Continued positive RA responses

Mesoblast 28 February 2017 Update

Mesoblast

Continued positive RA responses

RA trial update and FYT16

Pharma & biotech

28 February 2017

Price

A$1.66

Market cap

A$667m

US$0.76/A$

Effective cash (US$m) at 31 December 2016

55..6

Shares in issue

401.7m

Free float

66.1%

Code

MSB

Primary exchange

ASX

Secondary exchange

NASDAQ

Share price performance

%

1m

3m

12m

Abs

3.1

35.5

(5.1)

Rel (local)

3.0

30.7

(18.8)

52-week high/low

A$2.8

A$1.0

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

Futility analysis MPC-150-IM HF trial

Q117

Completion of GvHD Phase III

Mid-2017

Fully enrol MPC-06-ID back pain Phase III

2017

Analysts

John Savin PhD

+44 (0)20 3077 5735

Dennis Hulme

+61 (0)2 8249 8345

Mesoblast is a research client of Edison Investment Research Limited

Statistically significant area under the curve analysis from Mesoblast’s Phase II stem cell product in refractory rheumatoid arthritis (RA) shows that the week 12 positive responses are maintained for 39 weeks. This suggests that the indication could progress into pivotal studies and may attract potential partners. We have increased the RA probability to 35% (formerly 20%). Mesoblast has entered a nine-month exclusive negotiation with Mallinckrodt (for an A$29.6m investment) on chronic low-back pain and graft vs host disease in transplantation. We have increased our indicative value for Mesoblast to A$1.67bn (A$4.16/share) from A$1.47bn.

Year
end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/15

32.4

(96.2)

(30.0)

0.0

N/A

N/A

06/16

44.2

(87.4)

(0.2)

0.0

N/A

N/A

06/17e

5.8

(82.0)

(20.9)

0.0

N/A

N/A

06/18e

9.0

(82.1)

(20.4)

0.0

N/A

N/A

Note: *PBT and EPS (fully diluted) are normalised, excluding exceptional items and share-based payments.

Durable responses to iv MPCs in refractory RA

Updated data from the Phase II trial of MPC-300-IV in biologics-refractory RA showed that the improvements in clinical symptoms, function and disease activity seen at week 12 were largely maintained at week 39. In particular, the area under the curve (AUC) analysis of the ARC-N data showed a highly positive statistical significance. The highest dose (2m MPCs/kg) provided the greatest benefit.

Potential Mallinckrodt deal in the wings

In December 2016 Mesoblast agreed to a nine-month exclusive negotiation period for a partnership (WW ex China and Japan) with Mallinckrodt Pharmaceuticals for its Phase III chronic low-back pain (CLBP) and graft vs host disease (GvHD) programs in return for a A$29.6m (US$21.6m) equity investment. A paediatric GvHD Phase III passed an interim futility analysis in Q4 CY16 and is expected to report in H2 2017. The CLBP Phase III is on track to complete recruitment in 2017.

Heart failure interim analysis later this quarter

Over 300 patients (of 600 needed) have enrolled in the MPC-150-IM Phase III in HF patients. Mesoblast will perform a futility analysis of in Q1 2017; the study cleared two interim safety analyses in 2016. Data is possible in H1 2018.

Valuation: Increased to A$1.67bn (A$4.16/share)

We have raised the probability of success for the RA program to 35% (formerly 20%) now that responses have been shown to be sustained for at least nine months. The Mallinckrodt deal value has also boosted the GvHD value from A$120 to A$150m.This increases the valuation to A$1.67bn from A$1.47bn (A$4.16/ share from A$3.84/share). We forecast that an extra US$65m (net of FY17 forecast year end cash) will be needed to fund operations until end FY18; this could potentially come from partnering agreements or the US$90m discretionary equity facility with Kentgrove Capital. FY17 H1 results have been published.

Durable responses after iv MPC treatment in RA

Mesoblast has reported strong nine-month efficacy data from its MPC-300 Phase II trial in biologic-refractory rheumatoid arthritis (NCT01851070). There are 48 enrolled patients split into three groups of 16: placebo, an infusion of mesenchymal precursor cells (MPC) at 1m cells/kg and the final group receiving MPC at 2m cells/kg. The primary endpoint was safety at 12 weeks; this was met. All patients had failed to respond to at least one biological anti-TNF agent.

