Teva returns rights to cardiovascular programme

Mesoblast 8 July 2016 Outlook

Mesoblast

Teva returns rights to cardiovascular programme

Strategic update

Pharma & biotech

8 July 2016

Price

A$1.11

Market cap

A$422m

US$0.74=A$1.00

Net cash (US$m) at end June 2016

c 80

Shares in issue

380.1m

Free float

66.1%

Code

MSB

Primary exchange

ASX

Secondary exchange

NASDAQ

Share price performance

%

1m

3m

12m

Abs

(42.4)

(55.8)

(72.3)

Rel (local)

(41.0)

(58.0)

(71.0)

52-week high/low

A$4.00

A$1.00

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

Full Phase II RA data

Q316

Interim results aGVHD Phase III

Q316

Full results aGVHD Phase III

Q416

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

Teva has relinquished all rights to cardiovascular applications of Mesoblast’s mesenchymal precursor cell (MPC) technology, as it focuses on its core CNS and respiratory interests. Mesoblast will seek a new partner with a cardiovascular focus at the appropriate time. It has entered an A$120m (~US$90m) equity finance facility with Kentgrove Capital to fund the ongoing Phase III CHF trial and a 600-patient confirmatory trial (estimated cost ~US$90m), and has brought forward the interim futility analysis to Q117. We have revised our development timelines and lower our valuation to A$1.8bn from A$2.8bn (A$4.67 from A$7.36 per share).

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

44.1

(53.5)

(13.8)

0.0

N/A

N/A

06/17e

7.1

(78.8)

(20.7)

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.

Near-term costs but future opportunities

Management confirmed that neither Mesoblast nor Teva saw efficacy data following the recent positive interim safety review of the Phase III CHF trial, so we attribute Teva’s withdrawal to a commitment to tightening its focus as it prepares to integrate its Allergan Generics acquisition, rather than knowledge of the likely trial outcome.

Cash burn to be cut to extend funding runway

Mesoblast plans to lower cash burn through cost reductions and prioritisation of its R&D programme and believes its end-June cash balance of ~US$80m will fund operations for 12-15 months. We assume the CHF Phase III programme will cost ~US$22m/year for four years (guidance is for funding the CHF Phase III until Q117 to cost US$13m). Given that cash burn averaged US$21m per quarter over the past three quarters, achieving the targeted burn while funding the CHF trial will require significant changes to timelines – we defer forecast product launch dates by up to six years, including four years for the lead CHF programme.

Interim futility analysis brought forward

The interim futility analysis of the CHF Phase III has been brought forward and is now planned for Q117, when 150 of the overall target of 550 HF-MACE events are expected to have accrued. Following an analysis of HF-MACE event rates, the independent data monitoring committee could recommend that the trial continues to completion or that it should be stopped for either futility or overwhelming efficacy.

Valuation: Decreased to A$1.8bn from A$2.8bn

Our valuation falls to A$1.8bn from A$2.8bn (A$4.67 per share from A$7.36), mainly due to later product launch dates. We forecast that an extra US$85m will be needed to fund operations until end FY18; as an illustration, we note that US$85m equity issued at A$1.20/share would see our diluted valuation fall to A$3.95/share.

Investment summary

Leader in stem cell technologies

Mesoblast is an Australia-headquartered biotechnology company focused on adult stem cell therapies. Listed on the ASX in 2004, the company’s pipeline is based on proprietary culture-expanded mesenchymal precursor cell (MPC) and mesenchymal stem cell (MSC) technologies. Mesoblast purchased the MSC technologies from Osiris Therapeutics in 2013. Mesoblast has entered into a number of strategic alliances including partnerships with JCR Pharmaceuticals for commercialising Temcell in aGvHD, and an alliance with Lonza for the exclusive use of manufacturing facilities in Singapore. Teva has withdrawn from its alliance for cardiovascular disease but remains in an ongoing partnership for the development and commercialisation of select MPC products for central nervous system (CNS) and oncology indications.

Valuation: Decreased on longer development timelines

Our valuation for Mesoblast moves down to A$1.8bn from A$2.8bn (A$4.67 per basic share from A$7.36). Notably, we now assume that the confirmatory Phase III trial in CHF will not start until top-line results from the first Phase III trial are known - previous guidance was that Teva would conduct the two trials in parallel. This has delayed our forecast launch date for CHF by four years to FY23 and lowered our NPV for MPC-150-IM in CHF from A$4.01 to A$2.79 per share (excludes R&D costs). Mesoblast’s share price has fallen by 75% over the past year, having been affected by a poorly received US IPO in November 2015, Teva’s withdrawal from the cardiovascular disease collaboration and Celgene allowing its first right of refusal to lapse. We highlight key upcoming potential catalysts that could allow for share price inflections; interim results from MSC-100-IV Phase III in paediatric aGvHD (Q316), full results from the same trial in Q416, full Phase II data for MPC-300-IV in rheumatoid arthritis (Q316) and results of the CHF interim futility analysis (Q117).

Financials: Funding CHF Phase III will increase cash burn

Mesoblast ended Q316 with cash of US$99.9m and has indicated that cash at 30 June was ~US$80m. Operating cash burn in Q216 and Q316 averaged US$21m, 25% below the preceding two quarters, in line with expenditure reduction plans. Mesoblast is now responsible for ~US$90m costs related to the MPC-150-IM Phase III CHF trials previously funded by Teva (~US$22m per year for four years). Guidance is for cash burn in FY17 to be no more than US$80m, including the cost of the CHF Phase III. Given that cash burn has averaged ~US$21m over the past three quarters (when Teva was funding CHF costs), achieving the cash burn target will require significant cost reductions and deferral of development programmes, while continuing to prioritise tier 1 programmes in degenerative disc disease, aGVHD, CHF and rheumatoid arthritis. With a cash burn of US$80m/year, the company would require an additional US$85m to fund operations until end FY18, which could be supplied by the discretionary equity facility with Kentgrove Capital.

Sensitivities

Mesoblast continues to face typical development risks including the outcome of pivotal trials, regulatory decisions, success of competitors and commercial risks. With Teva’s withdrawal from the cardiovascular programme, funding of Mesoblast’s annual cash burn of ~US$80m is a significant source of uncertainty, although the A$120m discretionary equity facility with Kentgrove Capital will support operations to end FY18. With a current market capitalisation of A$470m (~US$350m) equity funding could involve significant dilution of existing shareholders. We expect Mesoblast to seek non-dilutive funding from partnering deals. Potential partnering catalysts could include filing a US BLA for paediatric aGvHD in H117, interim futility analysis from MPC-06-ID back pain Phase III in Q417, interim CHF Phase III futility analysis in Q117 and top-line CHF Phase III results (2018).

