Funding to deliver key data in 2017

Mesoblast 5 April 2017 Update
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Mesoblast

Funding to deliver key data in 2017

Cash raised

Pharma & biotech

5 April 2017

Price

A$2.46

Market cap

A$1053m

US$0.76/A$

Cash (US$m) at 31 December 2016

33.9

Shares in issue

427.95m

Free float

66.1%

Code

MSB

Primary exchange

ASX

Secondary exchange

NASDAQ

Share price performance

%

1m

3m

12m

Abs

39.4

63.5

(2.8)

Rel (local)

36.5

60.5

(16.4)

52-week high/low

A$2.6

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

Q217

Top-line data GvHD Phase III

Q417

Fully enrol MPC-06-ID back pain Phase III

H217

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

Mesoblast has raised US$40m (gross) through a placement of 26.25m shares at A$2.00/share. The cash enables continued funding of the key MPC-150-IM Phase III heart failure (HF) study where an interim futility analysis is underway. We expect Q4 data from the Phase III in paediatric graft vs host disease (GvHD); Mallinckrodt has an option on partnering GvHD. Other projects can also be funded. Also in H2, top-line data from the NIH-funded Phase IIb study in end-stage HF with an LVAD may be reported. The indicative value has been increased to A$1.72bn from A$1.67bn to reflect reduced potential FY18 cash needs. The indicative value per share drops to A$4.02 from A$4.16 due to the increased dilution.

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)

(20.6)

0.0

N/A

N/A

06/18e

9.0

(81.0)

(18.9)

0.0

N/A

N/A

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

GvHD and back pain covered by Mallinckrodt option

Mallinckrodt Pharmaceuticals has an exclusive negotiation period, which runs until September, covering Mesoblast’s Phase III chronic low back pain (CLBP) and GvHD programmes. A paediatric GvHD Phase III is expected to complete enrolment in mid-2017 and read out top-line data in Q417. The CLBP Phase III is on track to complete recruitment in H217. Mesoblast recently reported that improvements in pain and function after a single intra-disc injection of 6m MPCs in Phase II were maintained for at least 36 months in 84% of responders.

HF interim analysis underway, end-stage HF data Q4

The MPC-150-IM Phase III in HF patients is running well, with the funds raised being used to support the programme. An interim futility analysis on the first 270 patients (of 600 needed) is currently underway. A 150-patient Phase IIb (using Mesoblast MPC, but run and funded by NIH) in end-stage HF patients (with an LVAD pump) is expected to complete enrolment in H117. The NIH may report top-line data in H217. Positive results could potentially lead to an application for accelerated approval under the 21st Century Cures Act. This would have positive implications for Mesoblast’s ongoing MPC-150-IM Phase III in moderate HF.

Financials: Cash runway to end of calendar year

The indicative value has been adjusted to A$1.72bn (A$4.02/share) from A$1.67bn to reflect reduced potential FY18 cash needs. The US$60m in cash raised so far in 2017 comprises US$21.7m from Mallinckrodt received in January and US$40m gross in the placement; we estimate US$59.6m net in total. This adds to the balance of c US$34m as at 31 December 2016. We now estimate a 30 June 2017 cash balance of US$59m with an unchanged cash flow/earnings forecast, formerly US$21m. We forecast a reduced extra cash need of US$25m (formerly US$65m) to fund operations until end FY18; this cash could potentially come from partnering agreements or the US$90m discretionary equity facility with Kentgrove Capital.

Exhibit 1: Financial summary

US$'000s

2015

2016

2017e

2018e

2019e

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

32,403

44,183

5,825

9,048

11,288

Cost of Sales

0

0

0

(1,207)

(2,382)

Gross Profit

32,403

44,183

5,825

7,841

8,906

R&D Expenses

(62,649)

(50,013)

(50,013)

(51,013)

(53,054)

Manufacturing & Commercialisation Expenses

(23,783)

(29,763)

(22,025)

(22,245)

(22,912)

SG&A Expenses

(29,636)

(22,500)

(17,881)

(17,820)

(18,355)

EBITDA

 

 

(97,977)

(86,319)

(81,292)

(80,320)

(82,377)

Operating Profit (before amort and except)

 

(99,001)

(88,511)

(83,594)

(82,737)

(84,914)

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Share-based payments

0

(3,389)

(2,500)

(2,500)

(2,500)

Operating Profit

(99,001)

(91,900)

(86,094)

(85,237)

(87,414)

Net Interest

2,757

1,079

1,619

1,767

101

Profit Before Tax (norm)

 

 

(96,244)

(87,432)

(81,975)

(80,970)

(84,814)

Profit Before Tax (FRS 3)

 

 

(96,244)

(90,821)

(84,475)

(83,470)

(87,314)

Tax

0

86,694

0

0

0

Profit After Tax (norm)

(96,244)

(738)

(81,975)

(80,970)

(84,814)

Profit After Tax (FRS 3)

(96,244)

(4,127)

(84,475)

(83,470)

(87,314)

Average Number of Shares Outstanding (m)

320.9

360.8

398.2

428.0

428.0

EPS - normalised fully diluted (c)

 

 

(29.99)

(0.20)

(20.59)

(18.92)

(19.82)

EPS - normalised (c)

 

 

(29.99)

(0.20)

(20.59)

(18.92)

(19.82)

EPS - (IFRS) (c)

 

 

(29.99)

(1.14)

(21.22)

(19.50)

(20.40)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

86.7

78.9

EBITDA Margin (%)

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

BALANCE SHEET

Fixed Assets

 

 

659,306

595,195

594,893

594,477

593,939

Intangible Assets

650,241

587,823

587,823

587,823

587,823

Tangible Assets

4,398

3,063

2,761

2,345

1,807

Investments

4,667

4,309

4,309

4,309

4,309

Current Assets

 

 

122,460

88,823

66,789

11,236

51,960

Stocks

0

0

0

0

0

Debtors

3,972

4,054

4,054

4,054

4,054

Cash

110,701

80,937

58,903

3,350

44,074

Other

7,787

3,832

3,832

3,832

3,832

Current Liabilities

 

 

(48,407)

(29,415)

(29,415)

(29,415)

(29,415)

Creditors

(43,246)

(27,155)

(27,155)

(27,155)

(27,155)

Deferred revenue

(5,161)

(2,260)

(2,260)

(2,260)

(2,260)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(265,372)

(126,442)

(126,442)

(151,442)

(276,442)

Long term borrowings

0

0

0

(25,000)

(150,000)

Deferred revenue

(22,505)

0

0

0

0

Other long term liabilities

(242,867)

(126,442)

(126,442)

(126,442)

(126,442)

Net Assets

 

 

467,987

528,161

505,826

424,856

340,042

CASH FLOW

Operating Cash Flow

 

 

(104,079)

(89,125)

(81,292)

(80,320)

(82,377)

Net Interest

3,043

1,129

1,619

1,767

101

Tax

0

0

0

0

0

Capex

(2,204)

(922)

(2,000)

(2,000)

(2,000)

Acquisitions/disposals

0

(805)

0

0

0

Financing

45,852

62,066

59,640

0

0

Dividends

0

0

0

0

0

Other

(2,860)

0

0

0

0

Net Cash Flow

(60,248)

(27,657)

(22,034)

(80,553)

(84,276)

Opening net debt/(cash)

 

 

(185,003)

(110,701)

(80,937)

(58,903)

21,650

HP finance leases initiated

0

0

0

0

0

Other

(14,054)

(2,107)

0

0

0

Closing net debt/(cash)

 

 

(110,701)

(80,937)

(58,903)

21,650

105,926

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

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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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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