Mesoblast's (MESO) stock has grown over 300% since we last made out an investment case in March 2019, and an IOM runthrough six months prior, based on phase 2 trial data in acute graft versus host disease (aGVHD). Presently, the United States Food and Drug Administration (FDA) has accepted the companys Biologics License Application (BLA) for priority review of its phase 3 product candidate RYONCIL (remestemcel-L) for steroid-refractory aGVHD in children. The Prescription Drug User Fee Act (PDUFA) action date is set at 9/30/2020, and if approved, Mesoblast is geared up to make RYONCIL available immediately in the U.S. mid-August, an FDA advisory committee has already backed approval with a 9-1 vote.

Speaking at the 2020 Full-Year Financial Results and Corporate Highlights Webcast on 8/27/2020, CEO Dr. Silviu Itescu said the lead product candidate RYONCIL has a targeted market. If approved, the launch for this product is planned in 2020, and we have industrial scale manufacturing in place to meet the commercial demand as we expect to move forward.

The company has well-established plans for life cycle expansion of remestemcel in pediatric and adult inflammatory diseases, including a Phase 3 trial ongoing in patients with acute respiratory distress syndrome from COVID-19, and two additional product candidates in Phase 3 trials for heart failure and back pain with near-term U.S. readouts.

Cash-wise, Mesoblast is presently in a comfortable position. It has sufficient runway for transitioning to a commercial organization with its own product sales.

Mesoblast uses a proprietary technology platform developing mesenchymal lineage cells that are found in every vascularized tissue around blood vessels. They express a number of receptors for various inflammatory cytokines, including TNF-alpha receptor, IL-1 receptor, IL-6 receptor, interferon gamma receptor. They are activated when introduced in the middle of a cytokine storm, and release anti-inflammatory mediators to regulate and control multiple arms of the immune system thereby switching off the severe inflammatory response that is responsible for the damage to tissues forming the basis of the diseases that the company is targeting.

Mesenchymal lineage cells are collected from the bone marrow of healthy adult donors and proprietary processes are utilized to expand them to a uniform, well characterized, and highly reproducible cell population. This enables manufacturing at industrial scale for commercial purposes. Another key feature of Mesoblasts cells is they can be administered to patients without the need for donorrecipient matching or recipient immune suppression. (from company website)

Remestemcel is the companys most advanced product candidate being developed for pediatric and adult systemic inflammatory conditions. The most advanced indication is for pediatric steroid-refractory aGVHD. It is also being developed for adult steroid-refractory aGVHD and chronic GVHD. A phase 3 trial is ongoing for acute respiratory distress syndrome (ARDS) caused by COVID-19. Its also being developed for biologic refractory Crohns disease.

Image source: company website

The companys products for localized inflammatory diseases are based on the rexlemestrocel platform. These include REVASCOR for advanced chronic heart failure and MPC-06-ID for chronic low back pain due to degenerative disc disease, which are in phase 3 with readouts expected in the upcoming quarter.

Trial data from the three phase 3 trials of RYONCIL for pediatric steroid-refractory aGVHD is summarized below. (Source: news release dated 5/25/2020.)

Three trials evaluated the same treatment regimen of RYONCIL, with patients receiving twice weekly intravenous infusions of 2 million cells per kg body weight over a four-week period.

Study 275: An Expanded Access Program in 241 children across 50 centers in eight countries where RYONCIL was used as salvage therapy for steroid-refractory acute GVHD in patients who failed to respond to steroid therapy as well as multiple other agents.

Study GVHD001/002: A Phase 3 single-arm trial in 55 children across 20 centers in the United States where RYONCIL was used as the first line of treatment for children who failed to respond to steroids for acute GVHD.

Study 280: A Phase 3 randomized placebo-controlled trial in 260 patients, including 28 children, across 72 centers in seven countries where RYONCIL or placebo were added to second line therapy in patients with steroid-refractory acute GVHD who failed to respond to steroid treatment.

Study 275: Day 28 Overall Response (OR), the primary endpoint, was achieved in 65% of subjects. Survival through 100 days was significantly greater in patients who achieved a day 28 OR (82%) compared with patients that did not achieve day 28 OR (39%), with 67% overall day 100 survival.

