Company Overview: Mesoblast Limited is engaged in developing cell-based medicines. The Company has leveraged its technology platform, which is based on specialized cells known as mesenchymal lineage adult stem cells, to establish a portfolio of late-stage product candidates. Its allogeneic, off-the-shelf cell product candidates target advanced stages of diseases with high, unmet medical needs, including cardiovascular conditions, orthopedic disorders, immunologic and inflammatory disorders and oncologic/hematologic conditions.
 

MSB Details
 
Mesoblast Limited (ASX: MSB) seems to be gaining grip once again in the equity market with key upcoming milestones for the lead product candidates that are based on MSB’s proprietary disruptive mesenchymal lineage technology for the treatment of acute graft versus host disease, chronic heart failure, and chronic low back pain. The recent results of Phase 2 trial of its proprietary allogeneic mesenchymal precursor cells (MPCs) for rheumatoid arthritis have been pleasing. With Credit Suisse tapping 7.4% of interest in company’s securities, the group’s stock has been up about 6.2% in last five days, as at November 13, 2017.

Phase 2 Trial Results Presented at 2017 American College of Rheumatology Annual Meeting: Mesoblast has presented the results from the randomized, placebo-controlled Phase 2 trial of its proprietary allogeneic mesenchymal precursor cells (MPCs) over 52 weeks in patients with biologic refractory rheumatoid arthritis (RA) at the 2017 American College of Rheumatology (ACR) Annual Meeting held in San Diego, CA. The clinical responses in this Phase 2 trial, along with the safety profile, has positioned MPC-300-IV to become an early treatment option in rheumatoid arthritis patients who are resistant to or intolerant of anti-TNF or other biologic agents. Moreover, the Phase 2 trial had recruited a total of 48 patients with active RA who were on a stable regimen of methotrexate and had an inadequate prior response to at least one anti-TNF agent. Of the 48 patients, 30 (63%) had previously received 1-2 biologic agents. The patients were randomized to a single intravenous infusion of 1 million MPCs/kg (1M/kg, n=16), 2 million MPCs/kg (2M/kg, n=16) or placebo (n=16). Overall, the primary objective of the study was to evaluate safety and tolerability of a single intravenous MPC infusion in these biologic refractory RA patients through a 12-week primary endpoint. The additional objectives of the company were to evaluate clinical efficacy at the 12-week endpoint and to assess the durability of effects and safety profile through the full 52-week study. Additionally, the pre-specified efficacy endpoints included the ACR composite clinical response, which is an endpoint used in RA clinical trials to measure improvement in signs and symptoms of the disease in terms of 20%, 50% or 70% improvement from baseline. In addition, the continuous variables ACR-N, HAQ-DI and DAS-28 were evaluated in a pre-specified manner since the use of endpoints sensitive to change provide better discriminatory power for dose-response assessment, which is in line with the FDA Guidance for Industry Rheumatoid Arthritis: Developing Drug Products for Treatment, May 2013. MSB’s results of the Phase 2 trial that identified a dose-related treatment effect, the earliest onset of the effect, and the durability from a single dose, have been encouraging. Due to the excellent safety profile, MSB intends to evaluate whether higher MPC doses could deliver an even greater rate of low disease activity or remission within the first 12 weeks and beyond. The company has also planned to evaluate whether the observed durable treatment responses can be maintained for the longer term using repeat dose therapy.
 
Boosting capital position: The group finished the $38 million capital raising from institutional investors, which included external investors and Bell Potter. The retail investors who hold MSB shares were invited to participate in the $12 million retail capital raising under the same terms as institutions. Overall, MSB had raised over A$50.7 million through the Entitlement Offer. After adjusting for total net proceeds from the Entitlement Offer, MSB had cash reserves of US$84.0 million on a pro-forma basis as of June 30, 2017. Moreover, the funds raised would be used towards the ongoing costs of the company’s research, with several treatments currently in Phase 3 trials. At least one trial is expected to finish in the second half of 2018. If successful, the next step could be to achieve FDA registration and start sales. Additionally, the company seems to have a long road ahead after registration as it has to sell its product, which requires investing in sales infrastructure and so on. The group has a cash of $62.94 million as of September quarter of 2017.
 

Cost Containment (Source: Company Reports)
 
Strong pipeline: The group has highlighted three Tier 1 Phase 3 clinical trials for actively recruiting patients in the United States, including MPC-150-IM for chronic and end-stage heart failure, MPC-06-ID for chronic low back pain, and MSC-100-IV for acute graft versus host disease in children. MPC-300-IV for immune mediated diseases, is another Tier 1 product candidate, which has been evaluated in Phase 2 trials in biologic refractory rheumatoid arthritis, and also diabetic kidney disease and type 2 diabetes. The group’s licensee in Japan, JCR, had launched the first allogeneic cell-based product in Japan in February 2016, for treating acute graft versus host disease. Going forward, the group is expecting top-line results from the Phase 3 trial in acute graft versus host disease in children and for the end-stage chronic heart failure trial in patients requiring a left ventricular assist device (LVAD). This program was said to be funded by the United States National Institutes of Health and the Canadian Health Research Institute. MSB also intends to make some strategic partnerships for late-stage product candidates.
 

Product Pipeline (Source: Company reports)
 
Targeting to maintain technology leadership position in the regenerative medicine space: The group aims to maintain its leadership position in the regenerative medicine technology and add more types of MLCs, including dental pulp stem cells and periodontal stem cells that hold promise in regenerative applications for neurological networks and in dental applications. The cell surface modification feature of MLCs allows for using ex vivo fucosylation to improve homing characteristics to sites of inflammation. The group has Cell pay loading technology, which will help loading the MLCs and other cell types with molecules or nucleotides that could either enhance the natural function of the cells (e.g., increase persistence or homing and engraftment) or deliver directly to sites of inflammation and tissue damage by MLCs. The group’s Protein technologies, are focused mainly on proteins naturally produced by MLCs, that could be developed independently or in combination with MLCs. The group is developing a product candidate based on a molecule known as stromal cell derived factor 1, or SDF-1, which has shown several tissue regeneration capabilities in preclinical studies. The group has a proprietary variant of SDF-1 which was engineered to be resistant to enzymatic cleavage and has a longer half-life in vivo as compared to the native molecule. The Gene targeting technologies, are enabling the group to target several harmful genes related to a given disease indication.
 
Stock Performance: The shares of MSB stock fell 44% in the last six months (as on November 13, 2017) impacted by reports of Teva Pharmaceuticals selling 29 million shares in the group at $1.50 each. The group’s weak FY17 performance was also a drag on stock sentiment. On the other hand, the group continues to make efforts on conducting multiple costly clinical trials designed to promote the efficacy of its regenerative medicine products to treat common human conditions like back pain or rheumatoid arthritis. MSB stock rose about 10% on November 13, 2017 post the release of the positive RA Phase 2 Trial Results. Moreover, the group believes that it can leverage the advantage of potential benefits that might be available under the United States 21^st Century Cures Act. If MSB is able to get several of the pipeline products to commercialization phase, it would open a huge opportunity for growth. We believe investors can leverage the subdued levels in the stock. The group is expected to release the first quarter of 2018 results during this week. While there may be some glitches though a performance improvement is expected, the group is entering a top-line readouts’ period with possible value events in 2018 in graft vs host disease and in Class IV heart failure. Further, enrolment for the critical Phase 3 heart failure (HF) trial and readout have been expected to yield encouraging results. With significant upfront and near-term milestones, we give a “Speculative Buy” recommendation on the stock at the current price of $1.395


MSB Daily Chart (Source: Thomson Reuters) 

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