Disruptive regenerative technology

Mesoblast is a leading mesenchymal stem cell development company. Its technology is based on allogeneic, off-the-shelf adult stem cells. The development of mesenchymal stem cells (MSCs), multi-potent stem cells that can differentiate into a variety of cell types, has been the most advanced area of stem cell research showing multiple anti-inflammatory and regenerative effects in human tissue. MPCs, the precursors of MSCs, are harvested from the bone marrow of young, healthy, unrelated donors using a proprietary technique to identify and isolate the cells. Both MPCs and MSCs have broad intellectual property protection and can be purified, expanded and manufactured on a commercial scale.

The company’s technology platforms have produced eight clinical candidates to date, with one of the lead candidates, MSC-100-IV in aGvHD, poised to become the first industrially manufactured allogeneic stem cell product approved in the US, following on from approval in Japan last year. Mesoblast has five active programmes in Phase III, one that is Phase III ready and two in Phase II.

Mesoblast works on a two-tier product structure with the primary goal to support late-stage or top-tier products on their path toward commercialisation either through own-company financing or partnership agreements (Exhibits 1 and 2). The first tier comprises four products with a significant mid-term revenue opportunity: MPC-150-IM in congestive heart failure, MPC-06-ID in low back pain due to degenerative disc disease, MSC-100-IV in aGvHD and MPC-300-IV in a number of chronic inflammatory conditions including biologic refractory rheumatoid arthritis and diabetic kidney disease. The remaining tier two products are in Phase II or III and will advance into tier one on the basis of data, market opportunity or partnering capability.

Teva’s withdrawal from the cardiovascular programme and Celgene’s decision to let its right of first refusal for selected products lapse means Mesoblast has lost the implied validation of its technology that comes from having a big pharma or biotech partner. This factor, combined with the low pricing of the shares issued as part of the US IPO and the increased risk that dilutive capital raisings may be required to fund its ongoing development programme, has seen the stock price fall by 75% over the past year, despite reporting good clinical progress over the period. The results from the first cohort in the Phase II trial of MPC-300-IV in biologics-refractory rheumatoid arthritis were particularly impressive in our view, with response rates in this refractory patient population comparable to response rates typically seen to TNF alpha biologics in first line therapy.

Exhibit 1: Tier 1 pipeline

Product

Indications

Delivery

Status

Next milestones

Cardiovascular

MPC-150-IM

Advanced and end-stage chronic heart failure

Transendocardial injection

600-pt Phase III study ongoing,
600-pt Phase III confirmatory study planned

Phase III interim futility analysis (date TBC, we estimate H216/H117)

MPC-25-IC

Acute cardiac ischemia

Intracoronary infusion

225-pt Phase II study ongoing

Spinal disease

MPC-06-ID

Chronic low back pain due to degenerative disc disease

Intradisc injection.

Phase III ongoing

Phase III enrolment complete Q316, interim data in Q417

Immunologic/inflammatory

MPC-300-IV

Diabetic kidney disease

IV injection

Phase 2b/3 trial design ongoing, early access regulatory pathway sought

Clarity on regulatory pathway on encouraging Phase II results

Biologic refractory RA

IV injection

48-pt Phase I/II study ongoing

Full trial results Q316

Oncology

MSC-100-IV/Temcell

Steroid-refractory acute graft versus host disease (aGVHD)

IV infusion

Conditional approval (Canada/NZ). Full approval in Japan (Temcell brand name).
Pivotal 60 patient US open label trial US. Expanded access treatment (US).
US trial in adults w/liver/gut aGVHD

Updated Japan sales Q316; US BLA submission, paediatric filing possible 2016 supported by Phase III interim analysis Q316 and top-line Q416. Full Phase III results due Q416

Source: Edison Investment Research. Note: TBC = to be confirmed

Exhibit 2: Tier 2 pipeline

Product

Indications

Delivery

Status

Next milestones

Cardiovascular

MPC-25-IC

Acute cardiac ischemia

Intracoronary infusion

225-pt Phase II study ongoing

2016: Phase II programme update

Spinal disease

MPC-25-Osteo

Lumbar spinal fusion

Intervertebral injection

Phase III ready, subject to partnering

Phase III subject to partnership

Immunologic/inflammatory

MSC-100-IV

Moderate-to-severe Crohn’s disease

IV infusion

330-pt Phase III study

2016: update/decision point

Oncology

MPC-CBE

Bone marrow transplantation

IV infusion

240-pt Phase III study ongoing

H217/H118: headline results

Source: Edison Investment Research.

Teva’s withdrawal brings upside and downside risks

Teva’s withdrawal from the cardiovascular programme brings both upside and downside risks for Mesoblast.

Downside risks

Uncertainty over attracting a new partner, including timing and deal terms.

Timing of confirmatory CHF Phase III is uncertain; previous guidance was that Teva would conduct the confirmatory trial in parallel with the first Phase III trial.

Loss of the perceived technology validation that a partner brings.

Potential for dilutive equity financing to fund the Phase III CHF programme (if no new partner in the near term, and do not partner the MPC-06-ID degenerative disc disease programme)

Upside risks

Regained full rights to the cardiovascular programme at no cost and without any trailing economic interest to Teva.

Potential to attract a stronger partner with a cardiovascular programme and sales force in place.

Potential upfront payments from new partnering deal.

With Mesoblast regaining full control, it could pursue accelerated approval in Japan, which could allow early market entry following a small Phase II trial there.

Mesoblast could potentially obtain non-dilutive funding from development partners for the cardiovascular, aGVHD, degenerative disc disease, rheumatoid arthritis or other programmes. If non-dilutive funding is not forthcoming Mesoblast could fund its development programme through equity issues, including through the A$120m Kentgrove Capital equity financing facility. However, with a current market capitalisation of A$470m (~US$350m), equity financing could involve significant dilution of existing shareholders. We estimate an additional ~US$85m could be required to fund operations to the end of FY18.

