Maxim Group - CHF 11/1/16

	Column 1
0	Mesoblast Ltd (MESO - NASDAQ - $6.04 )
1	Buy
2	Target Price: $18.00

Following FDA Discussions: Company May Have POC Data​

Faster Than We Thought – Pivotal Trial Being Shortened

	Column 1
0	Summary:
1	The ongoing phase 3 program will be revised (based on a review of the data and powering assumptions) as follows: The FDA has agreed to a reduction in the current phase 3 trial size from 1,165 to approximately 600 patients due to a proposed change in the primary endpoint; The revised primary endpoint will be a comparison of recurrent heart failure-related major adverse cardiovascular events (HF-MACE) between patients treated with MPC-150 vs. control; The proposed use of recurrent HF-MACE as a primary endpoint in the phase 3 trial is based on the fact that a single injection of MPC-150-IM successfully prevented recurrent HF-MACE over three years in the phase 2 trial; and A second confirmatory study will be conducted in parallel in an identical patient population of approximately 600 subjects using the same primary endpoint. Conclusion. We have not factored in this shorter timeline to the marketplace. As a result, our estimates may be too conservative.
2	Details:
3	Recall the following: · The P3 trial enrollment criteria have been enriched by enrolling patients who have had an HF-related hospitalization in the past nine months and high baseline NT-proBNP levels (these patients typically have large baseline LVESV and high rates of HF-MACE). · The P3 trial originally was going to use an ent analysis of heart failure-related major adverse cardiovascular events (HF-MACE) as the primary endpoint. Based on the prior P2 data, patients have a greater probability of remaining free of heart failure-related major adverse cardiovascular events (HF-MACE) vs. control (0% vs. 33%, p=0.026 by log-rank). This allowed Mesoblast to reduce the target enrollment from 1,730 to 1,165 without any sacrifice of power. The change just announced allows the power to now come down to n=600. · We know that an interim analysis had been planned in the ongoing phase 3 trial when 50% of the HF-MACE have occurred, which will include a test for superiority allowing for the possibility of stopping the trial early based on overwhelming efficacy. We have to review how this may be revised. · A second, confirmatory study is planned to be conducted in parallel in an identical patient population of approximately 600 subjects using recurrent HF-MACE as the primary endpoint. The use of recurrent HF-MACE as a primary endpoint is supported by the P2 trial (again) where the MPC-150-IM patients had no HF-MACE over 36 months versus 11 recurrent HF-MACE in the control group (p<0.001, log rank test). Conclusion. We view these revisions as very positive, as the interim analysis at 50% HF-MACE events will test for superiority. If that happens, we could see a fast-track pathway to the global marketplace emerge. Valuation. Our 12-month price target for Mesoblast is based on three metrics, free-cash-flow (FCF), discounted-EPS, and sum-of-the-parts (SOP) models, equally weighted, which point to an $18.00 price target.