High Valuation "Story" Stock - this is a big announcement!!!
This is a big important trial and it is in conjunction with the Cardiothoracic Surgical Trials Network (CTSN), established by the NIH. NIH has sponsored MSB trials in the past. MSB already holds Investigational New Drug Application status from the FDA to use remestemcel-L to treat Covid-19 ARDS patients.
MSB will provide investigational product for the trial. NIH will fund the rest - that's a fantastic outcome
Also read NYTimes article - MSB cells already have 6 out of 9 patients off ventilators at Munt Sinai Hospital NY, and rest are being weaned or a re stable - spectacular though small results. A big trial could confirm this.
Analysts already have a $A5.20 average price target, before you include anything for Covid-19 ARDS. If this works, I expect the valuations to go up by multiples of $A5.25!
Some thoughts:
1. Recruitment
This will be easy, people are dying. They would naturally get all their other treatments ie ventilators, drugs etc and this study would be controlled for getting MSB cells or not getting MSB cells on top of everything else. That would have to be the case, otherwise you are condemning the control group to an 80% chance of death.
2. Timing
a) They will know if this has worked in a month (my guess). I think that's about the longest that patients are on ventilators. I have heard people talking average stays on ventilators of 21 days - but of course some with mild disease load are cured before that and others with massive damage have their ventilators turned off earlier (negative primary outcome).
b) Results would then have to be analysed, taking 3-4 months, but an interim result could be published before that. Also, FDA has already approved the cells for emergency use for patients with no other hope, so many won't have to wait up to 4 months
3. Possibility of approval
This is a big trial of 240 patients - that will support approval. Safety data already well established for these cells. This is a pivotal trial.
4. Availability of cells
I don't know of many other companies who could treat 240 patients immediately with cells. MSB is already geared up for sales of Ryoncil by the end of September. Ryoncil is just a brand name of remestemcel-L. Of course, they'll need those cells for commercialization of aGvHD - but they would be able to quickly supply cells for a trial for ARDS now, and probably build up more production quickly
5. Australian production of cells
I have been complaining about how slow the Australian govt has been to support a potential local biotech centre of excellence with the world's leading stem cell company based here. I heard an interview on ABC Radio National (the old 2FC) this morning where the Prof was interviewed and said he was talking to the Australian govt about setting up manufacturing here and that MSB was a resources constrained biotech - I took that to mean he is hoping the Australian govt will fund (or partially fund) this initiative. I must say, it makes more sense than building cars here when. Making stem cells here which are very high value and can be cryogenically frozen and flown all over the world cheaply and quickly makes far more sense.
6.MSB is the only company with the imprimatur of NIH and their funding. MSB will supply the cells, but the really big costs of running the trial, data collection, safety etc I estimate at $US50m - just based on what some of the other trials have cost - NB I have previously estimated the Grunenthal trial in Europe, which is a confirmatory trial might cost $US40-50m.
7. High likelihood of success - NYTimes article
As well the recently well documented but very small stem cell trial in China, and MSB's own results with COPD patients who display rapid improvement in the same kind of cytokine problems as are present in ARDS, there is a NYTimes article today with more results:
"Nine Corona virus patients at Mount Sinai Hospital in NY have received the Mesoblast treatment on an emergency basis and doctors there said the initial response was promising.
Six patients were removed from ventilation and others were being weaned off or had remained stable - a welcome development when most patients who need ventilator support do not survive. But Dr Itescu said that even though the treatment was promising, it was still not clear whether it would work, or whether the early promise was merely anecdotal.
"Although many drugs are being tested outside of a formal study, he said "We do think this is the right way, and a randomized, controlled trial is the only way you are going to know whether an approach works."
Bottom line
Some great results already coming through- and as far as I know, MSB is the only one in the US where patients have come off ventilators. Already 66% off the ventilators, and the rest being weaned or are stable. Remember, this was supposed to be just for patients who were in extremis. What a fantastic indicator so far.
Funding by Aussie government would be great for production facilities here - particularly for our own biosecurity. I had previously wondered how we could access cells if all the production was required for the pandemic deaths overseas.
Funding for the trial by the NIH means all we have to pay for is the cells, and this is a great outcome. We are lucky to be likely to have enough cells quickly available for this trial.
On 10 March, MSB said they were talking to the governments of Australia, US, UK and China and also to pharmaceutical companies. Those talks will receive a huge boost from the two announcements this week.
THIS IS A STORY STOCK WITH MASSIVE UPSIDE POTENTIAL.
I have noted before that my very rough guesses estimate this could be worth up to $US6 billion a year in royalties to MSB. It hasn't even passed the trial or been approved yet, so analysts have nothing in their forecasts for Covid-19 ARDS. I am assuming that once approved, this will be available to all the people dying of ARDS associated with annual seasonal 'flu - the CDC estimates that in a bad year like 2017/18 there could be 61,000 'flu deaths (most from ARDS) and could be as high as 95,000 - it is a statistical analysis based on confidence intervals - ie the numbers are so huge, they don't really know for sure. This means there could be 1m people a year hospitalised for this killer disease.
It could even be much higher than this $US6 billion figure if you assume a saving of more than 3 or 4 days and therefore a price per treatment of more than $US30,000. Ryoncil is likely to sell for up to 10x this amount. The number of patients to be treated is complete guesswork.
Despite having nothing in their models for Covid-19 ARDS, analysts who cover the stock in the US have an average price target of over $A5.20 equivalent per Australian MSB share (and I only include those who have updated their research in the past 6 months since the Grunenthal partnering deal for chronic lower back pain in Europe and LatAm AND since the last capital raising which secured the balance sheet and cash burn out until next year).
The increase in market cap from the two announcements this week is nothing compared with the potential upside. Even if the Covid-19 ARDS trial doesn't work, the analysts' price target is over $A5.20.
It is quite ridiculous that the MSB price has fallen in the past month or so from over $A3.00. The price of stocks like Athersys have rocketed and they are miles behind MSB. Furthermore, MSB has no current sales or business to close down due to the crisis. It has only been hit because of some retail panic and some redemptions from a few insto shareholders (though not the biggest guys, as they would have to issue a substantial shareholder notice if they moved more than 1% and every day more than 1% of the company has been trading). There has also been a general pulling in of risk positions allowed by prime brokers on their clients - meaning that they have had to aggressively reduce both long and short positions. This process ended nearly a month ago, but MSB is still around 35% below its recent high, and I thinks that's dumb!
None of this is a recommendation. I'm just summarising all the info that's out there and making a few rough guesses (which could be way out) on the potential upside from Covid-19 ARDS if the trial is successful. As I've said before, until they start making sales, MSB is still speculative and subject to wild price moves. Let's hope the next one is up!!
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