Background to the Teva/Cephalon/Mesoblast deal

Mesoblast entered into a Development and Commercialisation Agreement (DCA) with Cephalon in - December 2010 in a deal that included an upfront payment of US$130m and potential milestone payments of up to US$1.7bn. Teva acquired Cephalon for US$6.8bn in October 2011. In September 2013 Teva and Mesoblast amended the DCA such that the Phase III CHF trial included two interim analyses of efficacy and of safety. Teva was obligated to conduct and fund the Phase III CHF trial until at least the first interim analysis was completed.

Teva motivated by Allergan acquisition and sharper R&D focus

Teva is finalising its US$40.5bn acquisition of Allergan Generics announced in July 2015. It has said it will seek to extract US$1.5bn of synergies as it integrates Allergan Generics with its existing operations. Teva has stated several times over the past few years that it intends to focus its R&D resources on its core CNS and respiratory interests. In this environment it is understandable that it has withdrawn from development of a cardiovascular disease product that is still several years from market, although with a carrying value of US$258m for in-process R&D associated with Mesoblast’s cardiovascular programme, it is not a decision that would have been taken lightly.

Mesoblast’s management has reiterated that Teva and Mesoblast did not see any efficacy data from the recent interim safety review by the data monitoring committee (DMC). There had previously been an expectation that data on surrogate measures of cardiac function would be released following the first interim analysis, including volume-based measures such as systolic and diastolic volumes. However, the FDA advised that all efficacy data should remain confidential because its release could potentially bias investigators and trial participants.

Equity facility extends funding runway

Mesoblast has entered into an equity facility with the Australia-based investment management firm Kentgrove Capital to provide funding of up to A$120m (~US$90m) over the next three years. Under the facility, A$60m will be available at Mesoblast’s discretion over the next 18 months, with Mesoblast having the option to increase the facility to A$120m over 36 months. For each placement Mesoblast determines the timing, amount and minimum share price. Kentgrove Capital will receive a fee of 4.5% of the funds raised and will be granted 1.5m three-year incentive rights priced at double the average share price in the 10 trading days before the date of the facility. The facility will extent Mesoblast’s funding runway beyond the end of FY18.

Approval to use Carto-3 catheter expected to speed recruitment

The FDA recently approved the use of the Carto-3 mapping catheter from J&J’s Biosense Webster subsidiary for the intracardiac injection MPC-150-IM cells in the Phase III trial. The Carto-3 catheter is widely used to map the position of an RF ablation catheter used to treat patient s with cardiac arrhythmias, and is installed in around 2,000 major hospitals in the US. In contrast, only about 80 US hospitals have the NOGA Myostar mapping catheter used for injecting MPC-150-IM to date. The NOGA Myostar system is dedicated for transendocardial injection of biologicals for research and clinical trial purposes. Approval to use the Carto-3 catheter is expected to speed the opening of additional recruitment centres in the Phase III trial programme, including hospitals in Europe.

Smaller CHF Phase III trial will benefit Mesoblast

Mesoblast is fortunate that, following several rounds of discussions with the FDA, the size of first Phase III CHF trial has been progressively reduced from the original target of 1,730 patients to a current target of 600 patients. The reduction of the trial size occurred in two steps: the first reduction from 1,730 to 1,165 was announced in August 2015 and the reduction from 1,165 to 600 subjects and a change in primary endpoint was announced in January 2016. At that time, the primary endpoint was changed from the time to first recurrent heart failure-related major adverse cardiovascular event (HF-MACE) to a comparison of HF-MACE event rates between the treatment and control groups.

An additional confirmatory Phase III trial with ~600 patients will also be conducted. HF-MACE is defined as a composite of cardiac related death or resuscitated cardiac death, or non-fatal decompensated heart failure events. These non-fatal decompensated heart failure events require use of intravenous diuretics during an in-hospital stay or an outpatient visit.

The rate of recurrent HF-MACE as a primary endpoint for the two trials was chosen on the back of encouraging analysis of the previous Phase II study showing patients treated with MPC-150-IM had no HF-MACE over 36 months of follow-up vs the control group with 11 recurrent MF-MACE. All of the HF-MACE events in the control group occurred in patients with advanced CHF who had baseline LVESV (left ventricle end systolic volume) >100ml.

As previously noted, the trials will be enriched for patients with a high risk of recurrent HF-MACE, based on inclusion criteria of either high NT-proBNP levels or a history of heart failure hospitalisation in the past nine months, two criteria known to predict adverse outcomes in CHF. This enrichment is expected to result in the majority of enrolled patients having baseline LVESV>100 mL and high rates of recurrent HF-MACE.

Second CHF Phase III interim analysis brought forward to Q117

The DMC reviewed the clinical data on the first 175 patients in the Phase III CHF trial in April 2016 and recommended that the study continue unchanged.

The second interim analysis has been brought forward and is now planned for Q117 when 150 of the overall target of 550 HF-MACE events are expected to have accrued. Following an analysis of HF-MACE event rates, the independent data monitoring committee could recommend that the trial continues to completion or that it should be stopped for either futility or overwhelming efficacy.

The company intends to discuss with the FDA the possibility of testing for a pre-specified biological signal in addition to the HF-MACE event rates as part of the interim analysis review.

The trial started recruiting patients in February 2014 and currently about 240 ( ~40%) of the target of 600 patients have been recruited. With additional sites to be opened in Europe and approval of the Carto-3 mapping catheter to be used in the injection process making more sites suitable for involvement, Mesoblast expects the recruitment rate to accelerate. Recruitment is likely to be completed in H217, with results available in mid-2018.

The timing of the confirmatory Phase III trial is not yet settled, and will likely be influenced by partnering discussions. In our forecasts we assume that Mesoblast will adopt a conservative strategy and wait until the results of the first Phase III trial are known before initiating the confirmatory trial. If all of the trial sites are migrated to the confirmatory trial, recruitment of the 600-patient confirmatory trial could probably be completed in around 18 months. Under this strategy, which is illustrated in Exhibit 3, we forecast the confirmatory Phase III trial to be initiated in Q418 with recruitment completed in Q220 and results available in Q221. If the trials are successful this could potentially allow a US launch in early 2023.

We note two scenarios that could lead to a significantly earlier market launch. Firstly, if the first Phase III trial demonstrates overwhelming efficacy in reducing recurrent HF-MACE events in patients with advanced heart failure, Mesoblast could potentially seek accelerated approval from the FDA based on the outcome of a single pivotal trial. Accelerated approval could potentially allow a market launch of MPC-150-IM in 2020. A second pivotal trial would still need to be conducted to obtain full approval, but this could be conducted after market launch.

