Mesoblast Back In Charge Of Heart Failure Stem Cell Therapy Product: Not Good News?

| About: Mesoblast (MESO)

Summary

Teva gives back partnered heart failure program in Phase 3 trials to Mesoblast.

Mesoblast reacquires full global ownership of the program with no financial consideration to Teva.

Mesoblast’s cash position is precarious but it claims it has organised financing to complete the trial; this is a big deal.

Last week, Logribel Biostocks wrote an article suggesting that now might be the time to invest in stem cell biotechs. His detailed analysis indicated that, while the history of stem cell therapy has been long and tortuous, now might be an inflection point, as there seems to be several late stage trials with promising results.

One of the companies mentioned was Mesoblast (NASDAQ:MESO), which has been in an extended trading halt since June 1. Today, it came out of the trading halt and was traded on the ASX. I assume it will trade on the NASDAQ today.

Mesoblast's Phase 3 trial for its Mesenchymal Precursor Cell (MPC) advanced chronic heart failure product was given prominence in last week's article. The product, MPC-150-IM, was partnered with Teva (NYSE:TEVA) who conducted the trial. Today, Teva gave the product back to Mesoblast with no strings attached. Teva has had its own problems with asset sales of ~$2 billion under consideration, but it seems unlikely that they would just give away a product in advanced Phase 3 trials that has $billion sales potential unless they had misgivings.

It takes chutzpah to make a virtue of a challenge, but that is what Mesoblast CEO Silviu Itescu has done ("We are delighted to regain full control of this very valuable asset in our portfolio... ") in the face of major partner Teva pulling the plug on Mesoblast's heart failure stem cell treatment MPC-150-IM that is in Phase 3 trials.

It is true that the Independent Data Monitoring Committee recommended continuation of the once 1,165 patient (now 600 patient) Phase 3 trial after clinical data review of the first 175 patients. But the Phase 3 trial is not yet 40% enrolled and completion of enrollment is said to require a further 18 months.

Mesoblast's cash position is becoming critical. With $US22 million burn in Q3 and cash reserves of $US100 million, needing to take over a major Phase 3 trial is no doubt a big headache. It has been cutting its cash outflow but the reported savings won't get them there. They need more cash, especially as they assume the costs for finishing the Phase 3 trial.

In the announcement, reference was made to an equity finance facility to complete the trial, but no details were given. The source and amount of cash needed to complete the trial is likely to be of intense interest. In what could be interpreted as a diversion, Mesoblast pointed out that potential early revenue might be available in Japan, but no details were given about the cost or timing of such a program.

Overall, my take on the announcement that Teva is relinquishing all rights to the heart failure program is that it raises a lot of questions. These go to both clinical and financial aspects of the heart failure program. Answers are needed before a clear path forward can be confidently laid out.

Mesoblast has several other advanced programs for its MPC products, notably MPC-06-ID for chronic low back pain (360 patient Phase 3 trial), MPC-300-IV for biologic-refractory rheumatoid arthritis (encouraging results in Phase 2 trial) and TEMCELL for acute Graft Versus Host Disease in Japan.

Conclusion

If you are a fan of stem cell therapy and have been looking for an enticing investment opportunity, Mesoblast's [ASX: MSB] 42% fall in today's trading on the ASX no doubt foreshadows a bloodbath (opportunity?) when trading opens today in the US. Mesoblast is one of the companies that Logribel Biostocks indicated to be of interest in his detailed recent article.

For me, I'd hold off for a bit, as I'm skeptical that Teva would let go of an asset that they could see a future for. It is true that the FDA has allowed Mesoblast to reduce the number of subjects from 1,165 to 600 in the Phase 3 heart failure trial, but they are still less than 40% enrolled and it will take a further 18 months to be fully enrolled. I'd wait to see how the Phase 3 trial proceeds and what they do about cash. But then again, if these things get resolved, the share price won't be where it is likely to be tomorrow.

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.