Mesoblast — An important next several months

Mesoblast (AU: MSB)

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0.93

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Research: Healthcare

Mesoblast — An important next several months

It is going to be a busy next several months for Mesoblast. The company recently completed filing the biologics license application (BLA) for Ryoncil (remestemcel-L) with the FDA for approval for the treatment of pediatric steroid-refractory acute graft versus host disease (aGvHD). Mesoblast should be notified by the end of March whether the BLA has been accepted and whether it will have a six-month priority review or a 10-month standard review. Additionally, data from the Revascor DREAM-HF1 Phase III trial in 566 advanced heart failure patients is expected by the middle of 2020. Data from the MPC-06-ID 404-patient trial in lower back pain is also expected around the middle of the year.

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Healthcare

Mesoblast

An important next several months

Financial update

Pharma & biotech

16 March 2020

Price

A$1.62

Market cap

A$870m

US$0.66/A$

Net debt (A$m) at 31 December 2019

5.3

Shares in issue

537.1m

Free float

83.0%

Code

MSB

Primary exchange

ASX

Secondary exchange

Nasdaq

Share price performance

%

1m

3m

12m

Abs

(43.6)

(15.4)

36.1

Rel (local)

(27.3)

3.6

52.1

52-week high/low

A$3.07

A$1.20

Business description

Mesoblast is an Australia-based biotechnology company developing adult stem-cell therapies based on its proprietary MPC and MSC platforms. Its lead programs are in pediatric aGvHD, heart failure and lower back pain. Approval is expected in the US for Ryoncil for aGvHD in 2020.

Next events

Revascor Phase III data

Mid-2020

MPC-06-ID Phase III data

Mid-2020

Ryoncil FDA approval decision

H220

Analysts

Maxim Jacobs

+1 646 653 7027

Wiktoria O’Hare

+1 646 653 7028

Mesoblast is a research client of Edison Investment Research Limited

It is going to be a busy next several months for Mesoblast. The company recently completed filing the biologics license application (BLA) for Ryoncil (remestemcel-L) with the FDA for approval for the treatment of pediatric steroid-refractory acute graft versus host disease (aGvHD). Mesoblast should be notified by the end of March whether the BLA has been accepted and whether it will have a six-month priority review or a 10-month standard review. Additionally, data from the Revascor DREAM-HF1 Phase III trial in 566 advanced heart failure patients is expected by the middle of 2020. Data from the MPC-06-ID 404-patient trial in lower back pain is also expected around the middle of the year.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/18

17.0

(68.6)

(8.14)

0.0

N/A

N/A

06/19

16.0

(86.5)

(15.69)

0.0

N/A

N/A

06/20e

61.2

(37.2)

(5.49)

0.0

N/A

N/A

06/21e

48.5

(49.8)

(9.28)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Ryoncil aGvHD launch expected in 2020

Mesoblast completed its rolling BLA submission to the FDA on 31 January. Within 60 days of filing (which would be the end of March), the FDA should notify the company of its acceptance and whether it will have a six-month priority review or a 10-month standard review. We expect that it will receive a priority review due to the innovative nature of the therapy and the positive safety and efficacy data in an indication with unmet need.

Revascor Phase III in heart failure readout mid-2020

The company announced that the required accrual of primary endpoint events in its DREAM HF-1 Phase III trial in 566 advanced heart failure patients has occurred. The primary endpoint is a reduction in recurrent heart failure-related major adverse cardiac events such as heart-failure related hospitalization and cardiac death. Also, a protocol for a Phase III in LVAD patients has been agreed upon between Mesoblast and InCHOIR, in line with FDA guidance.

MPC-06-ID Phase III data mid-2020

The 404-patient Phase III in lower back pain has completed recruitment and final study visits have been initiated. Data is expected by the middle of the year. A confirmatory Phase III is currently being planned with partner Grϋnenthal in Europe.

Valuation: A$4.2bn or A$7.89 per share

We have slightly adjusted our valuation to A$4.2bn or A$7.89 per share (A$7.51 per diluted share) from A$4.2bn or A$7.91 per share (A$7.53 per diluted share), mainly due to lower net cash. A number of key valuation inflection points are coming up for the company in the next 12 months including a potential FDA approval and data from two Phase III trials in large indications.

Fiscal Q2 update

Mesoblast reported revenues of US$2.2m for the second quarter of FY20 (the period ending 31 December 2019), US$2.0m of which was related to royalties on Temcell sales in Japan (up 62% year over year). For the first half of the fiscal year, total revenues were US$19.2m (up 43% compared to fiscal H119), due to a US$15m upfront payment that was part of the Grϋnenthal licensing agreement for MPC-06-ID. The operating cash burn rate was US$16.9m for fiscal H120.

The company is awaiting a response from the FDA regarding its BLA application for Ryoncil for steroid-refractory aGvHD, which we expect by the end of March. At that point we will learn both whether the application was accepted for review and the expected length of the review. The company is seeking a six-month priority review and we expect it to receive it due to the innovative nature of the therapy and the positive safety and efficacy data in an indication with unmet need. A six-month review would mean the PDUFA date would be around the end of September this year.

