Maxim .... Back pain

Mesoblast Ltd Buy
Don't Forget About Back Pain - Two Years Later MPCs Are
Still Alleviating Pain.....Jason Kolbert.Maxim
Summary
• Meosblast presented the full 2-year data from the phase II study (N=100, steroid refractory) for a single injection of MPCs to alleviate chronic low back pain (CLBP) associated with degenerative disc disease as an oral presentation at the Annual Scientific Meeting of the Spine Intervention Society in New Orleans (July 27-30).
• The data demonstrated continued relief of pain at both 12 and 24 weeks as measured by "pain responder criteria" and "functional responder criteria," which factor in to the composite endpoint of "overall treatment success." As a reminder, the phase II data shaped the ongoing phase III program, which is expected to have interim data in early 2017.
• The patients in the phase II study were treated with 6M or 18M MPCs, hyaluronic acid or saline. At 24 months the composite endpoint ("Overall Treatment Success") of 50% pain reduction, 15-point improvement in function and no further intervention was reached by 38.5% and 34.6% (18M MPCs) of patients, respectively, versus 17.7% (hyaluronic acid) and 12.5% (saline) of the controls.
• A durable treatment. When we compare the 24-month data to the 12-month data, which demonstrated that 44% and 42% of cell treated patients achieved the OTS endpoint, we see a consistent effect and impact on both pain and function.
• Conclusion. The 2-year data are consistent with data at both 6 and 12 months, and demonstrate that just a single injection of MPCs can have a "long-lasting" impact on back pain. The ongoing phase III study, which is evaluating the 6M cell dose (most profound impact on pain) and the same OTS endpoint, is heading towards interim data in early 2017.
Details
Two-year data. Patients in the study received a single injection of 6M or 18M MPCs. The composite endpoint of the study of treatment success takes into account 50% reduction in pain (Pain Responder Criteria, PRC), 15pt improvement in function (functional responder criteria, FRC) and no further intervention. Control groups were treated with saline or hyaluronic acid. For the 6M and 18M cell groups, the PRC was met by 50% and 36% of patients, respectively, versus 23% and 12.5% (P=0.02) treated with hyaluronic acid and saline, respectively. 46.2% and 53.9% achieved FRC versus 29.4% and 12.5% (P=0.042) for hyaluronic acid and saline, respectively. The overall treatment success (OTS) at both 12 and 24 months was 38.5% and 34.6% (6M vs 18M) versus 17.7% and 12.5% for hyaluronic acid and saline, respectively. The data presented at 2 years was consistent with data from both 6 months and 12 months.
Valuation. Our therapeutic model includes MPC-06-ID and assumes a commercial launch in 2021 for back pain and related disc repair. Our 12-month price target for Mesoblast Limited is based on a triangulation of our three metrics, all equally weighted—free cash flow (FCF), discounted EPS, and sum-of-the-parts (SOP) models—which point to a $14.00 price target.

Phase II clinical trial update. Mesoblast presented the full 2-year data from the phase II study at the Annual Scientific Meeting of the Spine Intervention Society in New Orleans (July 27-30, 2016). The data showed patient outcomes up to 24 months after treatment, with results consistent with earlier data at 6 and 12 months. The trial was a randomized, placebo-controlled phase II that tested a single injection of MPC-06-ID against a saline placebo. The trial enrolled 100 patients at 13 centers, with endpoints of reduction in pain score as measured by a Visual Analogue Scale (VAS), a 50% reduction in pain score, patients achieving minimal residual pain, reduced opioid use, reduced need for surgical intervention, and improvement in function. The patients have been evaluated at 6, 12, and 24 months following treatment, with 36-month data to be reported when complete.
The treatment group received a non-surgical, percutaneous injection into the intervertebral disc of either low (6M cells) or high (18M cells) dose MPCs. In patients who received a single injection of 6 million or 18 million MPCs, 44% and 42%, respectively, achieved the target composite endpoint of treatment success at both 6 and 12 months (50% reduction in pain, 15-point improvement in function and no further treatment intervention), compared with 13% of saline controls (p=0.006 and p=0.020). These data were consistent at 24 months as well, with 38.5% (6M dose) and 34.6% (18M dose) achieving the primary endpoint, suggesting the treatment effect is durable, at least for 2 years and going. In patients who received 6 million MPCs, 77% achieved the target composite endpoint of treatment at 12 months, and this was maintained at 24 months (P=0.09 vs saline).
In addition to the patients achieving the composite endpoint, the treatment was able reduce pain to minimal levels in patients treated with 6 million MPCs. At 12 and 24 months, 46% and 48% of MPC-06-ID-treated patients achieved minimal or no residual pain (VAS ≤20) compared with 13% and 13% of saline-treated patients, p=0.042 and 0.093, respectively.