Secondly, if Mesoblast were to partner with a pharma company with significant cardiovascular infrastructure, it could speed recruitment and provide funds to allow the confirmatory trial to start soon after the second interim analysis, which is planned for Q117. If the confirmatory trial were to start in Q317, it could allow a market launch in H221.

Exhibit 3: Assumed Phase III and approval timeline for MPC-150-IM in CHF

Source: Edison Investment Research

Ixmyelocel-T trial confirms potential of cell therapy in CHF

A paper published in Lancet in June by Patel et al reported the results of a trial of Vericel’s Ixmyelocel-T autologous MSC therapy in patients with advanced class III or IV CHF. The trial in 108 patients found that patients treated with intracoronary injection of MSCs had 37% fewer HF-MACE events in the 12 months following treatment compared with placebo (risk ratio 0.63, p=0.034). A total of 88 events (38 in the treatment group and 50 in the placebo group) were observed in the 108 patients.

It is encouraging that a significant benefit from stem cell therapy was seen in this trial of modest size. We note that 70% more HF-MACE events will be assessed in the Q117 interim analysis of Mesoblast’s CHF Phase III trial. It is also of interest that the benefit was seen in patients with more severe (class III and IV) heart failure symptoms. Mesoblast’s MPC-150-IM has also shown greatest benefit in patients with more severe heart failure symptoms.

Congestive heart failure a represents a large unmet need

CHF is a common condition that, despite treatment advances, is still associated with poor prognosis. About half of CHF patients die within five years of diagnosis. Heart failure occurs when the failing heart cannot pump enough blood and oxygen to support other organs. According to the American Heart Association, 5.1 million people in the US have been diagnosed with CHF (2% of the population). While progress has been made in treatment, there is a high overall annual mortality (5-20%), particularly in patients with severe (NYHA Class IV1) symptoms. Current state-of-the-art treatment for advanced systolic heart failure includes a combination of medical and device therapy. Renin-angiotensin-aldosterone (RAAS) blockers (along with beta blockers) are the key pharmacological therapies, as they improve mortality, heart function, heart failure symptoms and exercise tolerance. Devices are increasingly used in mild-to-severe (NYHA II-IV) CHF. Implantable cardioverter-defibrillators (ICDs) decrease mortality and the addition of cardiac resynchronisation therapy (CRT) to optimal medical therapy improves symptoms and mortality.

  New York Heart Association (NYHA) classification assesses the severity of functional limitations and correlates fairly well with prognosis. NYHA classification (and % of patients at each stage): I – asymptomatic: no symptom limitation with ordinary activity (35%), II – mild: ordinary activity somewhat limited by dyspnoea (35%), III – moderate: exercise limited by dyspnoea with moderate workload (25%), IV – severe: dyspnoea at rest or with limited exertion (5%).

The approval of Entresto (sacubitril/valsartan, Novartis) in the US and Europe in 2015 provided another option for treating patients with CHF and a reduced ejection fraction. The drug is a combination of sacubitril, a neprilysin inhibitor, and valsartan, an angiotensin II receptor blocker. Entresto reduced the risk of cardiovascular death or HF hospitalisation by 20% versus the ACE-inhibitor enalapril in the Paradigm-HF Phase III trial in 8,442 patients (76% had NYHA Class I or II HF), with a trend towards greater benefit in Class I/II patient than Class III/IV patients. The US price for Entresto is about US$4,500 a year before discounts.

Exhibit 4: Phase III CHF programme

Details

Design

Multi-centre, randomised (1:1), double-blind, placebo-controlled trial to evaluate MPC-150-IM in c 600 subjects with CHF. Trial began in January 2014 and results are expected in 2018. Primary endpoint is HF-MACE, with secondary efficacy measures of heart function and exercise capacity. Two interim efficacy and/or safety analyses: the trial was cleared to continue after the first interim safety analysis in April 2016; second analysis for futility/resizing/overwhelming efficacy on HF-MACE endpoint in Q117 after 150 HF-MACE events, by which time we expect over 50% of patients to have been recruited. A second confirmatory trial to recruit 600 patients in an identical patient population using same recurrent HF-MACE primary endpoint.

Primary endpoint

Initially the primary endpoint was time-to-event analysis of HF-MACE (includes cardiac death, resuscitated cardiac death, or non-fatal decompensated heart failure events). In January 2016 the FDA agreed that the primary endpoint could be changed to a comparison of recurrent HF-MACE events between MPC-150-IM and control. Recurrent HF-MACE is the primary endpoint for the confirmatory study.

Patient population

NYHA Class II and III systolic heart failure (LVEF≤40%) of ischaemic or non-ischaemic origin with a history of heart failure hospitalisation within the previous nine months and high levels of NT-proBNP. Criteria aim to enrich for patients with advanced heart failure.

Territories

Initial recruitment in the US, with follow-on European enrolment.

Source: Mesoblast, Edison Investment Research

MPC-150-IM is also under investigation in end-stage Class IV heart failure (5-10% of heart failure patients) through a clinical trial programme sponsored and funded by the National Institutes of Health (NIH) and co-ordinated by NIH-funded Cardiothoracic Surgical Trials Network (CTSN). Full trial results are expected in Q317. Additionally, a 225-patient Phase II safety study in acute myocardial infarction (AMI) is ongoing with MPC-150-IM. The trial recruits patients undergoing a stent procedure two to 12 hours after the onset of symptoms and the primary endpoint of the study is the frequency of major adverse cardiac events (MACE) at 24 months.

Other Tier one programmes

MPC-06-ID for low back pain due to degenerative disc disease

Mesoblast initiated a pivotal Phase III trial of MPCs in low back pain resulting from moderate degenerative intervertebral disc disease in Q115. The company remains on track for the completion of enrolment in a pivotal Phase III trial in low back pain and interim analysis in Q316.

The company has received guidance from the FDA that a composite primary endpoint is acceptable for approval. The composite endpoint includes agreed thresholds for pain (50% decrease in VAS) and function (15 point improvement in Oswestry disability index), and no surgical intervention at the treated disc level through 24 months of follow-up. There are to be two time points (12 and 24 months) for meeting pain and functional improvement criteria. There are two planned interim analyses; the first when 80% of patients have competed 12 months of follow up and the second will be a Bayesian analysis when all patients have completed 18 months of follow up.

