Mesoblast Stock Soars on Promise of Cellular Medicine

Longevity is potentially a trillion-dollar industry – until it isn’t, because we can’t keep the vulnerable safe from the latest pandemic. The Woohoo Flu has us distracted from the longevity thesis for a bit as the medical community scrambles to deal with something we can’t control. A lack of information and a fractured population means it’s also becoming political. At least we should all be grateful the overall mortality rates are low or we’d be royally screwed.

Eventually, humankind will sort this out just like every other challenge we’ve been given, and we’ll all get back to being excited about the prospect of living to 120 because of advances being made in regenerative medicine. As we discussed in our article on 9 Regenerative Medicine Companies for Living Longer, regenerative medicine is a broad category that’s all about restoring the structure and function of damaged tissues or organs using everything from stem cells to 3D bioprinters. Today, we want to discuss a publicly-traded regenerative medicine company called Mesoblast Limited. Before we get into that, here’s a quick primer on cellular medicine.

What is the Promise of Cellular Medicine?

Cellular medicine is when you use the body’s own cells to repair or regenerate parts of itself or other bodies. In order to create cells, you need to start with a stem cell which can be used to create various types of cells to specification. For example, you might extract a bunch of stem cells and then use them to create specialized cells and then place these cells somewhere in a patient’s body where they’ll hopefully do something beneficial – like reducing inflammation caused by inflammatory diseases. (You may also hear this referred to as stem cell therapy or cell therapy.) Stem cells are often extracted from embryos and bone marrow where they are located in very small amounts. It’s important to know the difference between allogenic therapies and autologous therapies.

Allogenic versus Autologous

Simply put, allogenic is when you take a bunch of cells from a bunch of humans and use them to create a therapy. Autologous is when you take cells from a patient and use them to create a personalized therapy that you then administer to the same patient. One company dabbling in the allogenic space is Celularity, a well-funded startup that made our list of “The Top 10 Companies Working to Increase Longevity.” Celularity says their “placenta-derived allogeneic cell therapy products aim to augment immunity by harnessing a patient’s own immune system to combat disease.” Said our MBA who wrote the piece:

The cell-based therapy could be applied to regenerate damaged tissue, produce whole organs, augment immunity, and generally help you live as old as Moses.

Source: Nanalyze

If you think that sounds promising, just wait until you hear what the future of cellular medicine might look like.

What the Future of Cellular Medicine Might Look Like

While researching cellular medicine, we came across The GID Group which describes themselves as “a global leader in cellular medicine” with “the first cellular implant for osteoarthritis” which has investigational device exemption (IDE) approval by the FDA. The group is working on a “modular tissue processing platform,” which will enable point-of-care therapy for a broad range of indications.

By reducing an entire GMP cell-processing facility to a single disposable device, physicians can extract and process adipose tissue in real time using proven scientific methods, controls, and reagents. This platform provides scalable cell processing for hospitals, medical practices, and other surgical or clinical settings.

Credit: The GID Group

That disposable device is the SVF-2 which the company says is a major step forward for cellular medicine. In as little as 60 minutes, a small sample of tissue is used to create a cellular implant for targeted therapy.

Credit: The GID Group

This is where cellular medicine could lead us. Devices in physician’s offices that can literally create customized cell therapies as needed. It just goes to show that cell therapy can take many forms – like the allogeneic mesenchymal stem cell therapies being developed by Mesoblast Limited.

Mesoblast Stock Takes Volatile Ride

Click for company website

Founded in 2004, Australian biotech Mesoblast is a $1.22 billion market cap company focused on developing its “proprietary mesenchymal lineage cell therapy technology platform.” Mesoblast shares trade on the ASX under the ticker MSB and on the Nasdaq under the ticker MESO as an American Depository Receipt (ADR). (Each Mesoblast ADR is equivalent to 5 ordinary shares of Mesoblast traded on the Australian Securities Exchange.) They’re one of hundreds of companies working on various forms of regenerative medicine, and they’re developing cellular medicines using rare cells called mesenchymal stem cells (MSCs) found around blood vessels that are central to blood vessel maintenance, repair, and regeneration. (Approximately 1 out of 100,000 bone marrow cells are MSCs.) A key feature of Mesoblast’s patented MSCs is that they are administered without the need for donor-recipient matching or recipient immune suppression, and therefore are often referred to as ‘off-the-shelf’ cellular medicines.

Mesoblast’s product pipeline has a number of candidates targeting everything from advanced chronic heart failure to chronic low back pain to degenerative disc disease.

Credit: Mesoblast (yellow highlight is ours)

In terms of pipeline, the company is actually selling some drugs. Mesoblast’s lead product candidate, RYONCIL (remestemcel-L), is being used in Japan for the treatment of pediatric steroid-refractory acute graft versus host disease (SR-aGVHD).

About half of all patients who receive an allogeneic bone marrow transplant (primarily used for treating blood cancers) end up having GVHD. With no approved treatment, the company filed a Biologics License Application (BLA) with the United States Food and Drug Administration (FDA) this past January to seek approval of RYONCIL for acute GVHD in children.

The Mesoblast Product Candidate Pipeline – Credit: Mesoblast

RYONCIL is one of two allogeneic MSC products developed and commercialized by Mesoblast licensees that have been approved in Japan and Europe. In both major markets, it was the first allogeneic cellular medicine to be approved (the other being Alofisel which is being marketed by Takeda for treatment of perianal fistula.) As seen in the above pipeline graphic, they’re in the process of completing Phase III trials for two product candidates relating to advanced heart failure and chronic low back pain.

