Yesterday Was A Significant Day For Mesoblast After A HUGE Quarter
Mesoblast has had a remarkable June quarter. The quarterly statement emphasized the tremendous activity in Covid-19 and the upcoming Ryoncil FDA Advisory Committee meeting. The cash burn was lower than expected despite the frantic activity.
There have been tremendous achievements by MSB in Covid-19 since early March when The Prof first had the idea that the inflammation involved in the ARDS caused by Covid-19 was similar to the inflammation caused by aGvHD and therefore may be treated by MSB’s cells. That was in March and the June quarter had already started!
The Prof and MSB has shown overwhelming efficacy in how much can be done in just one quarter, particularly given the devastation caused by Covid-19. They have run an EAP with a stunning success rate, designed and implemented a P3 trial, negotiated with governments and big pharma around the world, extended their manufacturing agreements with Lonza, built inventory for the launch of aGvHD and the P3 Covid-19 trial and raised capital to fund this. They have also strengthened management by appointing a very well-regarded US based Chief Operating Officer with a successful track record in sales, marketing and distribution, launching a blockbuster drug and country management within big pharma to drive the commercialisation. Phew! What a quarter!!
Analysts continue to upgrade their share price targets – Bell Potter upgraded modestly today to $A6.00 (from $A5.90). That means they also view the progress made as a positive, and I expect more upgrades from US based analysts. The share price looks to me like it is now breaking out of its $A3.25 to $A3.75 range since entry to the ASX200 and will enter a new higher range in the next two weeks as we approach the US FDA Advisory Committee hearings to consider approval of aGvHD.
When Might Ryoncil Sales Start?
MSB already have a commercial team of 20 people in place under Eric Strati (ex Novartis and Bristol Myers Squibb) organised into the three main regions of the US from West Coast to Mid-West to East and they have inventory ready to sell as soon as FDA approval is given.
Half of the market for paediatric aGvHD is in 15 US hospitals and the leading hospitals have already been involved in the 55 patient trial and the EAP, so they have already successfully used the product and there are doctors in these hospitals and families desperately waiting for approval for their very sick children.
Make no mistake – there is no alternative for kids who fail steroids and who have grade 3-4 disease. Grade 4 disease has mortality up to 90%.
They say all’s fair in business, but I am frankly disgusted by people who are trying to submit “documents” (which read like year 7 essays) to the public hearing process trying to stop this life saving treatment just because they are short MSB or are afraid that adults will move to MSB’s treatment from Jakafi (which is less efficacious and has nasty side effects).
Protesting against MSB just adds to the worry of young families and adds to the death rate. The FDA has seen all of this before and will give it the regard it deserves – they have a panel of actual experts who have used Ryoncil (or Rem-L) who will testify. The approval will be given based on the science, the data, the results and the testimony of experts and their patients – not some anonymous but “interested citizen”. It’s worse than pathetic. They should really be ashamed. I didn’t know people could go this low and naked greed takes my breath away – but it won’t make any difference to the hearing.
I have asked to submit something but I won’t add to the waste the committee’s time. MSB will be submitting truck loads of documents full of scientific data which will be far more important than anything I could say. Dr Joanne Kurzberg may well be there, her patient who was a kid who was saved and is now a doctor may be there – he gave a powerful video testimony a few years ago. I must say, hearing Dr Kurzberg for the first time, with her powerful witness to the lives saved by MSB literally brought tears to my eyes and I found it very difficult to get the words out to tell Mrs Ecoool what a fantastic product we are supporting.
MSB will put forward several Key Opinion Leaders to support the approval of Ryoncil – they are the experts who will explain how this product has helped their patients survive over the long-term, when they should be dead by now. I believe that will be much stronger testimony than some anonymous flea with a base self-interest.
For those wanting an all-nighter, there will be a morning session (late night our time) focussing on the science and manufacturing and an afternoon session (early to mid-morning our time) focussing on the clinical data. At this stage, the FDA have not indicated if there will be a formal vote at the end – maybe they just want advice from the committee?
