CHF Phase III clears interim safety analysis

Mesoblast 11 May 2016 Update

Mesoblast

CHF Phase III clears interim safety analysis

Q3 FY16 results and clinical update

Pharma & biotech

11 May 2016

Price

A$2.00

Market cap

A$763m

A$1.4/U$

Net cash 31 March 2016 (US$m)

100.0

Shares in issue

380.1m

Free float

66.1%

Code

MSB

Primary exchange

ASX

Secondary exchange (ADR)

NASDAQ

Share price performance

%

1m

3m

12m

Abs

(20.3)

66.7

(45.9)

Rel (local)

(25.7)

48.9

(43.6)

52-week high/low

A$4.15

A$1.17

Business description

Mesoblast is developing adult stem-cell therapies based on its proprietary MPC and culture-expanded MSC platforms. It has multiple late-stage clinical trials across four areas: immunologic/inflammatory (Phase III), spine disease (Phase III), cardiovascular (Phase III) and cancer (Phase III).

Next events

Joint CHF program timeline update with Teva

Q216

Interim analysis of US paediatric GvHD Phase III

Q316

Full rheumatoid arthritis trial results

Q316

Analysts

Dennis Hulme

+61 (0)2 9258 1161

Lala Gregorek

+44 (0)20 3681 2527

Mesoblast is a research client of Edison Investment Research Limited

In its Q3 FY16 results presentation Mesoblast revealed the Phase III trial of Revascor in CHF cleared its first interim safety analysis; but, following FDA advice, no information was released on surrogate measures of efficacy. Mesoblast and Teva will update the market on timelines for the CHF Phase III programme later this quarter, while RA and GvHD data are expected next quarter. Mesoblast maintained a reduced cash burn of US$22m in Q3, giving it a cash runway to end FY17 on our estimates. Our valuation is unchanged at A$7.36 per share ahead of the CHF programme update.

Year end

Revenue
(US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/14

25.1

(75.5)

(23.6)

0.0

N/A

N/A

06/15

32.4

(94.9)

(29.6)

0.0

N/A

N/A

06/16e

22.0

(76.6)

(21.6)

0.0

N/A

N/A

06/17e

23.4

(77.8)

(20.5)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments. The company has changed reporting currency to US dollars.

CHF Phase III clears interim safety hurdle

The data monitoring committee (DMC) reviewed the clinical data on the first 175 patients in the Phase III CHF trial and recommended that the study continue unchanged. Management confirmed that while the DMC had access to surrogate efficacy measures such as diastolic and systolic volume, analysis of these measures was not shared with Mesoblast or partner Teva, in line with FDA guidance. The company had previously raised expectations that information on surrogate efficacy measures could be disclosed at this time.

Timelines for CHF Phase III to be updated this quarter

Mesoblast and Teva will update timelines this quarter for: the interim futility analysis and completion date of the current Phase III CHF trial; for FDA and EMA regulatory submissions; and for the completion of the overall CHF program, including a confirmatory trial. Teva has a contractual right to review its participation at this time, but in our view it would not make sense for Teva to withdraw when it does not have any indication whether the Phase III trial is likely to replicate the impressive reductions in HF-MACE seen in Phase II. Sites in Europe will be initiated this quarter to accelerate recruitment which stands at ~250 of the targeted 600 patients.

Temcell earns first royalties in Japan

Mesoblast booked its first royalty income after licensee JCR Pharmaceuticals launched Temcell for acute graft vs host disease in Japan during the quarter. Temcell is reimbursed at US$130-195k and Mesoblast earns a royalty of 20% plus.

Valuation: Unchanged at A$2.8bn (A$7.36/share)

Cash outflow of US$22.0m in Q3FY16 was in line with the foreshadowed 25% cost reduction. Cash of US$100m on 31 March will fund operations to end FY17 and allow delivery of potential value inflection points including GvHD Phase III results (Q416), back pain phase III interim analysis (Q416) and full RA trial results (Q316).

Exhibit 1: Financial summary

US$000s

2014

2015

2016e

2017e

30-June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

25,123

32,403

21,963

23,350

Cost of Sales

0

0

0

0

Gross Profit

25,123

32,403

21,963

23,350

R&D Expenses

(50,929)

(62,649)

(51,999)

(53,559)

SG&A Expenses

(24,403)

(29,636)

(23,709)

(24,420)

EBITDA

 

 

(83,916)

(99,001)

(81,028)

(80,412)

Operating Profit (before amort and except)

 

 

(83,916)

(99,001)

(81,028)

(80,412)

Intangible Amortisation

0

0

0

0

Exceptionals

0

0

0

0

Share-based payments

0

0

0

0

Operating Profit

(83,916)

(99,001)

(81,028)

(80,412)

Net Interest

8,386

4,070

4,428

2,635

Profit Before Tax (norm)

 

 

(75,530)

(94,931)

(76,600)

(77,777)

Profit Before Tax (FRS 3)

 

 

(75,530)

(94,931)

(76,600)

(77,777)

Tax

(4)

0

0

0

Profit After Tax (norm)

(75,534)

(94,931)

(76,600)

(77,777)

Profit After Tax (FRS 3)

(75,534)

(94,931)

(76,600)

(77,777)

Average Number of Shares Outstanding (m)

319.5

320.9

355.4

380.1

EPS - normalised (c)

 

 

(23.64)

(29.59)

(21.55)

(20.46)

EPS - normalised fully diluted (c)

 

 

(22.76)

(28.48)

(20.82)

(19.82)

EPS - (IFRS) (c)

 

 

(23.64)

(29.59)

(21.55)

(20.46)

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

 

 

655,222

659,306

660,306

661,306

Intangible Assets

648,005

650,241

650,241

650,241

Tangible Assets

4,411

4,398

5,398

6,398

Investments

2,806

4,667

4,667

4,667

Current Assets

 

 

191,931

122,460

103,618

24,841

Stocks

0

0

0

0

Debtors

5,744

3,972

8,000

8,000

Cash

185,003

110,701

87,831

9,054

Other

1,184

7,787

7,787

7,787

Current Liabilities

 

 

(40,199)

(48,407)

(40,342)

(40,342)

Creditors

(19,521)

(28,242)

(23,500)

(23,500)

Deferred revenue

(15,004)

(15,004)

(15,004)

(15,004)

Other

(5,674)

(5,161)

(1,838)

(1,838)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(268,395)

(265,372)

(259,387)

(257,537)

Deferred revenue

(37,508)

(22,505)

(18,500)

(16,650)

Other long term liabilities

(230,887)

(242,867)

(240,887)

(240,887)

Net Assets

 

 

538,559

467,987

464,195

388,268

CASH FLOW

Operating Cash Flow

 

 

(86,515)

(104,079)

(89,798)

(80,412)

Net Interest

11,609

3,043

4,428

2,635

Tax

0

0

0

0

Capex

(1,712)

(2,204)

(1,000)

(1,000)

Acquisitions/disposals

0

0

0

0

Financing

2,196

45,852

63,500

0

Dividends

0

0

0

0

Other

(36,490)

(2,860)

0

0

Net Cash Flow

(110,912)

(60,248)

(22,870)

(78,777)

Opening net debt/(cash)

 

 

(292,449)

(185,003)

(110,701)

(87,831)

HP finance leases initiated

0

0

0

0

Other

3,466

(14,054)

0

0

Closing net debt/(cash)

 

 

(185,003)

(110,701)

(87,831)

(9,054)

Source: Edison Investment Research, company accounts

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Frankfurt +49 (0)69 78 8076 960

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60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

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