The phase III program builds on the results seen in phase II, and is designed to confirm the endpoints with larger patient numbers. We expect the company to run two trials with about 300 to 400 patients each. The first phase III clinical trial (N=360) is underway and interim data is expected in early 2017. The study is evaluating the 6 million cell dose vs saline control. The trial’s primary endpoint of Overall Treatment Success is a composite of 50% improvement in lower back pain and 15-point improvement in function at both 12 and 24 months, and has been deemed an acceptable endpoint by the FDA. The study is being conducted at 30 sites in the U.S. and Australia.
Exhibit 1. Mesoblast’s new data 24 months after treatment shows durability of the effect seen at 12 months. Exhibit 2. Phase III is measuring the composite endpoint (Overall Treatment Success) of decreased pain (by 50%) and improved function (by 15pts) at 12 months and 24 months. The first phase III study should have interim data in early 2017.
Intervertebral disc repair product. Frost & Sullivan (industry report) states that approximately 30 million people in the United States suffer from back pain. While physical therapy and medication (NSAIDs, painkillers, and local steroid injections) provide some relief in many cases, there is a large subset of patients (we assume 15%, or about 4.5 million people) who still experience chronic back pain after treatment. The next level of treatment for these patients is spinal surgery, a discectomy (a slice is removed from the disc adjacent to the herniation), or, in the most severe cases, a total disc replacement or spinal fusion.
Exhibit 3. DDD is the Principal Cause of Low Back Pain
Source: Mesoblast
The intervertebral disc is cartilage that cushions the stress forces on the spine and enables the normal rotation of the spine. With advancing age, there is progressive loss of the proteoglycan material that gives the disc its properties and a consequent increased risk of damage to the spine. This process, termed degenerative disc disease (DDD), affects between 15% and 45% of the population.
Since spinal surgery is advocated only in severe cases of DDD, only 500,000 out of the 4.5 million treatment-resistant patients would be considered candidates for surgery. This creates a gap of about 4 million people who are currently left untreated. These patients experience mild to moderate DDD and are normally treated with conservative procedures that have significant associated morbidity and result in reduced productivity, until the condition worsens to a degree that warrants spinal surgery.
Since MPCs produce the proteoglycan materials found in discs, Mesoblast believes that the injection of MPCs into a degenerated intervertebral disc will lead to replacement of the proteoglycan of cartilage. This approach, with its anticipated ease of application, lack of side effects, and relative non-invasiveness, could be a cost-effective therapy for patients with moderate to severe degenerative disc disease. As such, we believe this technology will be rapidly adopted by both the medical community, particularly the pain-based neurology centers, which now inject steroids. The market penetration could be very significant in back pain alone.
Results of Mesoblast’s prior studies were published in the March 2012 issue of the Journal of Neurosurgery. The scientific publication was entitled “Immunoselected STRO-3+mesenchymal precursor cells and restoration of the extracellular matrix of degenerate intervertebral discs.” source: Journal of Neurosurgery, May 2012, Vol 16, No.5, Pages 479-488
3Maxim Group LLC
Mesoblast Ltd (MESO)
Lumbar and cervical spinal fusion product. With around 30 million Americans suffering from back pain, anti-inflammatory medications, exercise, and physiotherapy are usually given a timeframe of up to three months to effectively work. However, when disc degeneration is severe, these conservative treatments can be rendered ineffective quickly.
The elimination of motion through fusion has been the gold-standard solution to a variety of degenerative disc diseases but continues to be reserved for patients with severe disc disease. Spinal fusion, in which two or more spinal segments are fused or mechanically locked to each other, is performed in patients with severe degenerative disc disease. It is a major surgical procedure often associated with serious complications including infection, permanent nerve damage, and recurrence or worsening of pain.
There are approximately 380,000 lumbar spinal fusions in the U.S. annually. Current hospital reimbursement for lumbar procedures is around $33,000 per procedure. The price of lumbar fusion implants is approximately $10,000. In comparison to these figures, Mesoblast’s MSC-06-ID represents a highly cost-effective alternative that patients and their doctors are likely to seek. For patients whose discs have degenerated too extensively for repair, bony fusion is the only viable option to eliminate pain. We believe the phase II data going out to 24 months shows strong clinical benefits. We expect the phase III trial to be enrolled rapidly, with an interim data presentation in mid-2016 and top-line results mid-2017.
Modeling Assumptions
1- Over 30M people in the U.S. have chronic back pain and related disc conditions.
2- We assume that 5% of patients are eligible for treatment and of these 25% are viable candidates.
3- As such we assume a more gradual but modest market penetration of the eligible population. 4- Pricing of $10,000.
Intraday Price 08/2/2016 $4.18
Rating: Buy
12-Month Target Price: $14.00
52-Week Range: $3.50 - $14.76
Market Cap (M):319
Shares O/S (M): 76.3
Float: 0.0%
Avg. Daily Volume (000): 37
Dividend: $0.00
Dividend Yield: 0.00%
Risk Profile: High
Fiscal Year End: June....................Vin