Additionally, the company announced positive outcomes from an investigator trial of remestemcel-L (the same product as Ryoncil; the Ryoncil name will only be used for aGvHD) in chronic graft versus host disease (cGvHD) patients. All three patients (two children and one adult) had clinically meaningful outcomes within 28 days after just two infusions. This compares favorably to Imbruvica (from Johnson & Johnson and AbbVie), which needs to be taken orally on a daily basis and had a median time to response of 12.3 weeks in the pivotal trial. Mesoblast is now planning a pivotal trial of remestemcel-L in cGvHD. For reference, cGvHD has around 14,000 patients in the United States, with the average annual cost estimated to be US$291,357 per patient.1

  Bachier et al. Epidemiology and Real-World Treatment of Chronic Graft-Versus-Host Disease Post Allogeneic Hematopoietic Cell Transplantation: A US Claims Analysis. Blood (2019) 134 (Supplement_1): 2109.

Importantly, in March the company announced its intention to develop remestemcel-L for the treatment of acute respiratory distress syndrome (ARDS) due to coronavirus (COVID-19). In one study of 191 coronavirus patients in Wuhan, China, 31% had ARDS, including 93% of patients who would eventually not survive the infection.2 With regards to efficacy, there are two particular studies that are encouraging. First, in an investigator sponsored trial in China in seven coronavirus patients (five of which were severe cases), treatment with allogeneic mesenchymal stem cell therapy (which is what remestemcel-L is) resulted in significantly improved pulmonary function in all seven patients within two days of treatment.3 Additionally, in a post-hoc analysis of a trial of remestemcel-L in chronic obstructive pulmonary disease (COPD), remestemcel-L significantly reduced inflammatory biomarkers and improved pulmonary function in those patients with elevated inflammatory biomarkers. The company is currently in discussions with various governmental, medical and pharmaceutical organizations on the best way to proceed with development.

  Zhou et al., Clinical course and risk factors for mortality of adult inpatients with COVID-19 in Wuhan, China: a retrospective cohort study. Lancet. www.thelancet.com/pb-assets/Lancet/pdfs/S014067362305663.pdf

  Leng Z, et al. Transplantation of ACE2- Mesenchymal Stem Cells Improves the Outcome of Patients with COVID-19 Pneumonia. Aging and Disease. Volume 11, Number 2; 216-228, April 2020

For Revascor, the necessary number of primary endpoint events has occurred in the DREAM HF-1 Phase III trial in 566 advanced heart failure patients and final study visits have been initiated. Study data is expected in mid-CY20. The primary endpoint is a reduction in recurrent heart failure-related major adverse cardiac events such as heart-failure related hospitalization and cardiac death. With regards to the use of Revascor to treat end-stage heart failure patients with a left ventricular assist device (LVAD), Mesoblast and the International Center for Health Outcomes and Innovation Research (InCHOIR) have agreed on a protocol for a confirmatory Phase III trial, which incorporates FDA guidance.

The MPC-06-ID Phase III trial is also on track to provide data by the middle of this year. It enrolled 404 patients with chronic low back pain due to degenerative disc disease and had a composite primary endpoint that included measures of pain and disability/function at 12 and 24 months. As with the DREAM HF-1 trial, final study visits have been initiated. Two Phase III trials will likely be necessary for approval in this indication and a confirmatory European Phase III is currently being planned with partner Grϋnenthal.

Valuation

We have slightly adjusted our valuation to A$4.2bn or A$7.89 per share (A$7.51 per diluted share) from A$4.2bn or A$7.91 per share (A$7.53 per diluted share), mainly due to lower net cash. A number of key valuation inflection points are coming up for the company in the next 12 months including a potential FDA approval and data from two Phase III trials in large indications.

Exhibit 1: Valuation of Mesoblast

Product

Indication

Probability of success (%)

Launch
(FY)

Peak sales (US$m)

rNPV
(A$m)

Active projects

Ryoncil (remestemcel-L)

Acute graft versus host disease (GvHD)

Range 50–80%

2020

574

1,200.6

Revascor (MPC-150-IM)

Congestive heart failure (CHF) (includes use with LVAD)

50%

2023

3,208

1,926.1

MPC-06-ID

Intervertebral disc repair

50%

2022

3,302

1,634.0

On-hold projects

MPC-300-IV

Diabetic nephropathy

5.0%

On hold

2,186

49.1

MPC-300-IV

Rheumatoid arthritis

5.0%

On hold

1,350

27.9

MPC-25-IC

Acute myocardial infarction (AMI)

5.0%

On hold

1,057

43.5

MPC-25-Osteo

Lumber fusion

5.0%

On hold

662

18.4

Total value

4,899.7

R&D expenses

(307.6)

Manufacturing expenses

(70.1)

G&A expenses

(122.9)

Net cash/(debt) (at 31 December 2019)

(5.3)

Non-dilutive funding interest and repayments

(153.9)

Total (A$)

 

 

 

4,240

Shares (m)

 

 

 

537.12

Value per share (A$)

7.89

Options outstanding (2019 onwards) (m)

27.17

Fully diluted shares in issue (m)

564.29

Fully diluted value per share (A$)

 

 

7.51

Source: Edison Investment Research

Financials

For the period ending 31 December 2019, Mesoblast reported cash and equivalents of US$81.3m with US$18.9m in current borrowings and an additional US$66.0m in long-term borrowings. We continue to forecast no additional financing requirement for FY20 and US$50m in FY21, which we record as illustrative debt.