Study GVHD001/002:

Consistent with the findings in Study 275, Day 28 OR was achieved in 70% of children. This was statistically significant compared to the pre-specified control value of 45% (70.4% versus 45%, P =0.0003). As in study 275, clinical response at day 28 was highly predictive of improved survival through day 100 (87% compared to 47% in patients that did not achieve day 28 OR P = 0.0001). Similar predictive value of day 28 was also seen in survival through day 180 (79% vs. 43.8%, P= 0.003). Overall survival was 74.1% at day 100 and 68.5% at day 180.

These results were significantly higher than those from matched control pediatric subjects from the contemporaneous database of the Mount Sinai Acute GVHD International Consortium (MAGIC), accessed to provide an unbiased and independent estimate of response rates and outcomes in matched pediatric control patients treated with institutional standard of care. In the MAGIC controls, Day 28 OR was 43% and Day 100 survival was 57%.

Study 280:

Among high-risk children and adults who had the most severe disease stages, day 28 OR was significantly greater in the RYONCIL treated group (58% versus 37%; P = 0.03) compared to placebo. Among the standard risk patients there was no significant benefit of RYONCIL treatment. Within the pediatric patients in this study (n=28) day 28 OR was significantly greater in the RYONCIL group compared with the placebo group (64% vs. 36%, respectively, P=0.05).

These Phase 3 results provide prospective, randomized controlled data which are supportive for the use of RYONCIL in children and high-risk adults with steroid-refractory acute GVHD.

RYONCIL was well-tolerated in all studies with no identified safety concerns.

52-week range: $3.12-$21.28

Last close: $18.58 (8/27/2020)

Market cap.: $2.17B

Cash balance: $129.3M (Jun-2020)

Cash burn: $82.3M (FY-2020)

Cash runway: 1.57 excl. revenue; 3.01 incl. revenue

Revenue: ~$32.2M (Jun-2020); estimated: ~$119M (Jun-2021), ~$314M (Jun-2022)

The company raised $90 million in May 2020 from existing and new institutional investors. The proceeds from the offering will be used for commercial launch of RYONCIL for acute GVHD, will also support a scale-up of manufacturing for... maturing pipeline, including GVHD label extensions and for COVID-19 ARDS and also support the clinical programs underlying those. Additionally, up to $67.5 million may be available through existing strategic partnerships and ongoing financing facilities over the next 12 months.

The company has an extensive portfolio of over 1,100 patents and patent applications that cover compositions of matter, manufacturing and therapeutic applications of mesenchymal lineage cells with protection extending through 2040 in all major markets.

The company has licensing and royalty agreements with Japan based JCR Pharmaceuticals (OTCPK:JCRRF) for their product, TEMCELL, with Grunenthal for MPC-06-ID for the Europe and Latin America regions, and with Tasly for REVASCOR for the China region. The company garnered revenue of ~$32 million in fiscal 2020 from these arrangements.

Acute GVHD occurs in approximately 50% of patients who receive an allogeneic bone marrow transplant (BMT). Over 30,000 patients worldwide undergo an allogeneic BMT annually, primarily during treatment for blood cancers, and these numbers are increasing. In patients with the most severe form of acute GVHD (Grade C/D or III/IV), mortality is as high as 90% despite optimal institutional standard of care.

There are currently no FDA-approved treatments in the United States for children under 12 with steroid-refractory acute GVHD.

Mesenchymal Stem Cells (MSC) based therapy looks like the most promising of the various third-line treatment options in consideration, and is at the most advanced stage towards approval.

Since I first recommended MESO to our subscribers, the stock has multiplied many times over. Now, right before PDUFA, there does not seem to be much opportunity, especially since the positive adcom has probably priced in the PDUFA as well. Sure, there is always some spike before the major date, but I would rather buy after the approval, when stocks almost always go down. There may even be a dilution given the not-so-strong cash position of the company. But after that, the company predicts a steady revenue stream and so on; buyout offers are also not unlikely. Given that, this would be the right time to purchase the stock in my opinion.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Mesoblast Before The PDUFA - Seeking Alpha

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