A predefined subgroup was patients who had received only one or two prior biological agents. In practise, about two-thirds of patients in each arm of the study fell into this group. The rest had tried three or more biological agents.

The secondary efficacy endpoint showed an improvement in symptoms based on American College of Rheumatology (ACR) criteria at 12 weeks after MPC at the 20%, 50% and 70% improvement levels in the number of affected joints and other symptoms. The current view of the ACR (from 2007) is that an updated version of ACR20 is the best threshold for efficacy in clinical trials. The latest RA therapy (run by Lilly) in clinical Phase III, baricitinib, used ACR20.

The Mesoblast data presentation of the new 39-week data MPC-300-IV at ACR20%, 50% and 70% is in Exhibit 1. This indicates that the treatment effects persisted with a consistent pattern of sustained improvement, although the 39 week values are not statistically significant. We hypothesise that these long-term efficacy indications are due to the single dose MPC infusion potentially immune-modulating the severe inflammatory state observed in these biologic-refractory patients. No long-term side effects were noted. The 12-month follow-up data is expected in Q317.

Exhibit 1: Percentage reaching ACR20, 50 and 70 response over 39 weeks.

Source: Mesoblast presentation February 2017. Note that the “1-2 Prior Biologics” percentages are based on smaller Intention to treat bases of 9 placebo, 10 at 1m MPC/kg and 11 at 2m MPOC/kg so the percentage change per patient is higher than in the “All” group (16 ITT) and also varies by dose. Some patients did not have all the multiple ACR endpoints assessed.

As a further test, the ACR-N mean area under the curve is shown in Exhibit 2. ACR-N is a derivative of the ACR core criteria (Pincus (2005)) but rather than being a threshold value, for example of an improvement of 20% or more as in ACR20, it provides a numerical value. ACR-N is the lowest value at any time of one of three things: either the number of swollen joints or tender joints or the median of five Core ACR factors. It is discussed by Single and Zhen (2005); Boers (2005) takes an alternative view. ACR-N is therefore flexible and can be better tracked over time including measuring the area under the curve (AUC). The FDA 2013 guidance recommends of various numerical scores to determine dose but still uses thresholds (ACR20) for efficacy.

Exhibit 2 shows the use of AUC with the week 39 data. The multiplication of the numerical gaps over a long time period increases the ability of the test to detect differences. It gave a highly significant outcome: p=0.004.

Exhibit 2: Analysis of ACR-N in all subjects

Source: Mesoblast presentation February 2017. Note: ACR-N= the lowest of one of 3 values: 1) percent change in the number of swollen joints, 2) percent change in the number of tender joints, and 3) median of 5 measures in the American College of Rheumatology core data set.

The Health Assessment Questionnaire – Disability Index (HAQ-DI results are shown in Exhibit 3. This shows that treated patients experienced a greater reduction in disability Index. This difference was sustained at 39 weeks.

Exhibit 3: Health Assessment Questionnaire – Disability Index (HAQ-DI) results

Source: Mesoblast presentation February 2017. Note: LSM = Least squares mean change from baseline from Analysis of Covariance (ANCOVA) 2; HAQ-DI range is 0 to 3 (higher is worse).

Developments in RA therapies

The oral Janus Kinase (JAK) inhibitor Xeljanz (tofacitinib, Pfizer) was approved in the US in November in 2012 and reported global sales of US$927m in 2016 (vs US$609m in 2015). It was initially rejected by the EMA but was accepted for review with additional data in March 2016. It is for methotrexate refractory patients and required a large clinical trial programme. It gave an ACR20 improvement in 59% of patients versus 35% who received methotrexate. The price is $48,000 per year in the US, although it could be half that online and non-US sourced.

A further oral JAK inhibitor is Olumiant (baricitinib, Lilly) which was recommended for approval in December 2016 by the European regulatory agency (EMA). It will be launched this year in Europe. In the US, the FDA has extended the review period after requesting additional data. The Phase III found a 55% ACR20 improvement at the 4 mg dose, a 49% gain at 2mg with placebo at 27%..

