Mesoblast had solid results in aGVHD but is down due to failure of the heart trial.
It has an upcoming BLA submission, and PDUFA in 2019.
The stock seems very investible right now.
This idea was discussed in more depth with members of my private investing community, The Total Pharma Tracker.
Mesoblast (MESO) was covered in our IOMachine reports late last year. At that time, we said that the critical catalyst in the short term was the 180-day survival data, due in 3Q 2018, of MSC-100-IV in acute graft versus host disease (aGVHD) in children following allogeneic bone marrow transplantation. The Phase 3 trial behind this already yielded positive results, so we thought this was a major catalyst.
That data was out days after our report, and it was positive, taking the stock up 100% in the next few days. However, the stock is back to languishing now after that strong jump. Now, by March of this year, we should have the BLA submission. Sometime in late 2019, we should have the PDUFA. The question we want to ask is: looking at the data, what are the chances of approval. And then, looking at the market potential, what are the chances of the drug making it good?
The drug and its chances of approval
MSC-100-IV, or Remestemcel-L, is an allogenic mesenchymal lineage adult stem cells (MLCs) product that is part of MESO’s platform targeting a variety of diseases. If approved, this will be the first industrially manufactured allogeneic MLC in the market.
In our previous report, we discussed Phase 3 trial data. This was a trial in children with steroid-refractory acute graft versus host disease. We saw that OR rate at Day 28 was a high 69%, a statistically significant increase compared to the protocol-defined historical control rate of 45% (p=0.0003). Not only that, we also saw that this OR rate compares very favorably with other treatment paradigms in the pipeline for aGVHD, notably with Jakafi. A Phase 2 trial of Jakafi had an OR of 55% only. Indeed, Remestemcel-L beat every other pipeline drug we compared hands down. Given that, all we need to now look at is the 180-day safety data, which should, in our opinion, clinch the deal for Remestemcel-L.
In patients who had a positive OR to treatment with remestemcel-L on Day 28, survival was 87% at Day 100. At Day 180, survival in these patients was 79% (p=0.001 by Kaplan-Meier survival estimates compared to non-responders). Overall Day 180 survival for the entire remestemcel-L treated group was 69%. Historical survival rates in patients with Grade C/D disease and failure to respond to steroids have been only 10-30%.
Here, we should rather take the 79% figure because these are the patients in whom there was actual treatment effect. However, even the overall number of 69% is much better than historical survival rates of 10-30%; especially given that 89% of these patients had the most severe form of aGVHD. This number also compares favorably with weighted average survival rates at 6 months of various other MLC trials, which stood at 63% with a confidence interval of 50-74%. Considering the patient group with positive treatment effect, MESO’s drug topped even the upper limit of the CI in the above study.
The FDA had already advised the company that “a successful Phase 3 trial should achieve both the primary endpoint of Day 28 OR and also demonstrate overall survival benefits through 180 days.” These conditions seem to have been met. With a fast track designation, we are looking at 6 months for PDUFA, and a rolling BLA submission, all pointing towards a date no later than November/December 2019 for the PDUFA.
Just as a figure off the top of my head, I would give this a strong 80% chance of approval.
Competition
The most common treatment for aGVHD is steroid. Steroid use has its own list of problems, and is especially not conducive in a pediatric population, which is the target market for Remestemcel-L. Mesoblast is the clear leader among pipeline drugs, as we discussed last year. Since then, although Jakafi has played catch up, Meso is still ahead, and it has a better profile compared to even Jakafi. So we expect a strong market uptake upon approval. Although we have not come across specific numbers for the pediatric population, Mesoblast, being the clear leader, should capture at least 50% of this market at peak.
The market potential is decent if not substantial. “According to the January 2018 Market Forecast Report by DelveInsight Perspective, projected annual sales in the 7 major markets (the U.S., Germany, France, Italy, Spain, the U.K. and Japan) is estimated to be more than USD $408 million in 2018, and could grow to approximately USD $1.3 billion by 2027.” Other assessments are more conservative: “The global graft versus host disease market is expected to grow at a CAGR of 7% from 2016-2021 and CAGR of 3% from 2021-2027. The market is expected to grow at a CAGR of 6% from 2016 to 2027. The market is estimated at $0.36bn in 2016, $0.51bn in 2021, and $0.64bn in 2026.” The 2016 number is actually correct.
Opinion
Mesoblast has been quite an underdog, a beaten down stock trading near its yearly lows. The stock spiked around when I wrote the report, in July, and then again when I published it, in September. Then in mid-November it failed its heart therapy trial, and the stock tanked.
This heart therapy trial was briefly discussed in our earlier report. In a way, I am glad that it failed. Accusations of trial data fraud were levelled against Mesoblast based on this trial. Now that it has failed, it tells me that those accusations were false. If those accusations were false, then the outstanding results we are seeing here in aGVHD are true. That, plus the fact that the failed trial brought the stock down together make it very attractive now. Moreover, the company has about $100mn in cash, and with a burn approximating $60mn per year (last year figures) we think they have enough cash to last them until the PDUFA.
MSB Price at posting:
$1.40 Sentiment: Buy Disclosure: Held
(20min delay)
