MW RFK Jr. could prove a surprise boon for stem-cell stocks with pivotal year ahead

By Ciara Linnane

Maxim is expecting a breakthrough and names two stocks as beneficiaries

Stem-cell research is on the cusp of a breakthrough that could come as soon as 2025, and two biotech companies with promising therapies stand to gain, according to a new report from Maxim Group on Thursday.

Mesoblast Ltd. $(MESO)$, a Melbourne, Australia-based company that's seeking to develop cellular medicines for inflammatory diseases, and Capricor Therapeutics Inc. (CAPR), a San Diego-based biotech developing cell-based treatments for rare diseases, are in the process of applying for Food and Drug Administration approvals that could come next year, according to Maxim analysts Jason McCarthy and Michael Okunewitch.

The regenerative stem-cell-based therapy space experienced a boost in the mid-2010s that led to the emergence of a number of biotech companies eager to ride the wave, but the celebrations soon died down as companies faced regulatory setbacks as well as scientific ones, the analysts wrote.

These included the challenges of targeting large, complex and heterogeneous indications; identifying optimal endpoints; interpreting complex data sets; navigating evolving regulatory guidance; and handling manufacturing complexity, they wrote.

"We would still describe this as a period of tremendous innovation and lesson-learning at the development and regulatory levels, and the growing pains of innovation in medicine," they wrote in a note to clients.

Today, however, the regulatory environment has become more favorable in terms of how cell therapy is interpreted, which outcomes are deemed to be meaningful and which endpoints may be more informative - looking atthe totality of cell-therapy data beyond just the top line, the analysts said.

Maxim also said investors shouldn't discount the potential Robert F. Kennedy Jr. factor.

Kennedy, a former presidential candidate who is now President-elect Donald Trump's nominee to head the Department of Health and Human Services, is a fan of stem-cell research, "and he has commented that he believes the FDA is suppressing stem cells among severaltherapeutic categories," the analysts wrote.

Kennedy's comments on vaccines and fluoride - he is an opponent of most vaccines and does not believe fluoride should be added to the U.S. water supply - have significantly impacted stocks with exposures to these spaces, the analysts wrote.

For more, read: Can RFK Jr. really 'run wild' on healthcare? Investors shouldn't panic yet.

A more supportive health department could help Mesoblast and Capricor, given that it oversees agencies including the Centers for Disease Control and Prevention, the FDA, the National Institutes of Health and the Centers for Medicare and Medicaid Services.

Mesoblast has come through a turbulent period during which trials missed their goals and regulators rejected drug applications with requests for more data, but the company is now positioned for a turnaround, said the analysts.

The company has refiled a biologics license application, or BLA, for its ryoncil treatment for graft-versus-host disease in children, a complication that can occur after a stem-cell transplant when the donor's cells mistake the recipient's healthy cells for foreign ones and attack them.

The PDUFA, or prescription drug user fee act, date is Jan. 7. That's the date when the FDA is due to end its review process.

Separately, after a February meeting with the FDA, Mesoblast was granted fast-track approval for its heart-disease programs for Class IV heart failure with a confirmatory study in Class II/III.

"This is particularly interesting as the data discussed in the meeting is several years old (originally reported in 2018) and was based on a specific subgroup of ischemic heart failure patients," the analysts wrote.

Mesoblast's revascor consists of 150 million mesenchymal precursor cells, or MPCs, administered by direct injection into the heart muscle in patients with chronic heart failure and progressive loss of heart function.

Mesenchymal stem cells, or MSCs, have been an area of interest for decades and have shown efficacy in treating inflammation-driven diseases beyond heart failure, including chronic lower-back pain. There are hopes they may prove helpful in treating other inflammation-based illnesses such as ALS and Alzheimer's disease.

Maxim is expecting Mesoblast to win approval for the graft-versus-host disease treatment.

"While beneficial to Mesoblast, this would also be the first approval in the U.S. for MSCs and a key industry-wide catalyst that could help derisk the space and attract significant investment once again," the analysts said.

Capricor, meanwhile, has started a rolling BLA for its treatment for Duchenne muscular dystrophy, a rare genetic disease that primarily affects boys and causes muscle degeneration and weakness that often appears in early childhood.

The FDA outlined a path for full approval in September, based on a combination of a Phase 2 trial called HOPE-2 and an open-label extension dataset, with a continuing Phase 3 trial called HOPE-3 to support label expansion to skeletal muscle.

"This rolling BLA has started, and we believe approval could come in [the second half of 2025]. We note that cardiac outcomes were not the primary outcome of HOPE-2. We believe this outcome highlights a greater flexibility from regulators to look at the totality of the data in cell therapy," the analysts said.

Mesoblast's stock has gained 379% in the year to date, while Capricor's is up 194%, reflecting the bullish sentiment toward the companies.

The SPDR S&P Biotech exchange-traded fund XBI has gained 7% and the S&P 500 SPX has gained 27% in the same period.

See now: Wave Life Sciences' stock soars 51% after biotech posts positive data from Duchenne muscular-dystrophy trial

Related: Sarepta Therapeutics' stock soars 38% after FDA expands use of its Duchenne muscular-dystrophy drug

-Ciara Linnane

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December 12, 2024 12:08 ET (17:08 GMT)

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