Second Mover Advantage: The Neuroscientific Biopharmaceutical (ASX: NSB) Story

Being first to market is a headache.

The infamous story of the $2.75 billion capped Mesoblast is a testament to that.

A 20-year rollercoaster ride defined by shareholder angst, persistence and some good trades along the way.

Over a billion dollars raised in 20 years. A 9-to-1 ODAC vote that the FDA still overrode (twice). Manufacturing challenges, partnership collapses, and nearly an entirely shareholder-funded journey from start to finish.

The next company on my Biotech 165 Challenge is also looking to develop a stem cell product…

But this time, leveraging the pathway Mesoblast forged to get to market much faster and with less regulatory risk.

The next company on my Biotech 165 Challenge:

Neuroscientific Biopharmaceuticals (ASX: NSB).

When it came time to approve the first stem cell therapy, the FDA had no prior stem cell approvals to compare it to.

No precedent. 

No manufacturing benchmark. 

No reimbursement framework. 

No playbook for evaluating a living biological product that behaves differently in patients.

At the time, the FDA was also navigating an underground market of unregulated stem cell products. 

Everything from unregulated stem cell treatments for knee pain to anti-ageing.

This created pressure for the agency to become more cautious about anything with the words "stem cells" attached.

So when the Mesoblast’s application for marketing approval was rejected, despite an expert board recommending 9-1 in favour of approval, it was a big setback.

Mesoblast had to prove that it could manufacture its stem cells reliably and consistently with the same potency every time.

Not such an easy thing with a cell-based therapy.

Also, it had to establish the reimbursement framework. 

Essentially, show insurance companies the product's value and set a price (US$194,000 per session, up to US$1.55M per patient).

This was the uphill battle Mesoblast had to fight.

But the rules are now written, and the rest of the stem cell industry benefits.

If you take Mesoblast as the one hacking through the jungle with a machete…

NSB is the one walking the trail they’ve already cut.

In April last year, NSB acquired a patented stem cell manufacturing technology called StemSmart.

Stem cells are like the Wild Card in a game of UNO.

They can become anything.

The technology (and patented manufacturing process) was developed by Dr. Marian Sturm.

A scientist who spent her career as Director of Cell & Tissue Therapies WA at Royal Perth Hospital, building StemSmart from 2007. 

(Basically, she’s a gun, with 40 years of experience in the field)

While there is a wide range of conditions that NSB could target with its stem cell therapy, it is focusing its attention and capital on one.

Crohn's Disease.

Crohn’s disease is a chronic inflammatory condition where the immune system attacks parts of the digestive tract, causing pain, diarrhea, and tissue damage.

It’s a nasty condition.

I remember last year when the NSB CEO, Nathan Smith, presented to a room full of people, eliciting a couple of (unfortunately) knowing nods as he described it.

NSB is targeting a subset of Crohn’s Disease, where people are unresponsive to current therapies, and there is a big unmet need.

When I went to lunch with the CEO of Mesoblast, Silviu Itsco, I asked him a question:

After twenty years, taking Mesoblast from a concept through to a product in the market, what advice would you give to other ASX-listed biotechs that were in your position 10 years ago?

His answer was two-fold.

First, focus. Every company has multiple potential opportunities, but only a limited amount of capital.

Second, be strategic. Think carefully about the opportunities to go after, ones that you can develop and fund without a partner.

I think that NSB is following this playbook.

Picking an indication with a large, unmet need - and with the potential for accelerated approvals.

But also, NSB has a distinct advantage that Mesoblast didn’t have at the time.

NSB is not first.

Being ‘not first’ means that you don’t take on all of the initial risks and headaches of the first company to market.

It is easier to move forward, and there is greatly reduced uncertainty in getting a product approved.

That’s the position that NSB is in.

Still, years behind Mesoblast, but with a clear pathway and playbook to get there.

