Opening up the RA Space B.P.

The FDA’s decision to reject Eli Lilly & Co. and Incyte ‘s experimental rheumatoid arthritis pill ,baricitnib after Phase 3 data is likely to widen the Big Pharma pool interested in partnering MSB’s stem-cell based therapy.

Shares in Lillyu and Incyte lost more than $6 billion usd after FDA stated it needed more information on baricitinib’s safety and effectiveness before it is widely used by Americans- raising fears of delays of at least two years and possibly worse.
Food and Drug Administration said Friday, when the markets were closed. On Monday Lilly, fell 4.4 percent to $82.07 at 10:40 a.m. on Monday, while Incyte slumped 12 percent to $124.64.

Baricitinib , marketed as Olumiant was to be the newest JAK inhibitor to enter the market, ahead of Abbvie’s ABT-494which is currently in Phase 3 trials.

A few weeks we argued MSB on the basis of some excellent 39 week data from a Phase 2 trial should be able to attract a strategic partner for RA in the near term to move the program forward.

This week’s events when contrasted to the strong safety data for the MSB platform generated by Phase 3 CHF trial further strengthens this thesis.

Notwithstanding the small numbers in MSB’s trials (48 people) versus the large Phase 2 & 3 trials undertaken on these competing drugs, Bell Potter analyst Tanu Jain said a comparison of data specifically on the low disease activity score of DAS28-CRP <3.2 show that the MPC-300-IV performed better. (see below)


“We noted the MPCs also were better than barictinib based on the proportion of patients achieving both ACR 20 response (minimum bar to get FDA approval) and the ACR 70 response (higher bar and more clinically meaningful).” She wrote this was based on

a) the strength of the results seen so far which provide proof of concept and show that not only does MSB’s product have compelling clinical benefit but also that those benefits are durable and sustained,
b) the possibility of an expedited approval pathway for this product if designated as ‘ regenerative advanced therapy’ and
c) the high interest and licensing/M&A activity seen in this space.

With RA treatment market is estimated to grow to $22.5bn by 2025.key players in this space include Abbvie, Roche, Pfizer, Eli Lilly, Amgen .

This high interest from multiple parties ensures that the negotiating power of a company such as MSB able to provide strong mid-stage results is high. Most of the deals in this space have been between ~$1bn-$1.5bn and front loaded with upfront payments of ~$100-$175m, with some exceptions having upfront payments as high as $725m. Given the multi-billion dollar market opportunity and threat of biosimilars and upcoming patent expiries of the top selling RA drugs we are not surprised either by the high partnering activity nor the high value deals in the space.

MSB’s 39 week data from its MPC-300-IV was safe and showed durable clinical benefit in RA MPC-300-IV performed better than key competitors specifically on measures of low disease activity.

In the biologic refractory RA population, we saw oral JAK inhibitors such as Merck/Incyte drug , which would marketed under the name Olumiant as key potential competitors for MPC-300-IV .

Given the later stage of development, the betting must still be on Olumiant hitting the market, where 1.3 million people suffer from RA ,where treatments are often unable to properly treat let alone cure the disease but the FDA have clearly signalled its enough concern to signal an opportunity for other Big Pharma players.
Albeit the small numbers in MSB’s trials versus the large Phase 2 & 3 trials undertaken on these competing drugs, we believe a comparison of data specifically on the low disease activity score of DAS28-CRP <3.2 show that the MPC-300-IV performed better. The goal of therapy in biologic refractory RA patients is to achieve early and sustained low disease activity which correlates with prevention of structural joint damage in RA, we are encouraged by MSB’s performance on the low disease activity measures.

The decision is a blow that will probably postpone the introduction of the treatment until 2019 or later, analysts say.

Even though the FDA had extended its review in January, many expected the medicine to get the nod. The drug was projected to generate more than $1 billion in annual sales by 2020, but analysts are now trimming their forecasts as the drug will face stiffer competition in the coming years -- if it gets approved at all.

The FDA’s delay is a “significant disappointment,” Steve Scala, a Cowen & Co. analyst, wrote in a note to investors.
“There is uncertainty around the questions FDA is asking and Lilly’s ability to answer them with existing data,” said the analyst, who rates Lilly’s stock outperform. He now anticipates a 2019 launch for the treatment.

The FDA asked for additional evidence about the best dose for treating patients with moderate-to-severe disease, the companies said Friday in a statement. The regulator also wants more data on potential safety concerns seen at different dose levels.

It’s also unclear whether the drugmaker can finalize approval for baricitinib with existing data or whether it will need to do new trials, which is both costly and time consuming.

“The press release reads ominously to us,” Credit Suisse analyst Vamil Divan said in a research note, adding the drug introduction could be pushed out to 2019 or beyond. “It will likely also limit the peak potential of the product given the competitive nature of the rheumatoid arthritis market.”

Divan expects that Pfizer Inc.’s rheumatoid arthritis treatment Xeljanz will lose its U.S. patent exclusivity by 2025, opening the door for competing generic versions.
The timing for any resubmission of baricitinib’s marketing application will depend on future discussions with the FDA. The drug was first submitted to the FDA in January 2016. It was targeted to be sold under the brand name Olumiant.

