Mesoblast (NASDAQ:MESO) is an Australian company at the forefront of regenerative therapies with its lead product Remestemcel-L already approved for use in pediatric graft versus host disease (GVHD) in Japan marketed as TEMCELL by its partner JCR Pharmaceuticals (TYO:4552).

Mesoblast has commercial rights outside Japan for Remestemcel-L after its acquisition from Osiris Therapeutics (NASDAQ:OSIR) following the failure of its trial in patients with adult GVHD. Subsequent royalties are now payable to Smith & Nephew (OTCPK:SNNUF). The FDA has set a prescription Drug User Fee Act action date of September 30, 2020, for Remestemcel-L in pediatric graft versus host disease.

Production of Remestemcel-L is via its CDMO, Lonza's (OTCPK:LZAGF) [SWX:LONN] Singaporean plant, and Mesoblast has recently completed a 90-million-dollar capital raising to scale up manufacturing for Remestemcel-L in COVID-19 acute respiratory distress syndrome (ARDS) in the USA following positive results in early trials with 83% survival in 12 patients with moderate to severe ARDS compared to approximately 80% mortality with the current standard of care.

Figure 1. Mesoblast overview

Post the capital raising, its market capitalisation is approximately 1.5 billion and only marginally higher than before the downturn in the market in March. Mesoblast has also completed phase 3 trials of mesenchymal stem cells (MSCs) in advanced heart failure and chronic lower back pain that are due to readout in mid 2020 but are outside the scope of discussion for this article.

Figure 2. Mesoblast therapeutic pipeline

Over the years, there has been much hype surrounding the promise of cellular medicine, but approved therapies have been few and far between, and the panacea like claims for stem cell therapies have been akin to the snake-oil salesman of old.

The novelty of the treatments has also led to difficulties in understanding their mechanism of action and more importantly potential complications. Despite being "normal" cells of the body, there can be severe adverse reactions as shown by three patients with age related macular degeneration being blinded following the injection of adipose derived stem cells.

Recently however the immunomodulatory capability of MSCs has come into focus following the report of a case series in China where seven patients with COVID-19 pneumonia showed improvement after treatment with MSCs.

Interpretation of results in open-label trials however are fraught with danger and details of the patients released in their journal article suggest that the cohort of patients selected for the trial were not expected to have a high mortality. Importantly only one patient was categorised as having "critically severe" COVID-19 pneumonia and even this patient did not require intubation and was able to maintain oxygenation with 10 L/min of oxygen via mask.

It is unclear if these patients would have improved without MSC treatment, but despite this, the authors suggested "MSCs could cure or significantly improve the functional outcomes of seven patients without observed adverse effects. The pulmonary function and symptoms of these seven patients were significantly improved in two days after MSC transplantation."

A proposed mechanism of action was that "MSC therapy can inhibit the overactivation of the immune system and promote endogenous repair by improving the microenvironment. After entering the human body through intravenous infusion, part of the MSCs accumulate in the lung, which could improve the pulmonary microenvironment, protect alveolar epithelial cells, prevent pulmonary fibrosis and improve lung function."

It is also important to note that a significant proportion of mortality with COVID-19 is related to systemic processes namely the cytokine storm related to COVID-19 ARDS and the hypercoagulability seen with COVID-19. Anticoagulation has been associated with decreased mortality in patients with COVID-19 associated coagulopathy so immunomodulation might also help with mortality associated with COVID-19 related ARDS.

Figure 3. COVID-19 related ARDS

There is currently no approved therapy for the treatment of ARDS, but the leader in the cellular therapy field to date in this indication is Athersys (NASDAQ:ATHX). It has previously completed a phase 1-2 trial in 30 patients with ARDS using its multipotent adult progenitor cells "MultiStem" and showed positive trends in treated patients including:

Within the prospectively defined group of patients with more severe ARDS, MultiStem treatment was associated with a markedly greater rate of survival and progression to functional independence at one year (i.e., self-care).

As measured at day-28, MultiStem treatment was associated with a higher mean ventilator-free day (VFD) score of 12.9 vs. 9.2 in the placebo group, and a higher mean intensive care unit (ICU)-free day score of 10.3 vs. 8.1 in the placebo group.

As measured at day-28, among more severe ARDS patients, mean VFD in the MultiStem subgroup was 14.6 vs. 8.0 in placebo subgroup. Mean ICU-free days were 11.4 vs. 5.9 for MultiStem and placebo recipients, respectively.

Lower inflammatory cytokine levels at day-7 in the MultiStem group relative to the placebo group, including IFNg, IL-6 and IL-1b among others, suggest the potential for MultiStem treatment to abate the severe inflammatory response associated with ARDS.

Athersys is also progressing its MultiStem treatment for use in COVID-19 ARDS, but currently only has one trial site recruiting and will lag significantly behind Mesoblast in terms of its timeline to completion of its trial and in terms of experience for scaling to commercial production quantities for its stem cell therapy.

In the case of success of Remestemcel-L, it would also have difficulty in recruiting further patients into its trial as Remestemcel-L would become the standard of care in this cohort rather than placebo. If Remestemcel-L were to fail, it would still likely be able to recruit patients as its product is differentiated from Remestemcel-L.

Timelines for clinical trials in the age of coronavirus have been compressed remarkably and Mesoblast has quickly progressed to recruitment for its Phase 2-3 trial despite only announcing that it was testing Remestemcel-L in COVID-19 patients two months ago. The trial is being performed with the support of the NIH following initial promising results from its open label trial at Mt Sinai Hospital which has helped to bring trial sites online rapidly with 12 sites already currently recruiting.

