for MSB and the discount rate to move down from 15% to closer to 10%.

In a report released today, Jason McCarthy from Maxim Group maintained a Buy rating on Mesoblast Ltd, with a price target of $16. That target price hasn’t changed either.
McCarthy noted:
“Mesoblast announced continued positive survival data for remestemcel-L (allogeneic cell therapy) in children with steroid refractory acute graft vs. host disease (aGvHD). The next step for the company is meeting with FDA to discuss BLA submission. The cell therapy is already approved in Japan (as TEMCELL HS Inj) for aGvHD, licensed to JCR Pharmaceuticals Co Ltd (TYO: 4552 – NR).”
Short thesis is broken and makes even less sense now:
Cr4sac noted “the short position keeps on growing. I'm still a noob at this game of investing. But is the short thesis banking mostly on a negative LVAD P2 readout next week? What else in the near term could cause short investors to risk capital on a stock with so much upside?”

The most lucrative hunting ground for short-sellers is usually highly indebted companies who are suffering bad announcements, profit downgrades, write-offs and negative cash flows. All these things cause damage to their lending ratios and nervous bankers then force them to have a deeply discounted capital raising. The short sellers will often put out research emphasizing these problems and trying to cause both equity investors and bankers to panic – creating a downward spiral in the share price. The shorters then either cover their short position very cheaply in the subsequent equity capital raising, or wait for the company to go broke.

As outlined above, none of this applies to MSB. Firstly, it doesn’t have bank debt. Secondly, the debt is has recently negotiated is only 10-15% of its capital base and has 8 year duration. Thirdly, the debt providers have deferred interest payments until FDA approvals and cash flows and have taken equity in MSB! There are no trigger points to require early repayment, even if the share price were to fall.

There WAS a time that this worked for shorters of MSB, and the shorts actually made a lot of money selling all the way down from $10 to $1 and picking up cheap rights issues along the way from a company burning cash. There were some negative announcements in the past as the company was in a weaker position than it is now in relation to the bargaining position with big pharma. Shorting doesn’t make sense now. The company has said it is well funded for over 12 months, so there is no rights issue on the horizon and no way for the shorts to cover with a big liquidity event. It is much less lucrative doing this at $1 per share than at $10 and the announcements coming from the company have all been positive and important phase 2b and phase 3 trials are progressing well, making the company even more valuable and much less risky for a big pharma to pay big bucks for partnering deals.

So why is the short position rising and what is their thesis? Some of these guys have a long-held belief that stem cells won’t work, or won’t work well enough to be commercially viable and make big enough profits to cover the cash burn from expensive trials. They know that some stem cell trials have had problems and didn’t meet primary endpoints or had bad side effects. So, they fundamentally don’t believe MSB will be successful. (Note that none of that has afflicted MSB’s trials – mainly because of MSB’s better technology).

They expect bad news flow and they expect high cash burn and capital raisings. I believe they are caught in this belief, and after years of making profits they justify their current position by pointing to their historic results – that’s why they come on forums like HotCopper and try to make out that every announcement has a negative spin, try to emphasize the cash burn and point to how much the share price has fallen from the high. It’s classic confirmation bias – it usually requires a more senior person (or a firm’s compliance department) to step in and close the position, leaving the analyst embarrassed and possibly jobless). It is not in their interests to see any positives in a stock and they desperately try to convince everyone of the negatives until they go under.

Marketindex.com.au/short-selling quotes MSB at 64 days to cover – that is about 3 months. It is the 10^th most difficult stock to cover on the Aussie market based on the combination of high short position and thin trading. More than 50% is locked up by the Prof and a few instos who have been holding since prices were much higher, so are highly unlikely to sell now that the company is in a much better position. The short position is now over 5.4% - less than 1% from the high since late 2015. It just doesn’t make sense given the good announcements (with more to come), forecast reduction in cash burn (by the Prof in the last conference call) and much more solid capital position.

I believe some of the shorts are now getting desperate and having one last fling, trying to protect their position – the very thin liquidity of the stock means they can’t cover without pushing the price significantly higher, so if they can hit the price on slow trading days, they may be able to push it down without adding too much more to their position. Remember, at this stage, they can still quote the profitability of previous trades. Eventually they will lose even this plank to their beliefs and they will be forced to cover, causing a big rise in the share price. The smart ones and the disciplined ones do this early and move on to the next perceived weak stock. That’s why you see some 5-10% price rises overnight in the US stock price – they are much more disciplined than Australian shorters and get out quickly to avoid the massive potential losses.

Those who are effectively locked in have only hope – hope that something out of left field may go wrong, or hope that they can find a job somewhere else, leaving the mess for someone else to clean up. Management then blame the analyst, say “he is now gone and the problem is fixed”, and try to move on. In doing so, they cover their short quickly at any price as they can blame the previous person.

I believe this short covering will provide a powerful driver to the MSB price, as good announcements continue and the share price moves towards the consensus 12-month target of $A5. The analysts upgrades for Tasly and the 180-day aGvHD results have not yet happened, but they will. After that, I believe the probability of success discounts will be reduced and that the 15-30% discount rates will also be reduced, leading to much higher analyst valuations. I think that they will also start to put cash flow forecasts in for China and finally that there will be large upfront cash payments coming for further partnering deals (in the US and probably elsewhere in Asia, or in extending to different product candidates in China). That’s why we are just at the starting line and $A5 valuations have plenty of upside in the future.