Mesoblast’s second FDA rejection of drug approval means it will likely need to raise more cash

The stem cell-focused biotech has been rebuffed again by the US Food and Drug Administration, hitting its shareholder hard, including billionaire Melbourne investor Alex Waislitz.

Mesoblast chief executive Silviu Itescu. Picture: Aaron Francis

Silviu Itescu, chief executive of ASX-listed biotech Mesoblast, says the company will most likely have to raise more cash in the next year after its marquee drug was rebuffed for the second time by the US Food and Drug Administration, sending it share price spiralling to an 18-year low.

The powerful regulator has requested more information from Mesoblast – including a trial completed among adults – before its approves the company’s drug remestemcel-L for use on children suffering from a rare and deadly condition: acute graft versus host disease.

The decision has set Mesoblast back at least 12 months, with company now having to slash its cash burn rate by about 40 per cent and limit spending on its other pipeline of products, to make the $70m it has in the bank last as long as it can.

Dr Itescu estimates the company can last another year before it runs out of cash and taps the market for more capital.

But he is optimistic that Mesoblast will eventually receive FDA approval for its treatment for paediatric steroid-refractory acute graft versus host disease (SR-aGVHD) – a complication which arises from bone marrow transplants and has a high mortality rate.

“Obviously we’re disappointed but there are many positives that we take out of this. We had the FDA look very closely at our package. They inspected our manufacturing process in great detail and were very comfortable, so there were no issues with the green light on how we make the product,” Dr Itescu said.

“Secondly, we addressed the various issues around potency and improved assays and they agreed and acknowledged that our processes are much better now. We also gave them a bunch of new clinical data on children, particularly long-term survival data five years out.

“We thought that would be sufficient for approval but what the FDA appears to want is that we seek approval not just for children but also for adults. And they want us to demonstrate the survival benefit we’re getting in children is also seen in adults.”

Dr Itescu said the company would meet with FDA representatives in the next month to seek further clarification. “Our view is why would you hold back the product in children when it saves lives because you want to see it working in adults?”

“It’s a legitimate question.”

The FDA’s decision sent Mesoblast’s share price diving more than 56.9 per cent to 47c – an 18-year low.

It comes after Dr Itescu spent last summer combing through more than 100,000 pages of clinical trial data to present to the FDA and convinced long-suffering shareholders – including Melbourne billionaire Alex Waislitz – to plough an extra $US40m ($60.8m) into the company in April.

At the time, Mr Waislitz, who owns more than 4 per cent of Mesoblast – mostly via his private investment vehicle – was confident that the company’s technology could be applied to other debilitating conditions.

“If they can achieve FDA approval for their comparatively niche GVHD product this time around, then it augurs very well for the other products in their pipeline such as cardio and lower back pain treatments which would have huge global applications,” Mr Waislitz told The Australian in April.

In an attempt to finally satisfy the FDA, Mesoblast will now conduct a targeted, controlled study in the highest-risk adults with the greatest mortality. Dr Itescu said this adult study is in line with the company’s overall commercial strategy, which “envisioned a sequenced progression from paediatric to adult SR-aGVHD indications.

“Mesoblast intends to enrol adult patients at highest mortality risk with SR-aGVHD where existing therapy has not improved outcomes and 90-day survival remains as low as 20-30 per cent.

“Mesoblast has already been working with leading investigators at various US centres of excellence to establish the adult follow-on study protocol, potentially utilising established clinical trials networks. The company will seek alignment with FDA on the trial design for the adult study at a Type A meeting within 45 days.”

Dr Itescu said while there was no short-term need for cash “at some point, whether it’s from investors or from strategic partnerships, we will need to bring more cash into the company sometime next year”.

The company has been on a rollercoaster ride with US regulators. In mid 2020, the US Oncologic Drugs Advisory Committee (ODAC) voted nine to one in favour of the remestemcel-L therapy – a decision that sent Mesoblast shares soaring to a six-year high at $5.22.

But 12 months later, the FDA recommended that Mesoblast conduct at least one additional randomised, controlled study in adults and/or children to provide further evidence of the effectiveness of remestemcel-L for aGVHD, sending the company’s shares into a nosedive.

Earlier this year Mesoblast provided new phase three clinical data – the final step before regulatory approval and commercialisation – which shows that remestemcel-L remains effective at least four years after initial treatment, improving life expectancy rates. But that was not enough to satisfy the FDA.

“Prior to the resubmission, FDA guided Mesoblast to resolve outstanding chemistry, manufacturing and controls issues before initiating any additional clinical trial. FDA completed the pre-license inspection of the manufacturing facility ... and found no objectionable conditions,” Mesoblast said in a statement to the ASX.

“In addition, FDA acknowledged in the resubmission review that changes implemented appear to improve assay performance relative to the original version of the assay used in the paediatric Phase 3 trial.”

Mesoblast has been sweating on FDA approval to lift its fortunes. Overall survival rates in phase three trials showed those who were treated with remestemcel-L were 63 per cent after one year, 51 per cent at two years, and 49 per cent at four years.

Dr Itescu said this compares with survival rates for the only FDA-approved drug, ruxolitinib – which can only be used on adults – of 40-49 per cent per cent after one year of treatment and 25-38 per cent at two years.