Unlike previous trials, Remestemcel-L has been used in COVID-19 patients with an extremely high expected mortality as they are intubated with moderate to severe ARDS. The reported mortality rates with standard of care for this cohort of patients are upwards of 80% and somewhat remarkedly Mesoblast has instead reported 83% (10/12) survival following treatment with Remestemcel-L in its open label trial. This is a key differentiator as mortality is a hard end point that is far less prone to bias.

Mortality rates with standard of care for COVID-19 ARDS will likely be lower than this 80-90% figure quoted by Mesoblast for patients enrolled in the clinical trial as completely moribund patients are unlikely to be recruited but the control mortality rate will likely still be high.

Influenza-related ARDS mortality rates in the order of 40% but reported mortality rates with ARDS vary widely depending on the severity of ARDS and the clinical background of patients, so we will have to wait for the readout of the trial results to determine what the background mortality rates truly are.

Pleasingly improvements in the inflammatory markers associated with cytokine storm were also seen; they are also not markers that are easily prone to bias, and it is an area Mesoblast has vast experience with, given the multiple trials it has performed with Remestemcel-L in GVHD.

For comparison of the efficacy required for approval, Remdesivir developed by Gilead (NASDAQ:GILD) was approved despite some questionable results. There was a trend towards harm in the Chinese Remdesivir trial which recruited 237 patients, as 28-day mortality was higher at 15% with Remdesivir vs. 13% with placebo. This was different to the results seen in the American trial for Remdesivir which recruited 1,063 patients and showed an 8.0% mortality rate in the Remdesivir group vs. 11.6% in placebo, P = 0.059 after which the trial was halted and Remdesivir subsequently approved for usage.

The patients in Mesoblast's trial are much further down the clinical spectrum than those that have been recruited into the previous Remdesivir trials which gives reassurance that mortality will be closer to the 80-90% mark suggested by Mesoblast as a comparator group than the 17% mortality seen with Remestemcel-L treatment in its open label trial.

This higher mortality rates that are likely to be seen in this trial will also lead to mortality events accruing much more rapidly and possibly to an early readout of the trial. Its first interim analysis by the Data Safety Monitoring Board is due when 30% of patients have reached their primary endpoint of 30-day mortality which could conceivably be reached by July.

If survival rates mimic the 83% seen when Remestemcel-L was used as an open label therapeutic and placebo mortality rates are indeed in the region of 80%, there would likely be a statistically and clinically significant difference between the groups seen in the interim analysis.

Even if Remestemcel-L did not hit the mortality endpoint, it could still be approved as a therapeutic as there is currently no agent available for this cohort of patients. The key secondary endpoint would be the ventilator-free days which is also the primary endpoint for the Athersys trial.

Ventilator-free days is an important endpoint as it is a roadblock for ICU capacity as patients can linger on ventilators for weeks which is associated with significant morbidity and cost. If Remestemcel-L were to decrease the length of stay in ICU, this would lead to a sizeable increase in the capacity to treat patients with COVID-19 ARDS.

The prospects for production of commercial quantities of Remestemcel-L is another area that Mesoblast has an advantage over its competitors. It has a large amount of safety and production quality control data garnered from the previous trials completed by itself and Osiris. It can also lean on the experience from the past four years of its commercial use of Remestemcel-L in Japan for pediatric GVHD.

Production processes had already been under analysis by the FDA as part of a Biologics Licensing Application for Remestemcel-L in pediatric GVHD which undoubtedly was of benefit for Mesoblast in the rapidity of its pivot to testing Remestemcel-L in COVID-19 ARDS. This is also likely why it was also able to obtain NIH funding and co-ordination for its clinical trial in 30 leading hospitals around the USA despite only having been dosed in 12 patients with COVID-19 ARDS.

The longstanding relationship with Lonza, its CDMO, will also allow for rapid expansion of production if Remestemcel-L proves to be of benefit. Towards this end Mesoblast has already taken steps towards the creation of additional production capacity for Remestemcel-L in the USA following its recent capital raising. Production capacity already exists in Singapore which could also be scaled up in the event of success. Indicative gross margins are in the order of 60% and an increase to approximately 80% with the use of 3D bioreactors in this billion-dollar opportunity.

Figure 4. Lonza contract manufacturing facility utilised by Mesoblast

This is not by any means a systematic review of the literature behind the use of mesenchymal stem cells in COVID-19 ARDS, but the take-home points are:

A significant proportion of mortality associated with COVID-19 is due to the cytokine storm associated with ARDS and modulation of this dysfunctional process may lead to decreased mortality.

Remestemcel-L has proven an effective immunomodulator in pediatric graft versus host disease and has been commercialised in Japan for this indication.

Remestemcel-L has failed in previous clinical trials for adult graft versus host disease mainly driven by skin related graft versus host disease which led to its acquisition by Mesoblast from Osiris Therapeutics.

83% survival was seen in an open label trial of patients with COVID-19 ARDS with Remestemcel-L treatment compared to an expected mortality rate in the order of 80%.

Recruitment has commenced at 12 sites for Remestemcel-L with the support of the NIH with 30 sites and 300 patients planned for recruitment.

Data safety monitoring board review will occur when 30% of patients have reached their primary endpoint of 30-day mortality which could lead to early read out of the trial in the case of success

Remestemcel-L has been dosed in more patients than any competing cell treatments for COVID without any significant safety issues to date.

Multiple other value inflection points are expected in the next few months with readouts of phase 3 trial results for advanced heart failure, chronic lower back pain and decision on FDA approval for Remestemcel-L in pediatric graft versus host disease.

Disclosure: I am/we are long MESO. 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: Recruitment Commenced For NIH Supported Phase 2/3 Trial Of Remestemcel-L In COVID-19 Acute Respiratory Distress Syndrome - Seeking Alpha

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