I believe MSB is in a very strong position for a good recommendation – they are working with experts in this area, third party advisors who only do this sort of process. As such, a paper written by me would be an unprofessional distraction, and the rubbish which has been served up so far will be disregarded as self-interest. Just as one example – the original protest cites “failed” P3 trials by Osiris 10 years ago as a reason for rejecting the current 55 patient trial: those old trials were run by a different company, had a completely different manufacturing process, much less potent cells (today’s cells are 50% more potent) and a very different group of patients. If the FDA were likely to knock MSB back based on these old trials, why did the FDA put MSB on Priority Review? Why did they approve the name Ryoncil? Why did they lead MSB on through years of trials and approve an EAP and spend the past two years reviewing the MSB documentation and give feedback on lodging the BLA after the completion of the trial? Give me a break! Their other observations in the protest are equally childish – including one that by stopping approval it won’t cost lives as MSB can just do another trial or start another EAP! Well, if they’re that certain it doesn’t work, why would another trial or EAP help. They also say MSB’s single arm trial shouldn’t be approved without a control group, but it was OK for Jakafi to be approved without a control group. My God. The hypocrisy.
It is also worth noting that Jakafi’s trial was only a single-arm 48 patient study vs 55 patients for MSB; and that Jakafi has side effects, particularly in bone marrow suppression and low platelet counts. MSB’s cells are well tolerated, with no side-effects. The one difference is that Jakafi was already approved for another indication, however if a 48 patient single-arm trial is capable of getting Jakafi approved then a 55 patient single-arm trial should be sufficient for MSB due to its improved efficacy and lack of side effects. The very reason Jakafi was not approved for kids under the age of 12 was the side effects. Approval of Ryoncil looks like a no-brainer!
So, the FDA could be in a position in just over two weeks to approve Ryoncil. They don’t have to wait until 30 Sep – that’s just the deadline. The AdComm hearings will be an important factor in the approval decision making process, but can be ignored by the FDA (though that is rare). Assuming the panel goes well, the FDA could approve soon after.
Share Price Starting To Reflect Progress Made And Next Phase For MSB
Yesterday was the first day that MSB closed above $A3.75 since the ASX200 Index inclusion on Monday 22 June (it closed that day at $A3.70 after entering the ASX200 at the Friday close of $A4.14). Even though it has traded below $A3.75 today, with the overall market getting smashed by nearly 2% at time of writing, there’s a good chance that MSB will build on yesterday’s breakout over the next two weeks leading into the AdComm on Aug 13th.
The price has been consolidating the runup into index inclusion for the past 5 weeks, and most of the trading in that time has been in the $A3.25 to $A3.75 range – see the red lines on the graph below. It feels like a wide range to many people (the high 15% above the low) but it is nothing compared to the recent rise from $A1.02 to $A4.25 (see log scale graph below).
That’s why I use a log scale graph – it emphasizes the percentage moves and shows that a move from $1.00 to $1.50 is just as profitable as a move from $3.00 to $4.50 – even though the first one is 50c and the second $1.50, they are both 50% rises – and that’s how it looks on a log scale graph.
The blue arrow on the graph below shows the medium-term uptrend, which has survived this recent bout of congestion, and has yesterday closed above $A3.75 and broken up to a 5-week closing high. It might not hold this level today, given the big fall in global markets overnight and the carnage in the Aussie market today, but good news flow could propel it up into a higher range – and that news is due within two weeks.
It’s clearly a medium-term uptrend – how Taco sees it as a downtrend is beyond me. I’m sorry for people who have been scared out of their holdings – especially yesterday after a great quarterly and upbeat summation of our prospects from The Prof. The medium-term trend is intact and we’re just moving up into the next leg.
This is a good lesson on why you shouldn’t be sweating on the prices every day, or minute-by-minute – it wears you out and makes you think it would be a relief to get off the rollercoaster – that usually happens after a period of congestion – it clears out the weak holders and the price is then ready to move ahead again (but only then).
In the short-term (when there is no announcement) the daily movements are just noise and congestion. A few people buy and a few sell, pushing the price up and down in a range. Those moves are meaningless in the long-term trend. However, if the price moves down for a few days, that tends to panic some of the more nervous holders into selling. That’s the pressure caused by watching every small share price move, and thinking there is meaning behind it – there isn’t!
Some people sell because they can’t handle any form of loss and the pressure and regret is killing them. It is just as much pressure even if you are sitting on a big profit – the voices start to tell you it’s too good to be true, that something could go wrong, and that you should sell because you can see others doing the same thing. Note that the price can’t move ahead until those weak holders have been dislodged – by definition. If there’s still latent selling out there, it will continue to sit on the price. It’s like a certain number of us are fated by our own genes to succumb to this pressure. Once the weak holders are out, there’s no more selling, and the price rises back up in the trading range, good news or not.
