Waiting for readouts

Mesoblast 7 November 2017 Update
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Mesoblast

Waiting for readouts

Trial timing and FY17 results

Pharma & biotech

7 November 2017

Price

A$1.32

Market cap

A$565m

US$0.76/A$

Cash (US$m) at 30 June 2017 (including US$40m capital raise in Q118)

84.0

Shares in issue

427.9m

Free float

66.1%

Code

MSB

Primary exchange

ASX

Secondary exchange

NASDAQ

Share price performance

%

1m

3m

12m

Abs

(7.1)

(22.8)

17.6

Rel (local)

(11.2)

(25.9)

3.4

52-week high/low

A$3.3

A$1.1

Business description

Mesoblast is developing adult stem-cell therapies based on its proprietary MPC and culture-expanded MSC platforms. The key trial is a 600-patient Phase III in heart failure. Other indications are in back pain and paediatric GvHD. There is an NIH Class IV heart failure study.

Next events

Top-line data GvHD Phase III

Q417

Fully enrol MPC-06-ID back pain Phase III

Q417

LVAD HF Phase IIb weaning endpoint

H118

Analysts

Dr John Savin MBA

+44 (0)20 3077 5735

Dr Dennis Hulme

+61 (0)2 8249 8345

Mesoblast is a research client of Edison Investment Research Limited

Mesoblast is entering a period of top-line readouts. This note focuses on two possible value events in 2018 in graft vs host disease and in Class IV heart failure. In addition, the critical Phase III heart failure (HF) trial could complete enrolment in H218; the trial readout depends on the number and timing of clinical events but will probably not be before H219. The lower back pain trial plans to complete enrolment by the end of 2017 with a two-year endpoint. Mesoblast had effective cash of US$84.0m on 30 June.

Year
end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/16

44.2

(87.4)

(0.2)

0.0

N/A

N/A

06/17

3.4

(84.9)

(18.1)

0.0

N/A

N/A

06/18e

6.7

(85.0)

(18.9)

0.0

N/A

N/A

06/19e

9.0

(88.7)

(18.9)

0.0

N/A

N/A

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

MSC-100-IV: Paediatric graft vs host disease (GvHD)

The trial (NCT02652130) is in steroid refractory GvHD, that is patients had a blood cancer and to cure them had a transplanted allogenic immune system. This is now attacking their heathy tissues. The trial could enrol up to 60 young patients treated with Remestemcel-L (2 x 106 MSC/kg) with a 100-day endpoint of complete or partial GvHD remission. Data is due from December 2017; this could be in Q118 as recruitment is apparently ongoing. There are about 4,000 paediatric stem cell US and EU transplants a year according to Mesoblast. We estimate 15% might be steroid refractory. This is a high value application sold in Japan for US$195,000.

MPC-150-IM: LVAD and heart failure

Class IV heart failure patients are incapacitated. Implanting an LVAD heart pump can restore some function; transplants are rare. Remestemcel-L (150m cells injected into the heart) is being tested vs a sham comparator in 159 LVAD patients to test if it improves heart function measured by short-term weaning off the LVAD. The trial (NCT02362646) is funded by the US National Heart, Lung, and Blood Institute, which will disclose data. The six-month LVAD weaning primary endpoint completes in Q118; co-primary endpoint adverse event data will be in Q318. The LVAD market, about 3,500 per year in the US, is small but valuable. The trial may act as an indicator for the 600-patient Class II/III heart failure study (NCT02032004).

Further cash or deals needed, valuation unchanged

FY17 (Japanese) royalties were US$1.4m with US$1m other income. The FY17 cash outflow was US$95.5m with year-end effective cash of US$84.0m implying further funding needs in H1 CY18; Edison projects a US$90m funding need to June 2019. Mallinckrodt did not use its exclusive option in Q3 CY17 but may still do a deal, although Mesoblast could now partner with another company as it still intends to partner a core (Tier One) project for cash. Mesoblast still has a two-year US$90m equity facility with Kentgrove Capital. Edison has retained the current indicative value of A$1.72bn (A$4.02 /share) pending trial data and possible corporate transactions, which could offset any future potential dilution.