In addition, the well-established anti-TNF monoclonal agents like Remicade and Humira (adalimumab) are now either off patent or coming off patent and biosimilar products are already approved. Humira sales topped $20bn at one point. The number of biosimilars means that the RA market is likely to become very competitive and the overall market may increase if therapies become more widely used. This might expand the market for MPC therapy as more patients means that more biological refractory patients will be generated.

Results justify further development of MPC-300-IV

In our view, the data reported would support further development in a Phase IIb or one or more Phase III studies. While the design of pivotal trials will depend on the outcome of discussions with potential partners, the FDA and other regulators especially the EMA, Mesoblast’s current expectation is that the primary endpoints for a Phase III trial of MPC-300-IV in RA would be an improvement in ACR20 score at 12 weeks, in line with FDA guidance. However, any cell therapy needs a long follow-up period. Expensive, one-off cell therapies also need to show sustained response so the one-year MPC-300-IV data will be interesting.

If MPC-300-IV in larger studies can show similar or better efficacy than the existing therapies but with much lower side effects and after one dose, it could take a dominant market position despite the competitive market. JAK inhibitors, for example, have known side effects and although baricitinib may be safer than tofacitinib, as the EMA approval implies, these therapies still have side effects. MPC offer the potential to reset the immune system as shown in the 39-week data. No current therapy offers this. MPC could also be combined with other agents.

21st Century Cures Act raises possibility of accelerated approval, but large RA market a big hurdle for MPC-300-IV

The 21st Century Cures Act that became US law in December 2016 will allow the US FDA to grant accelerated approval to specific regenerative advanced medicine products and gives the FDA wide discretion in creating new approaches to regenerative medicine. The definition of regenerative advanced therapy includes “cell therapy, therapeutic tissue engineering products, human cell and tissue products…”. To qualify for this pathway the product must be aimed at a serious disease and have the potential to deal with currently unmet medical needs.

Similar to the existing accelerated approval pathway for drugs and biologics, the new pathway would allow a regenerative medicine product to be approved on the basis of surrogate or intermediate clinical trial endpoints such as imaging data or biomarkers in the blood rather than longer-term clinical outcomes. Regenerative medicine products will still need to demonstrate safety and efficacy under the accelerated approval pathway, but the level of evidence required is less stringent than required for a full approval. This is clearly an exciting opportunity for Mesoblast to advance a number of projects.

While our view is that MPC-300-IV in RA could qualify as regenerative advanced therapy if it “resets” the immune response, it is possible, and unquantifiable, that the FDA may take a cautious approach. This is because RA is a mass-market condition so generally requires a higher level of clinical evidence. Physicians will also need to have a recognised efficacy benchmarks, like ACR20. A classic improvement in ACR20 may not be regarded by the FDA as an unmet medical need even in patients who have failed one or two biologics given the new JAK inhibitors.

At this stage in our forecasts, we therefore assume that at least one traditional positive Phase III trial will be required in order to gain approval. However, faster routes to approval are possible.

Valuation

We have increased the probability of success for MPC-300-IV for rheumatoid arthritis from 20% to 35% in light of the 39-week sustained response in the Phase II trial. We have also rolled forward the DCF model by six months. This increases our rNPV for MPC-300-IV to A$184m (formerly A$99m). The breakdown of contribution to the rNPV is shown below (Exhibit 4). The fee on the GvHD deal has been added to the product valuation as a milestone. This increases the GvHD value to A$150m (from A$120m). The deal also covers disc repair but we have allocated the fee to the more advanced product. To avoid double counting, estimated FY17 cash is not used in the value.

These changes increase the overall value to A$1.67bn from A$1.47bn. The new value is equal to A$4.16 per share, formerly A$3.84. Note that product NPVs do not account for R&D costs; these are grouped together as a single line item. Year-end cash will offset FY18 funding needs.