The move today may scare a few more out – if there are people left who are considering selling. It will be interesting to see. There is still plenty of buying out there, and once the selling dries up that natural buying will push the price higher into the Adcomm mid-August, Covid trial readout of the first 90 patients in early Sep and then the CHF and CLBP P3 trial results probably by end-Sep (my current best guess).
Once the selling abates, the next piece of news comes out and establishes a new trend and a new range. You have to decide if that news is more likely to be good or bad, and decide how it changes your valuation. I think yesterday’s news was good, I outline why in the next section below.
It’s a hard lesson that the market teaches – you breathe a sigh of relief when you exit a stressful situation, only to almost immediately get hit by regret as it starts the new uptrend without you on board. You also don’t immediately feel like jumping back in, and you miss out on the next rise. The statistics in every study show that traders underperform investors by a significant margin over the medium to longer term.
That’s why I think it is reckless of the traders here (Taco in particular) to effectively stick it up those who aren’t traders and show off the pennies he may make or lose on any given day – that effectively adds to the anxiety of holders and he compounds it by then swamping the HC posts with positive or negative posts depending on his last trade. Whether he means to or not, it effectively exhorts people to trade by scaring them that they are missing an obvious price move, just to make or lose lunch money, and missing most of the big trend in a stock like Mesoblast. No price moves are obvious – THEY ARE RANDOM IN THE SHORT TERM – no short-term trader has beaten the market over the long-term – many of the examples Taco has given in the past ended up bankrupts and suicides, the rest underperformed the great long-term investors. Buffett is an investor, not a trader.
Rant over!
I’ve Upgraded My Expectations After Yesterday’s Data
I was prepared for the June quarter’s cash burn to blow out from $US20m to around $US25 after the company announced it was producing more cells to put into inventory as preparation for the launch of aGvHD at the end of September, and with lower expected licence fees from Temcell in Japan.
So I was pleasantly surprised to see the burn less than $US20m (at $US19.58m) even as “manufacturing payments for the quarter were $US7.4m for commercial manufacturing investment to support potential launch of Ryoncil.” That was made up of “manufacturing and commercialization” of $US5.60m and “product manufacturing and operating costs” of $US1.8m. Note that for the first three quarters of the year, these two amounts averaged $US2.58m per quarter and $0.95m per quarter respectively. So the increase in the June quarter was only $A3.9m compared to the previous three quarters.
Furthermore, royalty receipts from JCR Pharma for sales of TEMCELL in Japan were $US2.1m – this cash was actually earned in the March quarter and is paid in the June quarter (in May) – so the accounting earnings for the June quarter are likely to be lower when they are reported next month, but the cash receipt was for March quarter sales and is not affected by JCR’s production difficulties. This may costing the cash $US2m per quarter for the next 6 months while JCR rebuild their manufacturing facilities to cope with much higher than expected demand – but after that the royalty figures should be much higher. I guess there’s the potential that MSB could supply JCR with cells in the interim, but MSB is producing as fast as it can at the moment just to supply the Covid-19 ARDS trial and to build inventory for the launch of aGvHD in the US – MSB have seen the massive demand and the problems that caused JCR in Japan and won’t want to be left similarly short when launching their product in the US.
That leaves MSB with cash on hand at the end f the quarter of $US129.3m ($A188.4m) and MSB may have access to an additional $US67.5m through existing financing facilities and strategic partnerships. That means there are potentially 10 quarters of cash burn available at last quarter’s rate, taking MSB’s financing out to December 2022 – before you start to count sales of Ryoncil for aGvHD which are expected to start straight after the FDA’s determination, which has a deadline of the end of September.
Timing of Trials Now Much Clearer
On top of cash looking better than I expected, I was happy to see MSB’s announcement that aGvHD is on course for approval by end-Sep and that the Prof stated Rem-L is “imminent” for an interim analysis of Covid-19 ARDS and the FDA Adcomm for aGvHD. We know that these two will happen Aug 13 and by early Sep, so the “upcoming” P3 read-outs in CHF and CLBP are probably a bit later – at present I’m thinking end-September for those two (see MSB’s statement below).