Exhibit 1: Financial summary

US$000s

2016

2017

2018e

2019e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

44,183

3,433

6,740

8,980

Cost of Sales

0

0

(1,207)

(2,382)

Gross Profit

44,183

3,433

5,533

6,598

R&D Expenses

(50,013)

(58,914)

(60,092)

(62,496)

Manufacturing & Commercialisation Expenses

(29,763)

(12,065)

(12,186)

(12,551)

SG&A Expenses

(22,500)

(23,007)

(22,895)

(23,582)

EBITDA

 

 

(86,319)

(82,350)

(83,154)

(85,384)

Operating Profit (before amort and except)

 

(88,511)

(85,407)

(86,364)

(88,755)

Intangible Amortisation

0

0

0

0

Exceptionals

0

0

0

0

Share-based payments

(3,389)

(5,276)

(5,276)

(5,276)

Operating Profit

(91,900)

(90,683)

(91,640)

(94,031)

Net Interest

1,079

468

1,373

56

Profit Before Tax (norm)

 

 

(87,432)

(84,939)

(84,991)

(88,698)

Profit Before Tax (FRS 3)

 

 

(90,821)

(90,215)

(90,267)

(93,974)

Tax

86,694

13,400

0

0

Profit After Tax (norm)

(738)

(71,539)

(84,991)

(88,698)

Profit After Tax (FRS 3)

(4,127)

(76,815)

(90,267)

(93,974)

Average Number of Shares Outstanding (m)

360.8

395.3

449.3

470.4

EPS - normalised fully diluted (c)

 

 

(0.20)

(18.10)

(18.92)

(18.85)

EPS - normalised (c)

 

 

(0.20)

(18.10)

(18.92)

(18.85)

EPS - (IFRS) (c)

 

 

(1.14)

(19.43)

(20.09)

(19.98)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

82.1

73.5

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

595,195

592,077

589,178

586,118

Intangible Assets

587,823

586,350

586,350

586,350

Tangible Assets

3,063

1,814

(1,085)

(4,145)

Investments

4,309

3,913

3,913

3,913

Current Assets

 

 

88,823

63,609

19,717

24,079

Stocks

0

0

0

0

Debtors

4,054

3,743

3,743

3,743

Cash

80,937

45,761

1,869

6,231

Other

3,832

14,105

14,105

14,105

Current Liabilities

 

 

(29,415)

(36,670)

(36,670)

(36,670)

Creditors

(27,155)

(21,805)

(21,805)

(21,805)

Deferred revenue

(2,260)

(14,865)

(14,865)

(14,865)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(126,442)

(102,250)

(102,250)

(192,250)

Long term borrowings

0

0

0

(90,000)

Deferred revenue

0

0

0

0

Other long term liabilities

(126,442)

(102,250)

(102,250)

(102,250)

Net Assets

 

 

528,161

516,766

469,975

381,277

CASH FLOW

Operating Cash Flow

 

 

(89,125)

(95,954)

(83,154)

(85,384)

Net Interest

1,129

483

1,373

56

Tax

0

(1)

0

0

Capex

(922)

(311)

(311)

(311)

Acquisitions/disposals

(805)

453

0

0

Financing

62,066

60,005

38,200

0

Dividends

0

0

0

0

Other

0

0

0

0

Net Cash Flow

(27,657)

(35,324)

(43,892)

(85,639)

Opening net debt/(cash)

 

 

(110,701)

(80,937)

(45,761)

(1,869)

HP finance leases initiated

0

0

0

0

Other

(2,107)

148

0

0

Closing net debt/(cash)

 

 

(80,937)

(45,761)

(1,869)

83,769

Source: Mesoblast accounts, Edison Investment Research. Note: Mesoblast’s reporting currency is 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 n
ot 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

295 Madison Avenue, 18th Floor

10017, 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

295 Madison Avenue, 18th Floor

10017, 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 n
ot 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

295 Madison Avenue, 18th Floor

10017, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205, 95 Pitt Street

Sydney NSW 2000

Australia

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