Patients who develop graft versus host disease after a bone marrow transplant face a high risk of death if steroids do not work for them. And there are no approved therapies to treat the disease in the U.S.

But a new therapy being developed by Australia's Mesoblast Ltd, called MSC-100-IV, looks to control the disease with a special type of stem cell. Primary results from a late-stage clinical trial of the treatment have shown that it can boost survival odds in children.

The treatment is already approved in Japan and is expected to hit the U.S. market in mid-2019, Mesoblast CEO Silviu Itescu told S&P Global Market Intelligence.

Graft versus host disease, or GVHD, is a potentially life-threatening condition seen in patients who undergo allogeneic transplants that involve injecting healthy bone marrow cells collected from another individual into the patient's body to replace damaged or diseased bone marrow cells.

GVHD occurs as the donor's immune cells see the patient's body as foreign and attack it.

"It's very aggressive, and if you don't respond to steroids, and 50% [of transplant patients] do not, then your likelihood of being dead is as high as 70% by day 100, and as high as 90% to 95% by 12 months," Itescu said.

Approximately 30,000 allogeneic bone marrow transplants are performed every year globally, Mesoblast said, citing data from the Center for International Blood and Marrow Transplant Research. And about half of these patients develop GVHD — 20% of them being children.

In the U.S., 12,000 to 13,000 bone marrow transplants are performed every year, Itescu said.

MSC-100-IV uses a special type of stem cell, called the mesenchymal lineage stem cell, which helps to heal damaged tissues and regulate immune responses, the Australian Securities Exchange-listed company said.

"It is the only cell type that has the ability to switch off GVHD," said Itescu.

The therapy yielded positive results, with about 69% of the children showing a response to MSC-100-IV by the 28th day, compared to a response rate of about 45% from other treatments.

Unlike other treatments, MSC-100-IV can work on different types of immune responses triggered by GVHD, Itescu said. "You can get the same outcomes by having five or more drugs at the same time, but only our cells act like a factory of biologic agents that can switch off all of these pathways [immune responses]," he said.

Analysts had a favorable outlook on the company's stem cell programs — it has two other late-stage therapies for treating heart failure and back pain.

Mesoblast's stem cell platform has the potential to treat an array of diseases with significant unmet needs and could achieve royalties of up to $6 billion from these therapies, Cantor Fitzgerald Analyst Elemer Piros, who rated the stock "overweight," said in a Feb. 21 note.

The GVHD study's successful outcome "makes the likelihood of the overall survival data from the trial due next quarter almost bound to be positive," Bell Potter Securities Analyst Tanushree Jain said in a note, retaining a "buy" rating on the stock.

Exploring partnerships for 2019 U.S. launch

Already under the U.S. Food and Drug Administration's fast-track designation, Itescu anticipates MSC-100-IV to gain approval by mid-2019.

"I think the initial launch in the U.S. for treating children will be relatively easy" because there are fewer patients in that group and sales efforts will be manageable, Itescu said.

However, Mesoblast may explore partnership options for its late-stage products, particularly when it expands the therapy to treat adults.

"I think growth into the adult population will require more effort across the U.S. and we are in discussion with a number of pharmaceutical companies that have a focus and capability in this space," he said.

"If in the first instance we partner [for] one of our other larger opportunities such as heart failure or back pain, that might give us sufficient financial strength to launch GVHD on our own," Itescu added.

MSC-100-IV was approved in Japan for both children and adults with GVHD in 2015 and remains one of only three regenerative medicines approved in the country so far. It is marketed by JCR Pharmaceuticals Co., Ltd. as Temcell HS.

Outside of these two markets, Mesoblast sees China as its next major growth sector, Itescu said.

"We're very much focused on China as a growth potential for us. China has made it clear that they are looking to harmonize with the U.S. FDA, particularly in cell therapy," he said.

"By virtue of the fact that we are so advanced with three phase 3 assets in the U.S. under the FDA, we would like to leverage our phase 3 data in the U.S. with the China FDA," the CEO added.