I don’t get tied up on timeframes from MSB – they always deliver (but almost never early) – this is goundbreaking new technology, never before approved by the FDA and is being done in the midst of the world’s worst health crisis since the 1918 Spanish ‘flu – I had previously thought August for CHF and CLBP as my best guess, but I stressed that these were just guesses and that we should not assume anything until we see official confirmation from MSB – I would now make that end-Sep and will happily wait. Originally, I had hoped end-June but 3 months makes no difference to my long-term valuation as there are such a wide range of outcomes. The “delay” actually decreases my valuation by about 4-5% - but my valuation range is up to 300% from low to high – so if it makes it more likely the top end valuation comes in, I’m pretty happy, and the valuation goes up!
Announcement yesterday:
“Remestemcel-L has two imminent major milestones, the interim analysis in the ongoing Phase 3 trial of remestemcel-L in COVID-19 patients with acute respiratory distress syndrome and the FDA advisory committee panel review of our submission for potential approval of RYONCIL™ (remestemcel-L) in children with steroid-refractory acute graft versus host disease. Together with the upcoming Phase 3 read-outs in chronic heart failure and back pain, these key milestones will take the Company into the most significant period in its history.”
“The independent Data Safety Monitoring Board (DSMB) has set a date for early September to complete the first interim analysis of the Phase 3 trial of remestemcel-L in ventilator dependent COVID-19 patients with moderate to severe acute respiratory distress syndrome (ARDS). The trial’s first 90 patients will have completed 30 days of follow up during August, after which the DSMB will perform an interim analysis review of the safety and efficacy data. The DSMB will then inform Mesoblast on whether the trial should proceed as planned, or should stop early.”
So, we have our answer on timing on the interim analysis of the first 90 patients in the Covid-19 ARDS trial. This is not an estimate by Mesoblast, it is a date “set” by the independent DSMB.
As I have often stated, MSB gives us its best estimates of dates, and it’s OK for us to try to second guess, but this trial was designed, co-ordinated and recruited incredibly quickly and it’s important to get it right and not to rush it. It appears that the last of the “first 90” were recruited by mid to late July and that the 30 days follow up will complete mid to late August (though some of the first recruits completed their 30 days in early June), then a couple of weeks for DMSB analysis and an announcement early Sep. That’s in line with my last two guesstimates, which emphasized that it is pointless for us shareholders to set up unrealistic time frames and then stress when they are “late”. Taco has been relentless on this recently, claiming that we wouldn’t see an overwhelming result in the first 90 simply because it hadn’t been reported inside his unrealistic timeframe.
There is still a very good chance that the trial will be stopped after the data from the first 90 are reported in early September.
The trial has been powered to give a clear result based on the expectation of the trial design using 300 people. I have previously said that I estimate they are using numbers in the region of a 40% mortality rate for the control group and a 20% mortality rate for the stem cell group. If the numbers are anything like the results of the Mount Sinai trial, the first 90 patients should be able to show this level of efficacy based on a Bayesian analysis. If the Standard of Care has improved so much that the control group mortality has in fact dropped as low as 40%, then we may need to wait for the other interim stages of 45% of patients dosed for 30 days, or even 60% of patients dosed. From all of the reading I have done and current SOC mortality I am hearing, I can’t imagine we’ll need more than 150 dosed for a successful trial. If the results are like Mount Sinai – expect the trial to be stopped in early September. It could even be that as hospitals in California, Texas and Florida are overwhelmed that Standard of Care slips and MSB’s results look even better.
One by one, the competing treatments are failing to have any impact on mortality from Covid-19, let alone on the mortality of those suffering from Covid-19 related moderate to severe ARDS. The only approval so far is Remdesivir, which has reduced hospital stays by 3 or 4 days, with no mortality benefit. Dexa is a generic steroid which might have some benefit in mortality, especially in combo with MSB, but evidence is sketchy at best for Dexa, with no evidence of reduction in mortality in moderate to severe ARDS. Hydroxychloraquine has been discredited as a cure as have the two anti-il6 treatments by Roche and Regeneron – failing in both ventilated and non-ventilated patients.
