I wasn’t planning to post another stem cell article so soon after my quick peak into the neural stem cell space, but when I saw that Mesoblast ($MSB.AX), an Aussie-based stem cell company, had a market cap of A$2.4B, or $2.5B US, I was intrigued…well, more like shocked. Their current valuation puts them in the same league as $AMLN, $CBST, $IPN.PA, $ONXX, $MRX, and $MYGN (and others), companies with pretty meaningful revenues, as well as with other development stage companies, such as $INCY and $SGEN, which have novel development candidates with strong data sets and established partners in their targeted (oncology) space. So, where/how does $MSB.AX fit?

Well, to jump straight to the point, I call uncle. I can’t seem to figure out what justifies their $2.5B valuation. In the six years between their IPO (December 2004) and December 2010, they had generally traded between A$0.50 and A$2.50 per share as an orthopedic-focused regenerative medicine company. Over the past 6-months, they closed their acquisition of Angioblast (they were already 32.8% owners prior) in Dec10, adding a cardiovascular franchise, and also became strategic partners with $CEPH (now being acquired by $TEVA), which is not generally recognized for their expertise in the cardiovascular or orthopedics space. While partnerships can drive value, I don’t see how this in itself can explain $MSB.AX share appreciation to A$8.42/share. Just look at $INFI and how they have fared with their Purdue relationship.

Can data since the alliance explain this? What did we learn that we did not know before? On Jan 10, 2011, they announced interim 6-mo data from a controlled 60-pt P2 trial in CHF patients (15 patients with NYHA Class II to IV and EV <40% per cohort x 4 cohorts, 3 doses vs control) receiving standard of care plus a single infusion of active or control. This is from their Jan 10, 2011 press release:

There have been no cell-related adverse events in any of the 45 patients treated with Revascor™, demonstrating that all three doses of the cell therapy product are safe over both the short and medium term.

Analyses of time-dependent hard efficacy endpoints showed that a single injection of Revascor™ significantly reduced the number of patients who developed any severe adverse cardiac events over the follow-up period from 93.3% in the control group to 44.4% in the treated patients (p=0.001). Revascor™ also significantly reduced the number of patients who developed any major adverse cardiac events (MACE, defined as the composite of cardiac death, heart attack, or coronary revascularization procedures) from 40% to 6.7% (p=0.005). A single injection of Revascor™ reduced the overall monthly event rate of a MACE by 84% compared with controls (p=0.01), and every dose tested demonstrated a similar protective effect. Death from cardiac causes was reduced from 13.3% to 0% over this period (p=0.059) and the overall monthly rate of cardiac-related hospitalizations was reduced by 48% (p=0.07).

OK, their stem cells look safe…just like everyone else…with some positive efficacy signals, just like everyone else…alright for a small sample size, some of their data does look better than what I have seen/remember from their competitors. What I am unsure about is how the FDA will view stem cell therapeutics in CHF patients – will all cause mortality be needed or will improvement in cardiac function or reduction in adverse events be sufficient for approval? Final 1-yr data should be presented early July, so we’ll get another look shortly.

It can also be noted that investor reaction to the news was light, with a presentation at the JP Morgan Healthcare conference* on the 12th dominating trading activity. Sorry, still need to work on formatting tables here.

Date                                                  Volume                          Price

Yahoo! Finance

Was that it? Might as well be. We also got a subset analysis data earlier this month from 22-pts (out of the original 60 CHF-patients) who had reduced myocardial blood flow (can’t tell if this was a pre-specified endpoint). This is from their June 6, 2011 press release:

In a subset analysis of the ongoing 60-patient United States trial of Revascor™ for congestive heart failure, 22 patients were found to have reduced myocardial blood flow at baseline by SPECT perfusion scan, indicating the presence of ischemic heart muscle. Of these, 17 were randomized to receive treatment with Revascor™ while 5 were randomized as controls. Six months after treatment with a single injection of Revascor™ there was significant improvement in blood flow to the ischemic heart muscle, with 51% reduction in myocardial ischemia (p=0.01). In contrast, no change in blood flow to the ischemic heart muscle was seen at six months in the controls.

These improvements in blood flow and in myocardial ischemia in patients treated with Revascor™ were accompanied by a 75% reduction in the risk of Major Adverse Cardiac Events (MACE) over a mean follow-up period of 21 months compared with controls with myocardial ischemia and no change in blood flow. MACE are defined as a clinical composite of death due to cardiac causes, non-fatal heart attacks, or revascularization episodes.

Once again, there could be potential, but we are talking about even smaller sample sizes and do not have access to detailed data (e.g., we do not know how patients were distributed by NHYA Class and have to assume that their was an even distribution). So, in my book, the data does not help explain the valuation.

Are there expectations driven by their peer group? Here are some of their peers in the mesenchymal stem cell space:

There are others, including the privately held, Aldagen. They had raised about $60M from their venture backers back when they first attempted an IPO in 2008, which was subsequently withdrawn. In July 2010, they refiled to raise $80M on the second attempt, and withdrew again in April 2011.

Each company does have a different special sauce for their stem cells, and are looking to target different patient populations and indications, though there is some overlap. Broadly speaking, there are no easy apples-to-apples comparisons. But, if we just look at them in the aggregate, not one of them comes close to $MSB.AX’s current valuation.

So, here I am.  I don’t get it.  Give me some miso-soup…that I get.

No position in $MSB.AX, but looking forward to see what happens to share price, when Angioblast lock-up expires in December. Haven’t looked, but what is the short interest here?