Company guidance is for enrolment to complete in Q416 and the first interim analysis in Q417 (presumably when 80% of patients have completed 12 months follow up). We estimate that the second interim analysis could be conducted in Q318.

Exhibit 5: Summary – MPCs for intervertebral disc repair

Rationale

Injecting MPCs into degenerated lumbar discs might stimulate regrowth of disc cartilage and restore normal disc function, thereby improving back pain/function and eliminating need for surgery.

Dose/administration

A single intradisc injection of 6m MPCs alone or in combination with a hyaluronic acid carrier vs placebo.

Clinical data

Positive Phase II results (100 patients at six months) showed strong indication of sustained efficacy across clinical and radiographic parameters.

Next news

Phase III recruitment complete Q316; interim analysis Q417.

Forecasts

Launch in H122; peak in-market sales of US$1.9bn.

Source: Edison Investment Research

Mesoblast will also conduct a second, confirmatory Phase III trial of MPC-06-ID for chronic low back pain. We assume that a second Phase III trial will be initiated in Q217 and is able to complete recruitment in 12 months by using centres that recruited patients for the first Phase III trial. The 24-month follow-up period for the composite primary endpoint would see results in Q220 and a potential market launch in H122 (Exhibit 6).

Exhibit 6: Assumed Phase III and approval timeline for MPC-06-ID in chronic low back pain

Source: Edison Investment Research

Chronic low back pain due to degenerative disc disease is the result of a complex process initiated by the degeneration and loss of proteoglycan and water content of the nucleus pulposus, and increased stress on and fissure formation of the annulus fibrosis. An estimated 30 million people in the US suffer from low back pain (Frost & Sullivan, 2008). Frontline treatment options are normally analgesia, anti-inflammatory agents, or epidural steroid injection but ~15%, or 4.5 million, fail to respond to these conservative therapies, which focus on pain relief. Only about 10% of those patients failing to respond to these therapies resort to surgical intervention such as spine fusion, discectomy or artificial disc replacement while surgeons report that ~40% of patients ultimately fail back surgery.2 Therefore, there is a considerable market opportunity for a non-surgical solution that addresses the underlying degenerative nature of the disease. We conservatively estimate that 25% (around one million) people in the US have moderate degenerative disc disease (DDD) that could be targeted with MPC injections.

Shapiro CM Phys Med Rehab Clin N Am 2014.

Positive clinical data thus far have confirmed Mesoblast’s preclinical work showing that intradisc injections of MPCs can restore the extracellular matrix of degenerate discs. In February 2014 the company reported highly positive results from its 100-patient Phase II trial in patients with chronic moderate-to-severe low back pain due to degenerative disc disease, showing strong indications of sustained efficacy across a broad range of clinical and radiographic parameters after a single intradisc injection. The large majority of the outcome measures showed a statistically significant improvement vs controls with MPC-treated patients using fewer opioids for pain relief, achieving a greater radiographically determined disc stability and a lower requirement for additional surgical and non-surgical treatment interventions.

First commercial launch with MSC-100-IV (Temcell) in Japan

February 2016 saw the first commercial sales of Mesoblast’s mesenchymal lineage cell products with the launch of the MSC-100-IV in Japan in GvHD by partner JCR Pharmaceuticals. JCR launched MSC-100-IV in February 2016 in Japan under the trademark Temcell and Mesoblast reported that it earned US$99k of Temcell royalties in the quarter. In November 2015 the company received approval from the Japanese government’s National Health Insurance for reimbursement of a treatment course to patients at between US$113,000 and US$170,000 with the price paid dependent on persistency of symptoms. Mesoblast earns escalating double-digit percentage royalties in the twenties on Temcell sales and is also entitled to undisclosed sales milestone payments. JCR bears all commercialization costs.

GVHD is a potentially life-threatening complication resulting from allogeneic hematopoietic cell transplantation (HSCT, also known as a bone marrow transplant), a procedure most often performed for cancer patients (particularly leukaemia or lymphoma). GVHD can result from the activation of mature donor T-cells, which are co-infused with the HSC transplant (the graft) and attack the patient’s body cells (the host), resulting in cytolytic effects that target several organs including the skin, gut and liver. Immunosuppressive agents, particularly IV steroids, are administered with HSCT, but treatment can be suboptimal and may increase the risk of infections and disease relapse. In patients with severe visceral (gut, liver) complications, mortality is c 85%. There are no approved treatment options for steroid refractory patients and off-label options have proved toxic with mixed efficacy. MSC-100-IV's activity against GVHD, a T-cell mediated disease, is due to the immunomodulatory properties of mesenchymal stem cells.

In Japan, MSC-100-IV is partnered with JCR and was approved for children and adults with GVHD by the Ministry of Health, Labour and Welfare on 18 September 2015. Approval was made on the basis of Phase II data ahead of legislation enacted in November 2014 by the Japanese government. The new bill (the PMD act), established a framework for expedited approval of regenerative medical products, creating the considerable opportunity for Mesoblast’s MSC and MPC products on relatively limited (ie Phase II) clinical data.3

The PMD act in Japan enables for provisional approval on Phase II trial results (with caveats), allowing up to seven years for further confirmatory safety and efficacy trials in larger populations.

MSC-100-IV is also in development for steroid-refractory aGVHD for paediatric and adult patients in the US, Europe, New Zealand and Canada. We forecast peak global sales to reach US$390m. Our forecasts are based on the current number of annual stem cell transplants and a cost per transplant ranging from US$75,000 to US$200,000 (dependent on treatment course needed per patient).

Paediatric filing in the US possible in Q416

Mesoblast is now focusing its efforts on an FDA filing for GVHD in the US. Mesoblast intends to commercialise MSC-100 in acute GVHD in the US to a highly targeted physician population. More than 250 paediatric patients have been treated in the US through an expanded access programme. Data from the initial 241 patients enrolled in the programme showed a 65% response rate and a more than doubling in survival in responders vs non-responders (82% vs 39%, p<0.0001).

Recruitment is ongoing for a 60-patient, open-label Phase III registration study in children with steroid refractory acute GVHD. Top-line results from the trial are expected in Q416. Before this, results from an interim analysis of this trial are expected in Q3 CY16. This pre-specified interim analysis could potentially support an early BLA filing by the end of 2016.