So MSB is the only hope capable of reducing the death rate in the near term. A vaccine is still probably 12 months away (if ever) – although a vaccine and other treatments would be a big help to MSB in getting the numbers down and letting MSB treat the most severe patients. MSB can charge the “high” figures of $US70,000 per treatment because it saves the medical and insurance system multiples of that amount – if it can reduce the average stay in ICU by 10 days that is a saving of $US100,000 per patient – and some long-term patients have been racking up bills over $US1 million – the average patient that MSB is seeking to treat is in ICU for 20-25 days. That leaves the vaccines and antivirals to charge $4,000 to $5,000 to treat the less challenged patients for a much lower fee, more in keeping with a saving of 3 days on a general hospital ward at a much lower cost per day. It means the whole system can deal much better with the crisis and still leaves MSB with a long-term steady-state market of 100,000 pa of Covid-19 ARDS patients with moderate to severe ARDS.
I had previously doubted MSB would be in a position to be able to treat this number of people, however, looking at the huge improvements in the manufacturing process I believe MSB could be in position to treat maybe 25,000 people by the end of Q1 next year (ie in 6 months) and maybe 100,000 by the end of next year. Remember that Covid-19 ARDS only requires 1 week of two dose treatment, whereas aGvHD requires 4 weeks (although the average weight of Covid-19 patients is probably double that of paediatric aGvHD patients).
The announcement yesterday further disclosed:
“Up to 30 leading medical centers across the United States are expected to participate in the trial, which is expected to complete recruitment in September 2020.”
That means we aren’t up to 30 hospitals yet. The number of hospitals still hasn’t been updated on the clinicaltrials.gov website and is still showing 15 hospitals, while Dr Grossman’s interview of a week ago disclosed we were up to 20 hospitals. The final 10 in the 30 hospitals should be signed up soon and this will accelerate the number of patients recruited to quickly reach “the 300” as the trial is still scheduled to complete recruitment in September.
So, it looks like it has taken at least 2 ½ months to recruit the first 90, and the last 210 are therefore still on track and should take the remaining 2 ½ months from mid-July to mid or late September – that’s just over double the number of patients in the same timeframe from 30 hospitals vs the 15 hospitals which have been recruiting until recently. It all adds up and is maybe two or three weeks longer than MSB’s first assessment of 3-4 months (first patient dosed 5 May). Remember that this is a very fast recruitment for a major P3 trial with logistics to organise, new technology and procedures for hospitals to train up in, ethics committees and boards to approve and in the middle of total pandemonium in many hospitals (see Dr Bowdish’s comments in my last note). Also, the original hospitals in NY saw a sudden drop off in the number of cases after lock downs started to bite, and the recruitment would’ve had to move to newer areas of infection (California, Texas, Florida etc). There are also some particularities of this trial, requiring patients to have been on ventilators less than 3 days – so patients in community hospitals on ventilators who were transferred to the major hospitals in the trial would be ineligible and there was also competition from other trials of vaccines, antivirals, steroids, etc many of which required patients not be on other treatments.
Having regard to all of this, I would say MSB gave us pretty accurate guidance, and any disappointment on the length of the trial is because shareholders jumped the gun and underestimated the difficulties of the current situation.
What Is The Roll-Out and Cash Flow Likely To Look Like Over The Next Two Years?
Ryoncil for aGvHD
MSB are likely to be able to sell to 200 paediatric patients in the US in the first two years of Ryoncil sales in the US – let’s say 50 patients per quarter, or revenues of $US15m per quarter – assuming a 60% gross margin at the start, that means gross cash flows of $US9m per quarter, moving up to $US12m when the more advanced manufacturing processes are built. So, initial US paediatric sales of Ryoncil halves the quarterly cash burn, taking it down from $US20m to $US10m per quarter. After the first two years, Ryoncil in the US may have moved up to full projected sales of 400 or 500 kids with aGvHD – and that means the current levels of cash burn will reduce to zero in the absence of any other initiatives.
So, from the end of September, MSB should see approval of Ryoncil for US paediatric SR-aGvHD patients and should see dramatically reduced cash burn.
Of course, label extensions into adult aGvHD, would triple the US markets ($US360m pa in sales and $US216m pa in gross cash flows at 60% gross margins, rising to $US288m pa at 80% gross margins once the manufacturing improvements are made. At that point, MSB would be positive $US200m pa in cash flows if all other costs remained fixed. And that extension could be granted after a 6-month trial for adults, with readouts at 28 days and 120 days.