NSB already has some data on its stem cell product and will look to take it through to a second Phase 2 clinical trial at the end of this year.

Here's a snapshot of where NSB sits right now:

NSB’s StemSmart technology is a stem cell product, but with a twist.

The manufacturing process means that NSB’s stem cells are “activated” making them more effective at reducing inflammation.

(At least that’s the theory)

Inflammation is the root cause of autoimmune diseases.

How stem cells work is that when the immune system attacks itself, they release a cascade of signals that essentially tell it to calm down.

Most stem cell products, including Mesoblast's Ryoncil, operate on the principle that, once injected, the inflammatory environment in the patient's body "wakes up" the cells and stimulates them to perform their anti-inflammatory work.

StemSmart does something different.

StemSmart cells are “activated” before they're stored and frozen, ready to go into the body. 

Nathan described it to me as "pissing off the cells", exposing them to a stimulus that kicks their anti-inflammatory machinery into gear before cryopreservation.

Whether this translates into superior clinical outcomes in a controlled trial remains to be proven.

But the scientific rationale is solid, and the early data is promising.

NSB's lead indication is Crohn's disease, a chronic inflammatory bowel disease affecting roughly 6 - 8 million people globally.

The global treatment market is estimated at approximately US$13.8 billion in 2026. Australia alone has around 93,700 Crohn's patients, and this country has one of the highest incidence rates in the world.

NSB isn’t going after the whole market all at once; it's targeting a subset of Crohn’s:

Fistulising Crohn's is severe. 

The gut literally tunnels through to other organs or through the skin, causing sores or ulcers.

It affects roughly 20–30% of all Crohn's patients at some point in their disease. In the US, an estimated 77,000 people have it at any given time.

The treatment options for these patients are not good. 

Antibiotics. Biologics. Steroids. More biologics. Surgery.

And then… nothing.

Until recently, there was one approved cell therapy for fistulising Crohn's.

Alofisel, approved in the EU.

In December 2024, Alofisel was voluntarily withdrawn after its confirmatory Phase 3 trial failed to replicate the original data.

The only approved cell therapy for fistulising Crohn's… finished.

No approved cell therapy in Australia. None in the US. And an enormous unmet need for patients who have already failed everything else.

NSB’s product is different to Alofisel because it uses activated (pissed-off) cells; it is also delivered intravenously, not locally via an injection, which Nathan says makes a difference.

But the data will be the ultimate arbiter of truth.

The foundational evidence for StemSmart comes from a Phase 2 study published in Clinical Gastroenterology and Hepatology in 2014. (Source) 

The trial enrolled 16 patients with biologic-refractory Crohn's disease, patients who had already failed first-line therapy. 

It was an open-label, single-arm study with no control group.

Results from the 15-patient evaluable dataset:

A small trial, with no control arm, but directionally promising.

The more recent data come from NSB's Special Access Scheme program in Fistulating Crohn’s Disease, which reports that 3 of 4 patients (75%) achieved a clinical response. 

Again, small numbers, directionally promising.

So the data stacks up (and it's human data), NSB just needs to secure more of it in a larger trial.

The company recently completed the tech transfer to Q-Gen Cell Therapeutics.

Turning a donated human stem cell into a therapy ready for use is complicated.

The contract manufacturer (in this case, Q-Gen) needs to be trained on the exact steps NSB used to obtain its “activated” stem cells.

The first manufacturing run is complete, and by the end of the year, Q-Gen will be ready to provide NSB with the stem cells needed for its Phase 2 trial.

The Phase 2 trial is targeting initiation at the end of 2026. 

Clinical risk: While the early results are promising, the Phase 2 data remain limited. Results will need to be replicated in a larger, properly designed Phase 2 study with a control group. No guarantee of success.

Manufacturing risk. Scale-up is genuinely hard. Mesoblast spent years getting its manufacturing consistent enough to satisfy the FDA.