The company plans to have discussions with the FDA over the trial design for a potential Phase III trial to support approval of MSC-100-IV for adults with liver or gut aGVHD.

Given its ultra-orphan status,4 Mesoblast expects to command premium pricing (we model US$250k per adult treatment in the US based on a traditional US premium to Japan and company guidance). We model US$170k per paediatric patient due to the lower dose of cells required. A launch in the US would make it the first allogeneic stem cell product to market, and we believe it would pave the way for other indications using Mesoblast’s proprietary stem cell technologies.

  Ultra-orphan drugs are medicines used to treat exceptionally rare diseases that are chronically debilitating or life-threatening. Low patient numbers make it difficult for pharmaceutical companies to recoup research and development costs, and consequently these medicines are generally expensive on a per-patient basis.

Full Phase II rheumatoid arthritis results due Q316

In February Mesoblast announced impressive early results from the first cohort of its Phase II trial of MPC-300-IV MPC therapy in RA patients who are refractory to biologics such as TNF alpha. Patients treated with 1m cells /kg showed ACR20 responses in 47% of MPC-treated patients vs 25% on placebo, ACR70 response in 27% vs 0% on placebo and remission at 12 weeks (DAS28/CRP<2.6) of 20% vs 0% on placebo. These data represent impressive efficacy in refractory patients: they are comparable to response rates seen to TNF alpha biologics in first line therapy, and better than the approved JAK inhibitor Xeljanz in comparable biologic refractory patients (ACR70 in 10-14% of patients). No statistical analysis was presented. Final results of the trial including the high dose cohort (2m cells/kg) are due in Q316.

Data from a six-month 30-patient study of MPC-300-IV in diabetic nephropathy announced in June 2016 showed that the treatment deduced damaging inflammation and preserved or improved kidney function over at least 24 weeks.

MPC-300-IV, which is under development in various immune-related diseases, was upgraded to Tier one ranking in February on the back of the positive data from the rheumatoid arthritis and diabetic nephropathy trials.

Tier 2 programmes delayed by funding constraints

Mesoblast has four other products in clinical development that it has categorised as Tier 2. The current Tier 2 programmes are in biologic refractory Crohn’s disease, acute cardiac ischemia, spinal fusion and bone marrow transplantation. Given the increased funding requirement for the tier one CHF programme we have delayed our development time lines for the Tier two programmes by one to five years. The shortest delay is for the bone marrow transplant programme, which is remains part of the collaboration with Teva.

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 into an equity finance facility that will provide up to A$120m (~US$90m) to fund the CHF Phase III programme, but with a current market capitalisation of A$470m (~US$350m) that could result in significant dilution of existing shareholders. We expect Mesoblast to seek non-dilutive funding from partnering deals, which could reduce the equity funding requirement. Potential partnering catalysts could include filing a US BLA for paediatric aGvHD in Q117, interim futility analysis for MPC-06-ID degenerative disc disease Phase III in Q417 and the second interim futility analysis in the CHF Phase III in Q117.

Valuation

We reduce our valuation for Mesoblast to A$1.8bn from A$2.8bn (A$4.67 per basic share from A$7.36 or to A$4.62/share diluted for options that would be in the money if shares traded in line with the NPV, from A$7.07). Most notably, our NPV for MPC-150-IM in CHF decreases from A$4.01/share to A$2.79/share due to a four-year later forecast FY23 launch date, while the NPV for MSC-100-IV for acute graft vs host disease decreases from A$0.66/share to A$0.27/share. Note that these product NPVs do not account for R&D costs, which are grouped together as a single line item. We have rolled forward the DCF to FY17 and have extended cash flow forecasts to 2034 vs prior 2030 to capture the 12-years of US market exclusivity for MPC-150-IM in CHF. The breakdown of contribution to the rNPV is shown below (Exhibit 7).

With Mesoblast having assumed responsibility for funding the Phase III CHF programme we have revised forecast time lines for each of the company’s main projects. Notably, we assume that the company will take a conservative approach and wait until it has top line results from the first Phase III trial of MPC-150-IM in CHF before initiating the confirmatory phase III trial, in contrast to previous guidance that Teva would conduct the two trials in parallel, resulting in a four year delay in forecast market launch to FY23 (previously FY19 launch). In contrast, in light of the smaller trial size and greater potential time savings, we assume that the confirmatory Phase III trial of MPC-06-ID in chronic low back pain will start in Q217, not long after recruitment in the first Phase III trial is completed. As a result of our revised assumptions we have deferred forecast launch dates of individual products by up to six years, as shown in Exhibit 7.

We retain similar revenue share assumptions for the CHF and acute myocardial infarction programmes to those that we used under the Teva collaboration, on the assumption that if the development programme is successful it could negotiate similar terms with a new partner given the more advanced stage of development. These assumptions include a revenue share that ranges from the twenties to reach 40% when sales exceed US$2bn, and COGS that range from 14% down to 10% as sales increase. However, we have reduced our forecast combined milestone payments for approval for CHF in the US and Europe by half to US$125m (vs prior US$250 total), risked to 50% likelihood, and have removed approval milestone for tier 2 cardiovascular product MPC-25-IC entirely (previously US$150m) given the uncertain development timeline for this product.

We have revised down our estimate of the proportion of allogeneic (donor) haematopoietic stem cell transplants (HSCT) recipients who would be candidates for treatment with MSC-100-IV and Temcell from 25% to 15%. The median incidence of clinically significant (grade II-IV) aGVHD is about 40% (range 10-80%) according to the European Society of Blood and Marrow Transplantation (EBMT)5. With about 75% of patients having disease that affects the gut or liver, or severe skin disease and about half of patients not responding to first line treatment with corticosteroids, we estimate that about 15% of all allogeneic ESCT recipients would be potential candidates for MSC-100-IV or Temcell therapy (ie develop steroid resistant aGVHD that affects the liver or gastrointestinal tract or severe (grade IV) skin disease). We assume that peak penetration of this target group reaches 30%. We now separately forecast sales in paediatric and adult patients, with a paediatric product launch in FY17 and adult launch in FY20.

In April 2014 MSB guided that it expected to have a readout by the end of 2014 on the primary endpoint of 28-day remission in biologic-refractory Crohn’s disease patients (trial NCT00482092). With no announcement so far about the results of the trial, and Celgene having let its option which included inflammatory bowel diseases lapse, we lower the likelihood of success for the Crohn’s programme to 10% from 30% and lower forecast market uptake among patients with moderate to severe disease to 10% from 28%.