MSB could also be selling Covid-19 ARDS treatments by the March quarter of 2021 – let’s say starting at 25,000 patient capacity to start with, building to 100,000 by Dec 2021. I have previously gone through the potential cash flows and profits if this product is successful – at the simplest level, a 20-30% royalty would give annualised profits to MSB of $US1.4 billion to $US2.1 billion run rate by the end of 2021. That could eventually double as MSB moves into non-Covid ARDS. Put the first 100,000 patients on a US 21% tax rate and a P/E of 30 and you have a company worth up to $US50 billion (or $A117), put it on a P/E of 40 (like CSL) and you have $A155 per MSB share. Include non-Covid ARDS and you can double those numbers. NB I am currently using 611m shares, diluted for options. MSB do tend to issue options at quite a high rate, but even if you assume 626m shares it only drops these numbers by 2%.
NB for Taco’s benefit YES, the range of potential values for MSB is very wide, in fact it is wider than the 50% difference he is fond of quoting. People need to know the sensitivities so they can make their own assumptions– these are the big picture considerations and how the numbers fall through for MSB. The product isn’t approved yet, the trial hasn’t completed and the structure of a big pharma or government deal hasn’t been set – it could be royalties, it could be a joint venture. Even if we knew it would be royalties, we don’t know if the royalty rate is 10%, 20% or 30%. These are big unknowns – but under any of the assumptions you get a huge price for MSB if Covid-19 ARDS is a success.
The bottom line is that success in just children’s aGvHD in the US probably means MSB will be moving into a cash flow positive position within two years and if even nothing else succeeded that it wouldn’t need to raise any more equity.
Can MSB Meet The Manufacturing Requirements?
I have updated my manufacturing assumptions. I think the recent contracts with Lonza, the money raised for expanding manufacturing and announcements in manufacturing means MSB will have more than enough inventory for the aGvHD launch- in fact they could well have 18 months’ worth of inventory based on assumption of 200 patients in each of the first two years. Based on my previous guesses that a paediatric aGvHD treatment could cost $A60,000 to $A100,000 (depending on the Generation of technology used) and based on very rough estimates of gross margins, then 200 patients’ inventory would be worth $US12m to $US20m.
Yesterday’s quarterly disclosed manufacturing payments for the quarter were $US7.4m, so that means the current manufacturing could produce up to $US30m in a year – and they are only likely to need $20m on current projections – so that’s why I say they will have 18 months of inventory. These are my guesstimates – I really don’t know the cost of production, and even if I did, it is likely to change dramatically with the new manufacturing processes which will be coming in the next few months.
Furthermore, I said earlier that I expect the new manufacturing processes and investment to dramatically increase the production of Rem-L to 25,000 Covid-19 ARDS doses by March next year, and 100,000 by December 2021. That’s not just investment, but the massive performance advantages of the new technology.
MSB’s proprietary media to move to serum-free removes constraints of supply of the bovine serum and allows scale and proliferation of cells 7x higher than existing media. Furthermore, the technology now works in 3-D bioreactors, reducing manpower and costs and improving yields further. Beyond that, MSB needs lots of rooms, buildings and capex – cell manufacturers have been building footprints for companies like MSB to expand – it shouldn’t be too difficult to execute and for MSB to expand the production quickly, so that it can supply Covid-19 doses for 100,000 patients by the end of 2021 and beyond that continue to scale up to treat non-Covid related ARDS which is a market of another 100,000 patients each year.
If the Covid-19 ARDS trial has a successful conclusion, I have no doubt that MSB will conclude negotiations with big pharma or governments to allow more funding and manufacturing processes. That could be done as early as September. This is an urgent and massive need for the world, especially with second waves threatening in Europe, the US and Victoria. I expect a rapid scale up in the amount of cells MSB can produce in a given time frame (ie cells produced per unit time) and that we will see commercial scale quantities of product in the March quarter of 2021. The big pharma are just waiting to see the data completed from the P3 Covid trial. The US Government has earmarked $billions via BARDA – MSB could access some of this money, although as I’ve said before, BARDA would just allow cost recovery plus a small margin. Big pharma would be more lucrative for MSB, but big pharma would want to control the process. Whether MSB can do a jv deal with a big pharma or just receive royalties is another big question – both would be lucrative, a royalty arrangement is low risk and highly profitable but a jv offers MSB more control over its technology and the rollout and longer-term greater opportunities for expansion – however a big pharma would want a bigger slice of the pie than BARDA. The initial focus of the US Govt and BARDA is vaccines, but Pres Trump has recently been mentioning therapeutics and he is becoming more desperate as competitors drop out of the race with failed trials and as the US election approaches.
