MSB 12.1% 55.5¢ mesoblast limited

BLA Submission Today’s announcement was actually actually some...

  1. 397 Posts.
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    BLA Submission Today’s announcement was actually actually some skilful PR. Mesoblast is running 4-6 weeks behind on it’s original BLA timetable. I presume it has known this for at least a month as ecoool2 told everyone in one of his more recent posts that the BLA would probably be ready for filing in December, not October . I guessed (as he is such a knowledgeable poster) when he posted that he must have been “advised” . This is absolutely nothing to worry about because a 5000 page BLA submission often takes this length of time to prepare. I believe Lonza has been responsible for collating and submitting a fair chunk of the data required as they have conducted 10 manufacturing runs several months ago to provide the core data for the manufacturing module of the submission. I believe Lonza has previously agreed exclusivity in allogenic MSC production with Mesoblast. Lonza are certainly one of the most respected players in this space and have also invested large sums into their autologous production capabilities , with their investment in Octane Biotech’s, Cocoon cassette system. MSB refer to some of the latest changes being made to enhance the yields and efficiencies in the manufacturing process. They believe their proprietary IP in this space is far in advance of even Lonza’s capabilities and doubtless this latest agreement provides for some new sharing of their IP. Even now much initial preparation involves many manual steps and commercialisation will bring challenges to automate the stages from isolation of the stem cells, ex vivo expansion, phenotypic characterisation, viral transduction and production of concentrated and conditioned medium. Key requirements of any fully closed or automated system ,must be to simplify data tracking and collection which means sample and product traceability .
    Longer term Mesoblast certainly wants to ditch FBS as a culture medium and move to xeno-free production ( no animal components) . I suspect this agreement partly reflects the revisions to the production protocols at Lonza’s purpose built production facility in Singapore. Mesoblast will also need to revise supply and stocking agreements in place to move stem cells at minus 130c temperature to strategic cold storage centres all around the US in anticipation of commercial approval. Remember as a fast tracked BLA application for an orphan indication , the FDA give guidance, pre submission, so shareholders should feel extremely confident of success once the BLA has been filed for 30 days and been given “priority review “ status. Separately, a recent orphan drug submission actually received approval 3 months after submission because so much of the work had been done by the FDA pre submission... although it is prudent to assume approval mid 2020 in our case.

    Share Price
    I have never given much succour to Fibonacci patterns but, as @ecoool2 has mentioned, in the absence of anything more tangible to go on,it is amazing how frequently Chartists rely on these methods to influence their decisions. I believe the pullback occurred because in their haste to get the placing away without a proper roadshow, short term demand was satisfied leaving the shares vulnerable again to another bear raid. This may appear ridiculous but judging by the statistics provided by Shortman, shorters managed to get their hands on over 4 million shares at the time of the placing. What a coincidence? This is certainly not a criticism of Murray Aitken who have done a SUPERB job recently in marketing the Company. Indeed, with the biotech market wobbling just after the trading halt, the timing and pricing of the secondary placing is to be commended. The irony is that even if short term demand was satisfied by the placing, the weakness of the balance sheet stood out a mile and had to be dealt with. To run any public company properly you should have a minimum of 12 months and preferably 18 months working capital provided for. Mesoblast was pushing its luck relying on 15% rolled up money from Novaquest even if they had soft loan terms and were subordinate to the Hercules facilty . Further drawdowns were subject to milestones that could easily have moved and having almost another $100m in the bank from recent events transforms the risk profile of this Company.

    Moving Forward.
    Mesoblast has been ridiculed by some on this forum for mentioning it is in “advanced negotiations with a number of additional potential commercial partners”. The Company reiterated this point with its full test results statement at the end of August 2019. Indeed at some recent institutional meetings I understand they have commented that they were talking to at least five different major companies across several different sectors. This was after the Grunenthal announcement so that deal was not included in that number. Just to be clear, I am not an insider and have no idea what progress they are making with discussions... but who in their right mind would short the stock right now ? Yes, some of these agreements may be “data dependent “ but it does not take much imagination to work out the direction of travel in the share price. Grunenthal apparently first started discussions with the Company three years ago but were so impressed with recent developments that they were prepared to secure their involvement, prior to the phase 3 read outs . That is very reassuring but it does not guarantee others will do so.