Incyte is evaluating how the agency’s decision will affect its 2017 guidance for milestone payments and research and development expenses, and will issue an update on its first- quarter earnings conference call. Lilly, which bought the worldwide rights to baricitinib from Incyte in 2009, reaffirmed its financial guidance for 2017 and the remainder of the decade. European regulators cleared the drug for sale in February for patients who don’t respond to other treatments.

Mesoblast’s Phase 2 data on 48 patients with biologic refractory rheumatoid arthritis (RA) built on the impressive clinical benefit and safety ( which is clearly a concern to the FDA) seen with the drug at 12 weeks and provided proof of concept.

Longer term data on safety and tolerability continue to be positive, with no drug-related serious adverse events (SAEs) and importantly, the company reported data on secondary measures of clinical efficacy and benefit had been maintained for the longer time period.

This positive data bolsters our confidence in the positioning of MPC-300-IV as a preferred 1st-line biologic agent in treatment of biologic refractory RA patients.

What is important in MSB’s results, which although conducted on a much smaller population , are important in the light of the FDA’s caution are
• No serious adverse events at either the low dose or the high dose at 39 weeks. Adverse events (AEs) were similar between the drug treated groups and the placebo (control) group. The AEs did not display dose-dependent or time-dependent trends, were not significant and did not lead to discontinuation of treatment.
• Both doses of MPC outperformed placebo across multiple efficacy endpoints namely FDA acceptable ACR20/50/70 response criteria, median ACR-N analysis, physical function (measured by health assessment questionnaire-disability index –HAQ-DI) and the composite measurement of disease activity (DAS28 measurement). This consistent pattern of outperformance over placebo across multiple endpoints further supports the robustness of the benefit seen with MPC-300-IV.
• The high (2 million MPC/kg) dose showed the earliest and most sustained treatment benefit as identified using continuous variables ACR-N, HAQ-DI and DAS-28 in line with FDA guidance. The dose dependent relation in efficacy identified gives MSB the rationale to consider exploring an even higher dose in a Phase 3 registrational trial. The fact that there was no dose-dependent trend seen in safety also makes it possible for MSB to consider it.
• Clear separation of benefit of MPC treatment over placebo was seen across all subjects (patients who failed 1-2 biologics and also those who failed more than 2 biologics), however this difference was even further augmented in the subgroup who had failed 1-2 biologics, making the results in this sub group even more compelling. This observation is consistent with the 12 week data and further points to MPC’s being more effective the earlier a biologic refractory patient is treated with it and supports MPC-300-IV’s positioning as a preferred 1st-line biologic agent in treatment of biologic refractory RA patients.

To illustrate the differences between the drugs , baricitinib (high dose 4mg) showed DAS28-CRP<3.2 of 33% at week 24 vs. 50% 2M/kg MPC (all) and 67% 2M/kg MPC (1-2 biologics subgroup) at week 39. The mean change in DAS-28 for baricitinib was -1.8 at week 24 vs -2.2 2M/kg MPC (all) and –2.7 2M/kg MPC (1-2 biologics subgroup) at week 39.






HEALTHCARE

Mesoblast (MSB)
Partnering prospects for RA product significantly increase at the back of compelling 9 month data from RA trial


· In the biologic refractory RA population, we see key potential competitors for MPC-300-IV as the oral JAK inhibitors (Pfizer’s Xeljanz, Eli Lilly’s Barictinib and Abbvie’s ABT-494). In the biologic refractory RA population, the other key product used extensively is Roche/Biogen Idec’s Rituxan (rituximab). We believe MPC-300-IV also performed better than Rituxan on DAS28-CRP <3.2. In its Phase 3 trial, Rituxan showed DAS28-CRP<3.2 of 15% at week 24 vs. 50% 2M/kg MPC (all) and 67% 2M/kg MPC (1-2 biologics subgroup) at week 39. The mean change in DAS-28 for Rituxan was -1.9 at week 24 vs -2.2 2M/kg MPC (all) and –2.7 2M/kg MPC (1-2 biologics subgroup) at week 39. We note that the MPCs also were better than Rituxan based on the proportion of patients achieving ACR 70 response.

Partnering prospects enhanced
The benefits seen in this small trial now need to be similarly replicated in larger registration trials (Phase 3). We understand that MSB is already in discussions with potential partners. In parallel with these discussions MSB is likely to engage with the FDA on understanding the path forward for Phase 3. The recent legislation in the US called the 21^st Century Cures Act has provided an expedited pathway for approval of regenerative medicines in the US.

Biologic refractory (those who have had an inadequate response to or are intolerant to 1 or more TNF-alpha inhibitors) are the most challenging RA patient population and represent high unmet need. MSB estimates that ~one third of RA patients are biologic refractory and in need of effective treatment. What physicians are looking for is a drug which is efficacious, has durable benefit but is also safer than current drugs in this biologic refractory population, given current treatment modalities in this setting (such as the JAK inhibitors) are limited by risk of opportunistic infections and malignancies. Based on the strong data we have seen to date and the favourable safety profile of MPC-300-IV, we believe it could fill this unmet need. Given the unmet need in biologic refractory RA population and the seriousness of the disease, there are reasonable grounds to believe that MSB’s MPC-300-IV for RA may be granted the designation of ‘regenerative advanced therapy’. Cheers Vin