EQUITY RESEARCH INDUSTRY UPDATE April 7, 2020 Biotechnology Stem Cell Therapy Could Bring COVID-19 Patients Companies mentioned: Back from the Brink – Maxim Group to Host Virtual ID Conference on May 5 CAPR Buy Target Price: $4.00 Summary Closing Price: $1.10 Market Cap (M): 9.8 • With COVID-19 cases continuing to surge in the US, with well over 360K cases Avg. Daily Volume: 783.1 and 10K+ deaths, much focus has been on the need for more testing, vaccines, MESO Buy and therapeutics. The latter is the focus of this report as a new potential Target Price: $16.00 treatment option is emerging, and its not an antiviral – it's stem cells. Closing Price: $6.16 Market Cap (M): 661.9 While antivirals will be a necessary component to fighting COVID-19, therapies Avg. Daily Volume: 188.8 • that modulate the severe immune response that is driving mortality are also PSTI Buy needed, creating a significant opportunity for the cell therapy space. Target Price: $8.00 Closing Price: $3.36 • Our view has been that the cell therapy space other than T-cell therapies like Market Cap (M): 60.0 CAR-T, remains undervalued and is poised for inflection as pivotal data and Avg. Daily Volume: 308.9 potential approvals near. That said, the emerging opportunity in COVID-19 brings with it the potential not only to extend cell therapies to COVID-19, but also for several of the key players in cell therapy to be viewed on a global stage. Here, we review the cell therapy opportunity in COVID-19, including covered names Mesoblast (MESO - Buy), (Pluristem (PSTI - Buy), and Capricor (CAPR - Buy). • Maxim Group Virtual Infectious Disease (ID) Conference to be held on Tuesday, May 5, 2020. While the world is focused on COVID-19, don't forget the world has been fighting another pandemic; bacterial and fungal drug resistance. Please join us for an online event on 5/5. Click HERE to RSVP. Details Cell therapy – the opportunity. Cell therapy-focused companies, in particular those in regenerative medicine, have demonstrated that stem cells can modulate/restore immune homeostasis, including acute respiratory distress syndrome (ARDS), a severe inflammation of the lungs similar to what happens to COVID-19 patients (rapid decline to pneumonia, severe lung inflammation). COVID-19 aside, cell therapies in general have been moving through later stages of development, including potential approvals. Yet, while biotech companies in the T-cell space, like those focused on CAR-T for example, have experienced soaring valuations, pure play stem cell Biotechnology companies, even with programs in more advanced stages of development have lagged. Why? The reasons may be multifactorial, or perhaps as we have published previously, these types of cell therapies, which are targeting indications like heart failure ALS, or critical limb ischemia (to name a few), lack the 'sizzle' of a CAR-T therapy or a gene therapy. Nonetheless, groups like Mesoblast, Pluristem, and Brainstorm (BCLI - BUY) are heading to pivotal data in 2020 in heart failure, CLI, and ALS, respectively. BioCardia's (BCDA - Buy) P3 in heart failure is coming in 2021, as is Athersys' (ATHX - NR) stroke data for MultiStem. Capricor has compelling data in Duchenne Muscular Dystrophy (DMD), and Mesoblast has a PDUFA for 9/30 for its cell therapy Ryoncil (remestemcel-L) for GvHD. COVID-19 could bring stem cells to a global stage. While each of the aforementioned stem cell therapies are different, there is some commonality between them and that is the ability to mitigate hyper-inflammatory responses. This Jason McCarthy, Ph.D. is the case for both autologous and allogeneic cell therapies, though for a pandemic- (212) 895-3556 sized indication like COVID-19, allogeneic may be more ideal given the inherent ability of doses to be mass produced ('cells in a bottle'). In this report, we profile [email protected] several companies in the allogeneic cell therapy space targeting COVID-19 including Anthony Vendetti Mesoblast, Pluristem, Capricor, Athersys, and Celularity (private), the latter having (212) 895-3802 the first stem cell IND cleared by the FDA for a COVID-19 trial on 4/2. This was [email protected] followed by Mesoblast on 4/6 while Pluristem has already dosed patients in Israel. SEE PAGES 7 - 10 FOR IMPORTANT DISCLOSURES AND DISCLAIMERS Biotechnology COVID-19. In early January, the World Health Organization (WHO) reported the emergence of a novel coronavirus, SARS-CoV-2, in Wuhan, China. Infection results in a respiratory disease, COVID-19, that quickly leads to pneumonia-like symptoms. Immunocompromised and elderly patients, as well those with other co-morbidities such as high blood pressure or pre-existing respiratory disease, are especially susceptible to COVID-19-associated acute respiratory distress syndrome (ARDS). What makes COVID-19 especially dangerous is the extent and ease with which it is transmitted. Both SARS and COVID-19 are caused by viruses