In looking at Mesoblast’s financials, revenues are happening but losses are massive, leading to new shares being issued to support the cash burn. In the latest shares issuance, the existing pool of shares was increased by about 10%. As more equity gets given away every year in exchange for cash to fund operations, there’s an expectation that the stock price would consistently fall (all things being equal). That’s what’s been happening since the IPO, but now things have suddenly changed.

The Mesoblast COVID-19 Thesis

Remember we taught you that little trick to see how coronavirus has affected any given stock? In the case of Mesoblast, the stock price journey looks something like this.

  • If you bought shares in MESO the day the ADR began trading, you’d be up about +11% on your money while the NASDAQ would have appreciated by +313%.
  • If you bought shares of MESO the first trading day of this year, you’d be up +60% on your money today while the NASDAQ return would have been about flat.

The first thing to note here is that Mesoblast common stock traded on either exchange is extremely volatile compared to the broader stock market, having traded all the way to $50 a share a few years following their debut on Nasdaq. The constant price swings make this a difficult stock to invest in for novice investors and a fun ride for speculators. Lately, there’s been some speculation around Mesoblast joining the ranks of companies trying to profit off the coronavirus pandemic.

A month ago, Mesoblast announced “Positive Clinical Outcomes Using Remestemcel-L in Patients With Inflammatory Lung Disease.” The press release talked about how the intravenous infusions brought about “significantly improved respiratory and functional clinical outcomes in patients,” and that this “provided the strong rationale for the evaluation of remestemcel-L in patients with acute inflammatory conditions, including COVID-19 ARDS.”

One week later, the company issued a press release announcing FDA clearance for use of RYONCIL (remestemcel-L) in patients with COVID-19 acute respiratory distress syndrome (ARDS), where “the prognosis was very dismal, under both expanded access compassionate use and in a planned randomized controlled trial.” (Remember, RYONCIL is the drug, we mentioned earlier, they filed a BLA with the FDA this past January to treat GVHD.) The result for one trial shows promise. RYONCIL was used to treat twelve critically ill patients who were undergoing ARDS due to coronavirus infection. Nine of 12 (75%) patients were able to come off ventilators “within a median of 10 days,” according to a recent company press release.

All this talk about a ventilator shortage would go away quickly if we’re able to get people off ventilators quicker. Not to mention the whole improved survival rate thing (10 of the 12 patients survived or 84%). FDA approval shouldn’t be much of a problem given it’s already being used in other developed markets to treat other diseases.

It’s a statistically small sample, but the results appear promising. Now, Mesoblast is running a trial with around 300 patients who are on ventilator support across 30 sites in North America to confirm that the drug can indeed help patients get off of ventilators. (This trial has already started with the first dosing happening on May 5th.) They must like what they see so far. Just this past week, trading was halted as Mesoblast announced that it had “successfully completed a capital raising of $90 million USD ($138 million AUD) via a placement of 43 million shares to existing and new institutional investors at a price of $2.06 ($3.20 AUD) per share.” Since the ADR consists of five shares of stock, that means institutional investors – both existing and new – purchased shares at a discount to today’s ADR price of $11.84. In other words, today’s share price represents a 13% premium over what professional investors were willing to pay.

We’re not big fans of any investment thesis that’s based on temporary changes. We previously discussed how Moderna has dropped everything to focus on a coronavirus vaccine while Johnson & Johnson can do 10X as much with a small fraction of their resources. With somewhere around 80 different companies throwing their hats into the ring around today’s pandemic, we’re more interested in the changes happening today that will become tomorrow’s norm. It may take years for this story to play out before the impact of the whole thing becomes apparent.

A Fair Price for Mesoblast Stock

You could say that the latest institutional purchase ascribes a fair value to Mesoblast stock that’s probably more meaningful than any other measure at this point. But as we learned with the Charlotte’s Web debacle, these price support levels mean very little when the cow manure hits the fan. The Wall Street analysts who cover stocks like this in research reports will always avoid speaking with too much conviction, giving you advice like “proceed with cautious optimism.” Maybe it’s best to ignore the latest coronavirus news and invest based on the original cellular medicine thesis which also sounds pretty compelling.

If you liked Mesoblast before the whole pandemic thing, then buy on dips using dollar-cost-averaging. Given how volatile this stock is, you’ll see lots of dips. Also consider how companies like Celularity or The GID Group present a competitive threat in the long term. Mesoblast makes it a point to talk about how their “strong and extensive global intellectual property portfolio with protection extending through to at least 2040 in all major markets” gives them substantial commercial advantages.” Of course, they all say that.

We’re pretty sure that Mesoblast’s IP portfolio was vetted by some experts over at Celgene – a $74 billion company – that was acquired by Bristol-Myers Squibb a year after they led a $250 million investment into Celularity. There’s a reason the biotech sector is so volatile. Even if your proposition sounds extremely compelling and you’re backed by some of the world’s best investors, you can still pull a Bind Therapeutics or an Elizabeth Holmes.

Conclusion

Prior to this whole coronavirus thing, Mesoblast described themselves as “a world leader in developing innovative allogeneic cellular medicines.” Investors in Mesoblast need to keep focused on what the company’s prospects were prior to their recent discovery. The coronavirus thesis is just an added bonus, or maybe it’s not.

In our piece on Moderna, we talked about how developing a coronavirus vaccine may detract from focusing on the core areas of their business. Investors don’t see that as much of a concern, having bid up MRNA shares +182% since that piece. It’s certainly not a concern for Mesoblast, as they already have the drug developed and simply need to manufacture more of it – at least that’s the plan.

Despite what the pundits say, FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) don't give you real exposure to AI. Read about 7 stocks that give you true pure-play exposure to AI in our guide to investing in AI healthcare companies, freely available to Nanalyze Premium subscribers.

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