Pricing For Uncertainty - MSB Has Very Little Priced In And...

Pricing For Uncertainty - MSB Has Very Little Priced In And Enormous Potential Upside

@Halime I'm sorry, but I think there has been a misunderstanding on both sides of what I said about probabilities of MSB successes.

I don't have a probability on likelihood of approval of Heart or Back Pain - merely that I think the analysts' numbers of 25-30% for the major indications are too low based on the stats of approval for products in Phase 3 trials below.

I have never mentioned that I thought Covid19 ARDS has a 20-30% probability of success. Given that the FDA hasn't previously approved allogeneic stem cell treatments, it is almost impossible to have a meaningful probability in this case - it would just be a guess - however, based on all trials since 2000-2015, it isn't unreasonable to think that Probability of Success for a Phase 3 trial going to APP might be at or above the lowest product group which is Oncology All Indications at 35%.

Brokers have a probability of success of ZERO for Covid19 ARDS at present - it is NOT in their valuations. The only analyst with a Covid19 ARDS estimate is Bell Potter, and it looks very conservative to me.

To be clear, I am not estimating POS (probability of success) for these product candidates - I am merely trying to show the sensitivity of the analysts' valuations if the products are successful - ie you can multiply the valuations for back pain and heart by 3-4x. That's how you get to valuations of $A10 to $A20.

A valuation for successful COVID19 ARDS could be well over $A100 per share if everything went right. This isn't a forecast - it is just showing the sensitivities. I think it is worth knowing the potential. It might not work and might be worth nothing - but that is unlikely given the successes to date and the public comments from several doctors working with the cells in the US, and the success in the China and Spain trials of MSCs.

When I talked about probabilities of 25-30% for major indications, I was talking about what the analysts have in their forecasts for CLBP (Chronic Lower Back Pain, or Degenerative Disc Disease) and for CHF (Chronic Heart Failure). My point was that these probabilities look low for products with multiple successful previous trials and with Data Monitioring Committees providing futility analyses (more than 10) on the way through the trial which would've stopped the phase 3 trial if it wasn't working.

The average Probability of Success (POS) for trials proceeding from Phase 3 to Approval for all trials from 2000 to 2015 was around 70%. This varies greatly between Therapeutic Groups, in All Indications Oncology drugs are the lowest at only 35% and Vaccinces the highest at 85%. IIn Lead Indications Oncology is 48.5% and Vaccines are 85.1%. Remember, these are the stats for drugs which have proceeded to Phase 3 trials, and the percentage which finally make it through to APP.

Allogeneic MSC's do not have a history of approval, so these probabilities can't be applied with any real confidence - however fast track and orphan designation by the FDA give me hope that they are receptive to finally approving such products. The FDA has been working with MSB on the approval of aGvHD and has allowed EAP authorisation for the MSB cells, they advised on the number of people in the Covid19 trial and have authorised the name Ryoncil - they are acting like they are open to approval if results are good.

Timing of the Covid trial

Since MSB have not yet formally announced that they have dosed the first 90 patients, I don't think we can assume it has happened. I had hoped it would've happened by now, but maybe not. Alternatively, maybe it has happened and they haven't announced it yet (although I think it is important enough to announce).

However, I prefer to be conservative with expectations on MSB, and I'm working on the assumption that it now won't be until at least mid-August until we possibly see the trial stopped for overwhelming efficacy. That's OK, as Ryoncil is unlikely to be approved before mid-August, and then the P3 Covid results can be presented for a label extension of the Ryoncil aGvHD approval so that Ryoncil can be used to treat Covid19-ARDS.

Bottom Line

I remain enthusiastic about MSB, in fact it is still the best risk/return bet I have seen in over 40 years in the market. It appears that aGvHD is worth $A2 to $A3 and approval is likely in September. Analysts value the whole company above $A5 at present and I believe there is enormous upside to broker valuations and that their probability of success estimates are way too low for the heart and back pain products which have either completed P3 trials or are currently in P3 trials. The approval of heart and back pain could propel valuations to $A10-20.

On top of all this, Covid19 ARDS is an opportunity which has dropped from the sky at just the right time for MSB, who has the global lead in treating the worst aspects of the disease. This could make MSB worth multiples of analyst valuations and is not currently valued by the analysts nor is it priced in to the share price.

None of these things have changed in the past couple of weeks. Share price moves at present are just noise and are small in relation to the potential. Medical trials take time and it is necessary to have patience. It is the time to trust your analysis. Bill Gates wasn't looking at his share price every day and wondering whether he should sell to lock in the latest gain and leave a profit for the next guy, and neither is The Prof!