When doctors, researchers, and politicians discuss the trajectory of the coronavirus pandemic, the most hopeful scenarios include the development of successful treatments and vaccines that make the disease burden more manageable and ultimately squash it for good. Hundreds of drug compounds are being studied as potential treatments, although encouraging results -- or any results at all -- have been rare.
In mid-June, researchers in Britain announced the results of a 5,000-patient study concluding dexamethasone, a low-cost and widely available steroid, reduced deaths of patients on ventilators by about 33%. It became the first drug shown to be effective in reducing COVID-19 deaths in severe cases.
Mesoblast (NASDAQ:MESO) is hoping to deliver the world another effective option, albeit one involving cell therapy, before the end of 2020. Wall Street doesn't seem terribly optimistic about the Australian biopharma's experimental therapy, but there are solid reasons to think the chance of success isn't being properly priced into shares of the small-cap stock.
What does Mesoblast do?
Mesoblast is developing cellular therapies to treat inflammatory diseases. The lead drug candidate, remestemcel-L, comprises mesenchymal stem cells (MSC), which moderate cellular communication as it relates to the immune system. The immunomodulatory effects of naturally occurring MSCs tame runaway immune responses and initiate tissue repair.
Reducing pro-inflammatory immune responses and repairing lung tissues is exactly what's needed to treat severe cases of COVID-19, especially those with acute respiratory distress syndrome (ARDS) that require ventilator support. That's why Mesoblast and other stem cell companies have begun studying their cell therapies in COVID-19-associated ARDS.
The sticking point for Wall Street is simple: Stem cells have a relatively poor track record of success. On the one hand, it's a little more complicated than that. The term "stem cells" applies to half a dozen different cell types, each with unique production methods and mechanisms of action. On the other hand, there's no denying stem cells have benefited from rampant technological hype over the years, whereas patients generally haven't benefited from stem cells.
Nonetheless, drilling into some of the finer details suggests the Australian stem cell company has a greater-than-zero chance of delivering a historic public health victory.
Could this cell therapy actually work?
In April, Mesoblast announced promising results from a very small study involving 12 individuals with COVID-19-associated ARDS. The study was conducted at a single hospital in New York City under an emergency use authorization granted by the U.S. Food and Drug Administration. That means it wasn't a clinical trial and didn't have a placebo control. But the results stood out.
Mesoblast reported that 10 of the 12 patients survived, while 9 were successfully removed from ventilators at a median time of 10 days. Considering that an observational study of 2,600 individuals with severe COVID-19 treated at New York City hospitals found 88% died, the tiny study is encouraging.
The cell therapy developer used the results to design a 300-patient, placebo-controlled study now being conducted at sites across North America. The phase 2/3 clinical trial will randomize ventilator-dependent patients with COVID-19-associated ARDS to receive either two doses of remestemcel-L or placebo on top of maximal care. The primary endpoint is all-cause mortality within 30 days.
Enrollment began in May, which suggests investors can expect interim results in the next four to eight weeks. Despite the approaching milestone, Mesoblast sports a market valuation of only $1.3 billion, which reflects Wall Street's consensus opinion of low odds for a successful outcome. But remestemcel-L might just live up to the hype.
Individual investors can consider two additional, independent data points that suggest a successful outcome might not be as crazy as it seems.
First, an unrelated cell therapy derived from heart cells generated strikingly similar results to Mesoblast's 12-patient study. The heart cell therapy was administered under an emergency use authorization to six patients with COVID-19-associated ARDS at the Cedars-Sinai Medical Center in Los Angeles. All six patients survived, and four were discharged from the hospital within three weeks. By comparison, 6 of 34 individuals at a similar stage of hospitalization died at the hospital during that time. Both the heart cell therapy and remestemcel-L work by suppressing the same pro-inflammatory responses that drive severe COVID-19 cases.
Second, results from a separate study involving remestemcel-L might inject confidence into investors. In a phase 2 trial in chronic obstructive pulmonary disease (COPD), patients who received the experimental cell therapy achieved statistically significant improvements in all endpoints. Those with the highest level of C-reactive protein (CRP), a pro-inflammatory molecule, achieved the greatest improvement, including walking 180 feet further in a six-minute walk test than patients who received placebo.
The findings suggest the efficacy of MSCs might depend on the severity of a patient's pro-inflammatory response. In other words, the fact that stem cells have demonstrated limited success in treating heart attack and stroke patients might have little bearing on the chances of success in COVID-19. In fact, multiple studies across the globe have correlated levels of CRP to COVID-19 severity.
Wall Street might be wrong, but this is far from a slam dunk
Considering Mesoblast's market cap of only $1.3 billion, Wall Street doesn't seem to be adequately pricing in the chances of a successful outcome for remestemcel-L in COVID-19-associated ARDS. But that doesn't make the stock a slam dunk.
For starters, Mesoblast only has data from a 12-patient study that lacked a placebo control. It would be a bit premature to jump from those results to heralding remestemcel-L as the treatment that's going to end the global pandemic. The ongoing phase 2/3 trial could confirm the results from the earlier study, but it could also expose a few things investors might be overlooking.
For example, although the results from the 12-patient study were seemingly excellent, they could be explained by external factors. The emergency use authorization was overseen by a single site: Mount Sinai Hospital in New York City. The hospital could have received or administered the experimental treatment to patients with fewer high-risk comorbidities or to patients who were younger, which would have positively affected survival rates.
There's also the question of cost. Now that the world knows dexamethasone can reduce risk of death in individuals with COVID-19-associated ARDS by 33%, a novel cell therapy such as remestemcel-L would have to significantly improve upon those results to be an attractive option. It's a little more complicated than that, of course, as reducing the time spent in intensive care or in the hospital would be valuable for the healthcare system. But let's say Mesoblast reports a 40% reduction in risk of death from the 300-patient study. Would that be enough to justify the cost compared to dexamethasone?
Investors might also want to consider the company's general inexperience. Although Mesoblast appears to be on the right track with increasing revenue and graduating more assets from its pipeline, the company simply has no experience manufacturing a high-volume product. It's also transitioning manufacturing processes to more scalable methods, which is an engineering feat bound to encounter setbacks and bottlenecks.
There are a lot of moving parts to an investment in Mesoblast right now. While the mostly unproven stem cell developer is accompanied by a high degree of risk -- and investors shouldn't get greedy -- there's a greater-than-zero chance the company will end the summer with as much name recognition as Gilead Sciences and Moderna.