Exhibit 2: Financial summary

US$000s

2018

2019

2020e

2021e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

 

16,975

16,003

61,244

48,510

Cost of Sales

0

0

0

0

Gross Profit

16,975

16,003

61,244

48,510

R&D Expenses

(62,289)

(57,531)

(50,000)

(50,000)

Manufacturing & Commercialisation Expenses

(4,040)

(14,466)

(12,000)

(10,500)

SG&A Expenses

(18,165)

(18,293)

(15,920)

(18,745)

EBITDA

 

 

 

(66,207)

(75,373)

(23,849)

(37,751)

Operating Profit (before amort. and except.)

 

 

 

(67,116)

(75,935)

(24,099)

(38,001)

Intangible Amortisation

(1,741)

(1,577)

(1,750)

(1,750)

Exceptionals

10,541

(6,264)

(1,152)

0

Share-based payments

(6,198)

(4,368)

(5,330)

(5,330)

Operating Profit

(64,514)

(88,145)

(32,330)

(45,081)

Net Interest

(1,463)

(10,609)

(13,124)

(11,829)

Profit Before Tax (norm)

 

 

 

(68,579)

(86,544)

(37,223)

(49,830)

Profit Before Tax (FRS 3)

 

 

 

(65,977)

(98,754)

(45,454)

(56,910)

Tax

30,687

8,955

7,728

0

Profit After Tax (norm)

(37,892)

(77,589)

(29,495)

(49,830)

Profit After Tax (FRS 3)

(35,290)

(89,799)

(37,726)

(56,910)

Average Number of Shares Outstanding (m)

465.7

494.4

537.1

537.1

EPS - normalised fully diluted (c)

 

 

 

(8.14)

(15.69)

(5.49)

(9.28)

EPS - normalised (c)

 

 

 

(8.14)

(15.69)

(5.49)

(9.28)

EPS - (IFRS) (c)

 

 

 

(7.58)

(18.16)

(7.02)

(10.60)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

100.0

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

 

591,372

589,593

596,930

597,542

Intangible Assets

584,606

583,126

582,338

582,588

Tangible Assets

1,084

826

1,554

1,916

Investments

5,682

5,641

13,038

13,038

Current Assets

 

 

 

101,071

62,522

87,979

87,444

Stocks

0

0

0

0

Debtors

50,366

4,060

3,091

3,091

Cash

37,763

50,426

76,020

75,485

Other

12,942

8,036

8,868

8,868

Current Liabilities

 

 

 

(24,003)

(44,331)

(80,949)

(80,949)

Creditors

(18,921)

(13,060)

(19,241)

(19,241)

Deferred revenue

(5,082)

(17,264)

(42,780)

(42,780)

Short term borrowings

0

(14,007)

(18,928)

(18,928)

Long Term Liabilities

 

 

 

(122,432)

(126,732)

(112,476)

(143,548)

Long term borrowings

(59,397)

(67,279)

(65,996)

(97,068)

Deferred revenue

0

0

0

0

Other long term liabilities

(63,035)

(59,453)

(46,480)

(46,480)

Net Assets

 

 

 

546,008

481,052

491,484

460,489

CASH FLOW

Operating Cash Flow

 

 

 

(74,563)

(54,572)

(8,937)

(19,681)

Net Interest

(449)

(3,217)

(12,952)

(11,390)

Tax

0

0

0

0

Capex

(201)

(279)

(612)

(612)

Acquisitions/disposals

(952)

0

0

0

Financing

40,566

30,258

51,053

0

Dividends

0

0

0

0

Other

(31,742)

21,203

0

0

Net Cash Flow

(67,341)

(6,608)

28,553

(31,684)

Opening net debt/(cash)

 

 

 

(45,761)

21,634

30,860

8,904

Loan movements

0

0

0

0

Other

(54)

(2,619)

(6,597)

77

Closing net debt/(cash)

 

 

 

21,634

30,860

8,904

40,511

Source: company reports, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Mesoblast and prepared and issued by Edison, in consideration of a fee payable by Mesoblast. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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General disclaimer and copyright

This report has been commissioned by Mesoblast and prepared and issued by Edison, in consideration of a fee payable by Mesoblast. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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BioPorto Diagnostics reported sales of DKK26.6m for 2019, driven in the largest part by sales of The NGAL test for research purposes (DKK11.6m). The company reported 9% growth in NGAL Test sales year-on-year for the US (DKK4.9m) and 9% growth as a whole, representing increasing interest in the technology. The company remains on track to submit a De Novo 510(k) application for the paediatric NGAL Test in mid-2020.

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