Other Blockbuster – Heart Failure and Chronic Lower Back Pain
The announcement yesterday implies there has in fact been a delay to the “mid-year” expectation of read-outs in these indications. It is the difference between “imminent” for mid-August AdComm and early Sep read out of the first 90 Covid-19 patients and “upcoming” P3 read-outs in CHF and CLBP – so probably end of Sep Quarter is now being signalled (that’s a month longer than imminent).
It’s no great surprise that these trial readouts have been delayed and the possibility has been raised several times by multiple HC posters wondering if the chaos caused in the hospital system by Covid-19 would affect the researchers ability to close off the final data collection from these trials. Note that it is nothing to do with MSB – they completed the trials months ago. However, the follow up with patients is complex, particularly the heart trial which was events driven – so 580-590 “events” need to be validated and reviewed and reported accurately – if they are called one thing, they need to be verified they are that thing e.g. hosptialisation has to be verified as an event if the person is re-hosptialised for more than 24 hours.
There are a set of definitions and requirements which have to be scrupulously identified and verified – this is what they mean by “data cleaning”. Is it all correct, is anything missing etc etc. The Back Pain trial is more straight forward, they just need to confirm the patients has come in for the final meeting – so even though the Heart Failure trial ended first, the Back Pain trial may read out first – we are at the mercy of the collection of data during a chaotic time in the US health system. Whichever comes first, I’m currently expecting them both by the end of September – at a stretch you could still call that mid-year, and MSB haven’t yet updated the expectation to “4th Quarter” which would indicate the time frame had blown out further.
Some people have asked whether further trials would be required – we already know that Grunenthal has been negotiating with EU to do a confirmatory P3 back pain trial, and as I’ve said before, that is only likely to run for 12 months and will be acceptable both to EU and FDA regulators as a confirmatory trial. Remember governments are under pressure to do something to alleviate the opioid crisis.
I doubt a confirmatory heart failure trial would be required if the data showed a survival benefit in people with no other hope of survival. If survival doesn’t improve but some of the secondary targets are met, then maybe a confirmatory heart trial would be needed. However, there have been positive signals through all stages of these trials, particularly in the group being studied. The people on this trial have a 25% mortality over 2 years, and if the decrease in mortality seen in the P2 trial is repeated, it should be approved without needing a confirmatory P3 – given that most of this heart failure comes from inflammation and given the successes seen in the other inflammation trials, there is reason for confidence that it will succeed, particularly in the older, ischaemic patients on the trial. I note that 75% of Covid-19 survivors are showing heart damage and this can result in early heart failure – so MSB can solve both problems. There is good reason for confidence that MSB’s cells can improve this 25% mortality in the control group – even a 20% mortality in the cell group would be seen as a big improvement.
Bottom Line
This was a great quarterly result, with benefits both in the short-term and long-term. It has caused Bell Potter to lift their forecasts and has made me reflect that there is a better chance of increasing the manufacturing production than I previously estimated. I always come at valuing this stock in a conservative fashion and end up with much bigger numbers than seem possible.
The cash burn and cash position are both better than I thought.
The timelines are clearer and we now know that the first 90 patients have been dosed in the Covid-19 trial and that the readout is due in early September. That readout could declare overwhelming efficacy and stop the trial.
MSB appears to be about to move into a new price zone, having consolidated the previous $3.25 to $3.75 zone. Within two weeks we will have the results of the FDA’s AdComm regarding a recommendation as to whether to approve paediatric aGvHD and I expect the share price to move higher over that period, despite another challenge as global share prices fall.
The June quarter was one of stunning achievements and the next six months are likely to see trial results, approvals and big advances on the manufacturing front – hopefully combined with a big deal with a global pharma to attack Covid-19 ARDS. It doesn’t get much more exciting than this!
MSB Price at posting:
$3.78 Sentiment: Buy Disclosure: Held
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