Regulatory Risk. NSB will also need to identify an appropriate “Potency Assay” to objectively evaluate whether the therapy is consistent. This is what tripped up Mesoblast when it first applied for FDA approval.

Financing risk. NSB has $6.4 million in the bank, which will take it through to the start of its Phase 2, but it won’t be enough to cover the whole trial. 

Competition risk. Mesoblast is planning to move into inflammatory colitis. If Ryoncil succeeds in that indication, it enters the same broader space NSB is targeting.

So, Mesoblast paved the road… NSB now just has to walk it.

The prize is clear.

Just yesterday, Mesoblast announced US$30M in sales for Rynocil in the March quarter alone, and US$100M of net revenue since launch:

This represents just 20% of the market for Mesoblast in a single small indication, a single autoimmune disease target.

The stem cell opportunity is much, much larger.

Mesoblast fought the regulatory battles, established the manufacturing standards and proved the reimbursement model for stem cells.

That took 20 years and over a billion dollars.

NSB doesn't have to pay that cost.

What NSB needs to do is run a clean Phase 2 that replicates historical signals in a controlled setting. 

So what’s the bet?

NSB is able to bring its stem cell product through the clinic for Crohn’s disease, following the path that Mesoblast forged. 

With each new data point and milestone validating previous work, NSB grows one step closer to becoming Mesoblast 2.0.

A long road to get there, but it's much easier now that someone has already walked the path.

It’s always easier for the second mouse to get the cheese.

A big thank you to NSB CEO Nathan Smith for sharing the story.

See you all tomorrow, 

The Armchair Analyst

Yesterday, just as I was pressing send on the Mesoblast (ASX: MSB) article when the company released its Q1 sales numbers for Rynocil - US$30M. (MSB)

🪑 If you compare the numbers directly with the previous quarter (which was US$35M) you might think that sales were down. 

However, Mesoblast is now reporting net sales rather than gross sales. So while sales appear down, this change in reporting may be why.

I take this quarter’s results as “flat” (which makes sense due to the seasonal nature of product sales).

Today is Mesoblast’s inaugural Investor Day, which starts at 10:00 am AEST.

I’ll be watching: webinar link here.

Neuren Pharmaceuticals (ASX: NEU) launches a new oral powder formulation of its FDA-approved DAYBUE® product for the treatment of Rett syndrome, which can be dissolved in drinks. (NEU)

Vitrafy Life Sciences (ASX: VFY) completes Phase II testing by the U.S. Army on its rapid response platelet solution for trauma in the field. Final analysis due Q4 FY2026.(VFY)

🪑 Well-timed announcement as the US/Iran conflict appears to be dragging on longer than initially expected.

Imricor Medical Systems (ASX: IMR) submits its NorthStar Mapping System for FDA pediatric label expansion via the 510(k) pathway. (IMR)

Pro Medicus (ASX: PME) secures a 5-year, A$23M contract with the University of Maryland Medical System for its cloud-based imaging platform. (PME)

Radiopharm Theranostics (ASX: RAD) receives a positive recommendation from the Data Safety and Monitoring Committee to progress its Phase 1 trials targeting solid tumours to the next dose level. (RAD)

🪑 Safety tick. Time to turn up the dosage.

Lumos Diagnostics (ASX: LDX) secures a three-year contract manufacturing agreement with Micro-Pak worth US$250,000. (LDX)

🪑 LDX has this interesting side business focused on contract manufacturing. I find this a bit distracting from the overall company narrative, but still good revenue for the company.

Report: The FDA proposed an optional alternative to the traditional IND process to help sponsors enter first-in-human studies faster. (Bio Century)

Report: Cochlear (ASX: COH) takes on Washington in the new age of medical tariffs. (AFR) 

🪑 I liked this read. Trump recently announced 100% tariffs on Pharmaceutical drugs (with a bunch of carveouts) - if these tariffs are extended to PPE and medical devices, that’s not good for Cochlear.