Exhibit 4: Valuation

Product

Therapeutic area

Indication

rNPV
(A$m)

rNPV/share (A$)

Probability of success (%)

Launch (FY)

Peak sales (US$m)

MPC-150-IM

Cardiovascular

Congestive heart failure (CHF)

843.1

2.10

50%

2023

2,177

MPC-25-IC

Cardiovascular

Acute myocardial infarction (AMI)

112.3

0.28

20%

2025

1,057

MPC-06-ID

Spine disease

Intervertebral disc repair

583.8

1.45

50%

2022

1,858

MPC-25-Osteo

Spine disease

Posterior lumbar fusion

47.6

0.12

20%

2025

662

MSC-100-IV

Oncology

Acute graft versus host disease (aGvHD)

149.5

0.30

60%

2018

354

JR-031

Oncology

Acute graft versus host disease (aGvHD)

29.9

0.07

100%

2016

36

MPC-300-IV

Immunologic/
Inflammatory

Diabetic nephropathy

126.6

0.32

20%

2025

2,186

MPC-300-IV

Immunologic/
Inflammatory

Rheumatoid arthritis

183.6

0.46

35%

2023

1,350

R&D expenses

(246.9)

(0.61)

Manufacturing expenses

(87.4)

(0.22)

G&A expenses

(70.0)

(0.17)

Total

 

1,672

4.16

Basic

 

 

4.08

Diluted

Source: Edison Investment Research. Note: Diluted value per share includes 8.23m in-the-money options.

Financials

On December 31, 2016, Mesoblast had cash of US$33.9m. Effective cash was higher at US$55.6m when the US$21.7 million of equity purchased by with Mallinckrodt (agreement on 23 December 2016) is included; the cash was received on 6 January 2017. Mesoblast has cash to fund operations beyond the end of FY17 (June 2017).

Operating H1 cash outflows were US$46.4 m. down US$1.5m from H1 FY16 at US$47.9m. This includes US$11.5m spent on the MPC-150-IM Phase III for chronic heart failure. The cost of the trial was absorbed by reducing other expenses by UAS$11.5m. The majority of these savings came from fewer production runs saving US$7.2m. However, production may We estimate that an additional US$65m will be required to fund operations through to FY18 (until mid-2018). Most of this could be supplied through partnerships such as the one currently the subject of ongoing negotiations with Mallinckrodt, although the timing of any partnering agreement is uncertain. As a stand-by, Mesoblast has a US$90m discretionary equity facility with Kentgrove.

Management has indicated that it does not intend to take on debt to fund its development programmes. However, for purely illustrative purposes we follow our standard practice and add long-term debt of US$65m in FY18 in our forecasts. Equity funding would raise more cash but cause further dilution, the extent depends on the share price.

Sensitivities

Mesoblast is subject to the risks typically associated with biotech company drug development, including the possibility of unfavourable outcomes in clinical trials, regulatory changes, success of competitors and commercial decisions by partners or potential partners. With Teva’s withdrawal from the cardiovascular programme, funding of Mesoblast’s annual cash burn of ~US$80m is a significant source of uncertainty. The company has entered an equity finance facility that will provide up to A$120m (~US$90m) to fund the HF Phase III programme. This could result in further dilution of existing shareholders.

We therefore expect Mesoblast to seek non-dilutive funding from partnering deals, which could reduce the equity funding requirement. Key potential catalysts that could allow for share price inflections in the near term are:

the interim futility analysis of MPC-150-IM in HF in Q117 (this should be neutral as we assume the trial proceeds as planned); and

results from MSC-100-IV Phase III in paediatric GvHD in H2 2017. It could also lead to an FDA approval and is covered by the Mallinckrodt option so could easily lead to a quick deal.

Exhibit 5: Financial summary

US$000s

2014

2015

2016

2017e

2018e

2019e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

25,123

32,403

44,183

5,825

9,048

11,288

Cost of Sales

0

0

0

0

(1,207)

(2,382)

Gross Profit

25,123

32,403

44,183

5,825

7,841

8,906

R&D Expenses

(50,929)

(62,649)

(50,013)

(50,013)

(51,013)

(53,054)

Manufacturing & Commercialisation Expenses

(25,434)

(23,783)

(29,763)

(22,025)

(22,245)

(22,912)

SG&A Expenses

(24,403)

(29,636)

(22,500)

(17,881)

(17,820)

(18,355)

EBITDA

 

 

(83,916)

(97,977)

(86,319)

(81,292)

(80,320)

(82,377)