Mesoblast’s share price has fallen by 75% over the past year, having been impacted by a poorly-received US IPO in November 2015,Teva’s withdrawal from the cardiovascular disease collaboration and Celgene allowing its first right of refusal to lapse. We highlight key upcoming potential catalysts that could allow for share price inflections; interim results from MSC-100-IV Phase III in paediatric aGvHD in Q316, full results from the same trial in Q416 and full Phase II data for MPC-300-IV in rheumatoid arthritis (Q316).

Exhibit 7: Valuation

Product

Therapeutic area

Indication

rNPV
(A$m)

rNPV/share
(A$)

Probability of
success (%)

Launch (FY)

Peak sales
(US$m)

Years of delay vs prior launch assumption

MPC-150-IM

Cardiovascular

Congestive heart failure (CHF)

1,062.5

2.79

50%

2023

2,781

4

MPC-25-IC

Cardiovascular

Acute myocardial infarction (AMI)

108.3

0.28

20%

2025

1,057

6

MPC-06-ID

Spine disease

Intervertebral disc repair

562.9

1.48

50%

2022

1,858

4

MPC-25-Osteo

Spine disease

Posterior lumbar fusion

45.9

0.12

20%

2025

662

6

MSC-100-IV

Oncology

Acute graft versus host disease (aGVHD)

104.8

0.27

60%

2017

354

0/3

Temcell

Oncology

Acute graft versus host disease (aGVHD)

31.2

0.08

100%

2016

36

-

MPC-300-IV

Immunologic/
Inflammatory

Diabetic nephropathy

122.1

0.32

20%

2025

2,186

5

MPC-300-IV

Immunologic/
Inflammatory

Rheumatoid arthritis

101.1

0.27

20%

2023

1,350

3

MSC-100-IV

Immunologic/
Inflammatory

Crohn's disease (US)

8.2

0.02

10%

2019

311

2

MPC-CBE/Teva

Oncology

Bone marrow transplantation

46.4

0.12

20%

2020

220

1

R&D expenses

(309.7)

(0.81)

Manufacturing expenses

(105.4)

(0.28)

G&A expenses

(105.5)

(0.28)

 

Estimated net cash at 30 June 2016

107.3

0.28

 

Total

 

1,780

4.67

Basic

 

 

 

 

1,827

4.62

Diluted

 

 

Source: Edison Investment Research

Financials

Mesoblast changed its reporting currency to US$ ahead of its IPO in the US in 2015.

Mesoblast ended Q316 with cash of US$99.9m and has indicated that cash at 30 June was ~US$80m. Operating cash burn in Q216 and Q316 averaged US$21m, 25% below the previous two quarters, in line with cost reduction plans. Mesoblast is now responsible for ~US$90m costs related to the MPC-150-IM Phase III CHF trials previously funded by Teva (~US$22m per year for four years). Guidance is for cash burn in FY17 to be no more than US$80m, including the cost of the CHF Phase III. Given that cash burn has averaged ~US$21m over the past three quarters (when Teva was funding CHF costs), achieving the cash burn target will require significant cost reductions and deferral of development programmes, while continuing to prioritise tier 1 programmes in degenerative disc disease, aGVHD, CHF and rheumatoid arthritis. We have trimmed forecast FY17 operating cash outflow by 2% to US$79m.

In the absence of additional financing and/or partnerships, we estimate that Mesoblast has sufficient cash to fund operations including key late-stage trials into late FY17, while faster uptake of MSC-100 (aGvHD) in Japan could extend this runway. Thereafter, its late-stage pipeline will require funds – ideally through partnerships, although the timing of partnering agreement is uncertain. We estimate that an additional US$85m will be required to fund operations until end FY18, which could be supplied by the discretionary equity facility with Kentgrove Capital.

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$85m in FY18 in our forecasts. We note that a scenario where US$85m was raised through an equity issue at the current share price of A$1.20/share would see our diluted valuation fall from A$4.62/share to A$3.95/share.

Exhibit 8: Financial summary

US$'000s

2014

2015

2016e

2017e

2018e

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

25,123

32,403

44,079

7,077

10,018

Cost of Sales

0

0

0

(243)

(1,931)

Gross Profit

25,123

32,403

44,079

6,834

8,087

R&D Expenses

(50,929)

(62,649)

(47,613)

(47,613)

(49,518)

Manufacturing & Commercialisation Expenses

(25,434)

(23,783)

(28,540)

(19,978)

(20,377)

SG&A Expenses

(24,403)

(29,636)

(23,116)

(20,174)

(19,888)

EBITDA

 

 

(83,916)

(97,977)

(54,089)

(78,750)

(79,431)

Operating Profit (before amort and except)

 

(83,916)

(99,001)

(55,690)

(80,431)

(81,196)

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Share-based payments

0

0

(2,500)

(2,500)

(2,500)

Operating Profit

(83,916)

(99,001)

(58,190)

(82,931)

(83,696)

Net Interest

8,386

4,070

2,214

1,589

9

Profit Before Tax (norm)

 

 

(75,530)

(94,931)

(53,476)

(78,842)

(81,188)

Profit Before Tax (FRS 3)

 

 

(75,530)

(94,931)

(55,976)

(81,342)

(83,688)

Tax

(4)

0

4,190

0

0

Profit After Tax (norm)

(75,534)

(94,931)

(49,286)

(78,842)

(81,188)

Profit After Tax (FRS 3)

(75,534)

(94,931)

(51,786)

(81,342)

(83,688)

Average Number of Shares Outstanding (m)

319.5

320.9

356.2

381.4

381.4

EPS - normalised fully diluted (c)

 

 

(23.64)

(29.59)

(13.84)

(20.67)

(21.29)

EPS - normalised (c)

 

 

(22.76)

(28.48)

(13.37)

(20.02)

(20.62)

EPS - (IFRS) (c)

 

 

(23.64)

(29.59)

(14.54)

(21.33)

(21.94)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

96.6

80.7

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

 

 

655,222

659,306

659,705

660,024

660,259

Intangible Assets

648,005

650,241

650,241

650,241

650,241

Tangible Assets

4,411

4,398

4,797

5,116

5,351

Investments

2,806

4,667

4,667

4,667

4,667

Current Assets

 

 