that utilize a glycosylated spike (S) protein. The binding of the S protein to a receptor protein known as angiotensin-converting enzyme 2 (ACE2) mediates host cell invasion. A key difference between SARS virus SARS-CoV and SARS-CoV-2 is that in the latter, the S protein displays an affinity for ACE2 that is 10-20 times higher than that of the corresponding S protein in the SARS virus, possibly explaining the higher rate of transmission observed so far.1 COVID-19 update. Total infections have surpassed 1.36M so far, resulting in 76k deaths worldwide (4/6 update). Though it is still difficult to evaluate the characteristics of the disease, according to the WHO, the mortality rate is ~3.4% as of 3/4/20. Recent estimates have arrived at lower figures, but overall data collection and testing has lagged to say the least. Though initially most prevalent in Hubei Province, China, the US, Spain, and Italy are now the most affected countries with 368k, 140k, and 132k cases, respectively. Italy has been hit the hardest in terms of morality with 16.5k deaths. The issue in Italy is that hospitals have become largely overwhelmed by the number of patients requiring ventilation and ICU-care from conditions such as cytokine storm, sepsis, and acute respiratory distress syndrome. Sadly, doctors are required to make difficult triage decisions to ration resources, in particular ventilators. In the US, New York is the epicenter, with 135k cases, and hospitals are reporting a spike in ICU visits and are nearing capacity as emergency measures continue to be implemented to expand the capacity and meet rising demand. The situation in Italy served as an alarm for other countries, leading many to take drastic measures, including Canada and many Latin American countries closing their borders. Exhibit 1. COVID-19 Global Distribution as of April 6, 2020. Source: Johns Hopkins University COVID-19 Tracker, LINK) Exhibit 2. Cytokine release syndrome (CRS) and acute respiratory distress syndrome (ARDS), the real killer in COVID-19. In COVID-19, the respiratory symptoms are the real killers. In patients with severe cases, there is often a hyperactive immune response in the lungs leading to cytokine storm and runaway inflammation, which damages the lung tissue. This inflammation leads to acute respiratory distress syndrome, which is the leading cause of death in COVID-19. More than 40% of patients hospitalized for severe or critical COVID-19 developed ARDS and ~50% of those patients died from the disease.2 Unfortunately, there are no approved treatments for ARDS, only supportive care such as mechanical ventilation. 1 Tang, B.; Bragazzi, N. L.; Li, Q. An updated estimation of the risk of transmission of the novel coronavirus (2019-nCov). Infect Dis Model 2020, 5, 248−255. 2 https://www.health.com/condition/infectious-diseases/coronavirus/what-is-ards Maxim Group LLC 2 Biotechnology Source: Athersys Corporate Presentation Tackling COVID-19. Addressing COVID-19 is likely to require three components: vaccines, therapies, and testing. Vaccines are important to prevent new patients from getting the disease and avoid recurrent outbreaks. Therapies are going to be necessary to reduce the course of the disease and ease the burden on the health systems. Testing, in particular rapid and point-of-care testing, is needed to fully understand the extent of the virus and adequately address cases. While this is not to be considered a comp to influenza and is by no means just another “flu”, we can use influenza as the model…Rapid test via nose/throat swab in the doctor office with results in minutes, treat with oseltamivir (“Tamiflu”) or other antiviral option, and get the annual flu vaccine. This is exactly what the world needs for COVID-19 and lack of any one of these three components, combined with the aforementioned drivers of the ongoing pandemic, is what is so alarming. Ventilators are in focus for New York’s COVID-19 response. New York City is currently the epicenter of the US COVID outbreak with more than 130k cases in the city alone and 14k+ hospitalizations. Thus far, need for ventilators has not exceeded capacity, but supplies are short. On Sunday 4/5, Mayor DeBlasio reported that the city had only 135 available ventilators, and that 1k more are needed immediately as the disease approaches its apex. By the time that the outbreak is over, estimates suggest that an additionally 15k ventilators will be required. Additionally, even with the USNS Comfort Navy hospital ship and the conversion of the Javits Center to the country’s largest hospital with 2,500 beds, NYC hospitals are approaching capacity. While preventing further infection and increasing the supply of hospital beds and ventilators is necessary to address the capacity constraint, there is also another approach in the use of therapies, which could reduce the time on ventilators and in the hospital, which could also alleviate the burden.