Operating Profit (before amort and except)

 

(83,916)

(99,001)

(88,511)

(83,594)

(82,737)

(84,914)

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

0

0

0

0

0

0

Share-based payments

0

0

(3,389)

(2,500)

(2,500)

(2,500)

Operating Profit

(83,916)

(99,001)

(91,900)

(86,094)

(85,237)

(87,414)

Net Interest

8,386

2,757

1,079

1,619

627

126

Profit Before Tax (norm)

 

 

(75,530)

(96,244)

(87,432)

(81,975)

(82,110)

(84,788)

Profit Before Tax (FRS 3)

 

 

(75,530)

(96,244)

(90,821)

(84,475)

(84,610)

(87,288)

Tax

(4)

0

86,694

0

0

0

Profit After Tax (norm)

(75,534)

(96,244)

(738)

(81,975)

(82,110)

(84,788)

Profit After Tax (FRS 3)

(75,534)

(96,244)

(4,127)

(84,475)

(84,610)

(87,288)

Average Number of Shares Outstanding (m)

319.5

320.9

360.8

391.5

401.7

401.7

EPS - normalised fully diluted (c)

 

 

(23.64)

(29.99)

(0.20)

(20.94)

(20.44)

(21.11)

EPS - normalised (c)

 

 

(22.76)

(28.88)

(0.20)

(20.29)

(19.83)

(20.47)

EPS - (IFRS) (c)

 

 

(23.64)

(29.99)

(1.14)

(21.58)

(21.06)

(21.73)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

100.0

86.7

78.9

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

Operating Margin (before GW and except) (%)

N/A

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

655,222

659,306

595,195

594,893

594,477

593,939

Intangible Assets

648,005

650,241

587,823

587,823

587,823

587,823

Tangible Assets

4,411

4,398

3,063

2,761

2,345

1,807

Investments

2,806

4,667

4,309

4,309

4,309

4,309

Current Assets

 

 

191,931

122,460

88,823

28,789

12,096

12,845

Stocks

0

0

0

0

0

0

Debtors

5,744

3,972

4,054

4,054

4,054

4,054

Cash

185,003

110,701

80,937

20,903

4,210

4,959

Other

1,184

7,787

3,832

3,832

3,832

3,832

Current Liabilities

 

 

(40,199)

(48,407)

(29,415)

(29,415)

(29,415)

(29,415)

Creditors

(34,525)

(43,246)

(27,155)

(27,155)

(27,155)

(27,155)

Deferred revenue

(5,674)

(5,161)

(2,260)

(2,260)

(2,260)

(2,260)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(268,395)

(265,372)

(126,442)

(126,442)

(191,442)

(276,442)

Long term borrowings

0

0

0

0

(65,000)

(150,000)

Deferred revenue

(37,508)

(22,505)

0

0

0

0

Other long term liabilities

(230,887)

(242,867)

(126,442)

(126,442)

(126,442)

(126,442)

Net Assets

 

 

538,559

467,987

528,161

467,826

385,716

300,928

CASH FLOW

Operating Cash Flow

 

 

(86,515)

(104,079)

(89,125)

(81,292)

(80,320)

(82,377)

Net Interest

11,609

3,043

1,129

1,619

627

126

Tax

0

0

0

0

0

0

Capex

(1,712)

(2,204)

(922)

(2,000)

(2,000)

(2,000)

Acquisitions/disposals

0

0

(805)

0

0

0

Financing

2,196

45,852

62,066

21,640

0

0

Dividends

0

0

0

0

0

0

Other

(36,490)

(2,860)

0

0

0

0

Net Cash Flow

(110,912)

(60,248)

(27,657)

(60,034)

(81,693)

(84,251)

Opening net debt/(cash)

 

 

(292,449)

(185,003)

(110,701)

(80,937)

(20,903)

60,790

HP finance leases initiated

0

0

0

0

0

0

Other

3,466

(14,054)

(2,107)

0

0

0

Closing net debt/(cash)

 

 

(185,003)

(110,701)

(80,937)

(20,903)

60,790

145,041

Source: Mesoblast accounts, Edison Investment Research. Note: Mesoblast reports in US$.

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DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Mesoblast and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Mesoblast and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

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