191,931

122,460

91,233

12,071

15,649

Stocks

0

0

0

0

0

Debtors

5,744

3,972

4,000

4,000

4,000

Cash

185,003

110,701

79,446

284

3,862

Other

1,184

7,787

7,787

7,787

7,787

Current Liabilities

 

 

(40,199)

(48,407)

(27,237)

(27,237)

(27,237)

Creditors

(34,525)

(43,246)

(25,399)

(25,399)

(25,399)

Deferred revenue

(5,674)

(5,161)

(1,838)

(1,838)

(1,838)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(268,395)

(265,372)

(240,887)

(240,887)

(325,887)

Long term borrowings

0

0

0

0

(85,000)

Deferred revenue

(37,508)

(22,505)

0

0

0

Other long term liabilities

(230,887)

(242,867)

(240,887)

(240,887)

(240,887)

Net Assets

 

 

538,559

467,987

482,814

403,971

322,784

CASH FLOW

Operating Cash Flow

 

 

(86,515)

(104,079)

(94,469)

(78,750)

(79,431)

Net Interest

11,609

3,043

2,214

1,589

9

Tax

0

0

0

0

0

Capex

(1,712)

(2,204)

(2,000)

(2,000)

(2,000)

Acquisitions/disposals

0

0

0

0

0

Financing

2,196

45,852

62,000

0

0

Dividends

0

0

0

0

0

Other

(36,490)

(2,860)

1,000

0

0

Net Cash Flow

(110,912)

(60,248)

(31,255)

(79,161)

(81,423)

Opening net debt/(cash)

 

 

(292,449)

(185,003)

(110,701)

(79,446)

(284)

HP finance leases initiated

0

0

0

0

0

Other

3,466

(14,054)

0

0

0

Closing net debt/(cash)

 

 

(185,003)

(110,701)

(79,446)

(284)

81,138

Source: Company accounts, Edison Investment Research. Note: Company has changed its reporting currency to US$.

Contact details

Revenue by geography

Revenue by geography

Level 39, 55 Collins Street
Melbourne 3000
Australia
+61 3 9639 6036
www.mesoblast.com

Level 3, 505 Fifth Avenue
New York, NY
US
+1 212 880 2060

N/A

Management team

CEO and Managing Director: Professor Silviu Itescu

New Product and Technology Evaluation/IR: Michael Schuster

Before founding Mesoblast in 2004, Professor Itescu worked as a physician scientist in the fields of stem cell biology, autoimmune diseases, organ transplantation and heart failure. He is an active faculty member of Melbourne and Monash universities in Australia and was previously a faculty member of Columbia University in New York. He has consulted for various international pharmaceutical companies, has been an adviser to biotechnology and health care investor groups and has served on the board of directors of a number of publicly listed life sciences companies.

Mr Schuster was a founding executive at Mesoblast before its public listing in 2004. He has led Mesoblast's product operational activities and has been a member of the corporate executive leadership team developing the company's strategic, technical and commercial plans. He also leads Mesoblast’s investor relations outreach programme. He holds an undergraduate degree in science from Tufts University, a Master's degree in immunology and microbiology from New York Medical College and a Master’s in business administration from Fordham University in New York.

Chief Medical Officer: Donna Skerrett

Chief Financial Officer: Paul Hodgkinson

Dr Skerrett has been involved in stem cell procurement, manipulation and transplantation for nearly 20 years. Her areas of expertise include conventional transfusion medicine, immunohematology, apheresis, histocompatibility testing, stem cell apheresis and processing, and novel regenerative medicine translational therapy. She is an advisor to the New York State Department of Health on the Progenitor Cell Committee and has been chair of the Governor's Council on Blood and Transfusion Services. She joined Mesoblast in 2004.

Mr Hodgkinson has extensive pharmaceutical experience in finance, strategic planning, business development and licensing, manufacturing and supply chain, and procurement. He joined Mesoblast in 2014. Previously, as country chief financial officer for Novartis ANZ (2011-014), he had full financial responsibility for the Novartis Australia and New Zealand Group (NVS) of companies. Before that he held a number of leadership roles with AstraZeneca in the UK, including global licensing FD.

Management team

CEO and Managing Director: Professor Silviu Itescu

Before founding Mesoblast in 2004, Professor Itescu worked as a physician scientist in the fields of stem cell biology, autoimmune diseases, organ transplantation and heart failure. He is an active faculty member of Melbourne and Monash universities in Australia and was previously a faculty member of Columbia University in New York. He has consulted for various international pharmaceutical companies, has been an adviser to biotechnology and health care investor groups and has served on the board of directors of a number of publicly listed life sciences companies.

New Product and Technology Evaluation/IR: Michael Schuster

Mr Schuster was a founding executive at Mesoblast before its public listing in 2004. He has led Mesoblast's product operational activities and has been a member of the corporate executive leadership team developing the company's strategic, technical and commercial plans. He also leads Mesoblast’s investor relations outreach programme. He holds an undergraduate degree in science from Tufts University, a Master's degree in immunology and microbiology from New York Medical College and a Master’s in business administration from Fordham University in New York.

Chief Medical Officer: Donna Skerrett

Dr Skerrett has been involved in stem cell procurement, manipulation and transplantation for nearly 20 years. Her areas of expertise include conventional transfusion medicine, immunohematology, apheresis, histocompatibility testing, stem cell apheresis and processing, and novel regenerative medicine translational therapy. She is an advisor to the New York State Department of Health on the Progenitor Cell Committee and has been chair of the Governor's Council on Blood and Transfusion Services. She joined Mesoblast in 2004.

Chief Financial Officer: Paul Hodgkinson

Mr Hodgkinson has extensive pharmaceutical experience in finance, strategic planning, business development and licensing, manufacturing and supply chain, and procurement. He joined Mesoblast in 2014. Previously, as country chief financial officer for Novartis ANZ (2011-014), he had full financial responsibility for the Novartis Australia and New Zealand Group (NVS) of companies. Before that he held a number of leadership roles with AstraZeneca in the UK, including global licensing FD.

Principal shareholders

(%)

Professor Silviu Itescu

20.2%

Cephalon Inc.

16.5%

M&G

11.5%

Capital Research Global Investors

7.9%

Thorney Holdings Pty Ltd

5.6%

Companies named in this report

Teva Pharmaceutical Industries, JCR Pharmaceuticals, Lonza Group,

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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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