    Grunenthal deal.
    Some posters were querying whether any cash has been received from Grunenthal. It was my understanding that the first $15 m was an “up front” and was due immediately. This is a fabulous deal for Mesoblast. Leaving aside the fact that they will fund any clinical trials, let’s consider back of the envelope guidance given to institutions. Subject of course to satisfactory phase 3 results and FDA authorisation, it is envisaged that MPC-06 will target the 3m moderate to severe sufferers of CLBP p.a. out of a total of 18m total sufferers in the US. Pricing points are expected to be broadly $5000 in Europe and US$12k in the US, with physicians charging a standard 5% on top and a further $US2,500 for the procedure. I understand that Mesoblast will receive roughly US$200m in royalties on the first billion of sales in addition to milestone payments and a mid 20s royalty thereafter... which is a pretty similar royalty percentage to the JCR deal. Just to put these numbers into context . According to iData Research there were 1.62m instrumented spinal procedures performed annually. It is estimated that 500,000 Americans undergo surgery for low back problems alone. According to the Agency for Healthcare Research and Quality over $11bn is spent each year on operations in the US to relieve pain. However, the market is larger than this because if a doctor cannot locate a structural cause for your pain, back surgery won’t work. Indeed 80% of people who have herniated discs get better without surgery within 6-12 weeks, according to a report form John Hopkins. Even the most extreme cases of back pain which result in the decision to undergo spinal fusion are only successful about 80% of the time, and surgery on your discs will eliminate pain and sciatica in 70 per cent of cases. I mention all these statistics to illustrate the point that it is entirely reasonable to expect 100,000 annual procedures to use Mesoblast MPC 06 in the US alone ... which would represent approx $1.2bn of sales. If Mesoblast waits for phase three approval (on the assumption it is successful in reaching primary endpoints) in the US before licensing... it could then opt for distributor agreements which only have to give away 70-75% of the income with Cost of Goods Solds remaining well under 10% ... this would give Operating Profits ,before other expenses, approx $800m p.a. Whilst it would obviously take a couple of years to achieve such market penetration, my assumption assumes partnering with an existing substantial player in the market. Furthermore, I have not yet mentioned the market opportunity for knee oestro arthritis where the average charge for a total knee replacement in the US is approx $49,500....with over 600,000 procedures per annum. As Mesoblast is expected to price its therapies on the volume of stem cells required for each therapy , the treatment for treating this type of arthritis will be commensurately higher.

    Revascor CHF Trial

    I think that we have probably now reached 100% of the required number of MACE events. As of mid September 95% had also been verified by Harvard Medical School. As I have previously explained it is prudent to continue the trial for a little longer in case there are enrolled patients whose data has been included in the current recorded numbers of MACE but who have not gone on to complete the full trial. If I am right at the next scheduled meeting the Data Monitoring Controller might have any interesting conundrum. Is there overwhelming evidence of a major reduction in the number of TCE (total cardiac events) relative to the control group? (similar to the experience of the Phase 2 where there were no MACE events recorded at all ? . If so, will the DMC stop the trial immediately or allow it to continue ? My guess is that the trial will be allowed to continue until Nov/Dec and we will then get to hear some headline numbers and all hell will break loose. So next time someone tells you that this share will just go back down after every rise ... send them to the psychiatrist!

    Conclusion. If you want to take a cautious approach to prospects ... I think you would say that GVHD is 85% likely to receive full approval next year . Within 2-3 years revenues of circa $200m net to Mesoblast ( assuming reasonable off label use by adults ) less approx $70m of total Group costs would leave say EBIT of $130m. When you add in back pain royalties of $800m in the US (leaving out CHF and all the other indications) , you are still looking at a market cap 20 times the current one.
    So if the current seller is bothering you get out of there way.... but don’t rely on tea leaves to tell you when to jump on board ... you just might miss the boat !!! In the meantime, spare a thought for SI and the team. They have an enormous workload and whilst they like to update the market regularly they have to focus on prioritise right now. I think those that stay the course will be very very happy ... but WTFDIK ... remember Cato I could be the cleaner !


    Please do your own research and do not rely on the opinions or facts detailed when making an investment decision. OP
 
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