Mesoblast — A significant impact on back pain

Mesoblast (AU: MSB)

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Research: Healthcare

Mesoblast — A significant impact on back pain

Mesoblast announced results from the MPC-06-ID trial in 391 patients with chronic low back pain due to degenerative disc disease. Patients were randomized to receive a single intra-discal injection of either rexlemestrocel-L alone or rexlemestrocel-L in combination with hyaluronic acid (HA), a vehicle thought to improve mesenchymal stromal cell (MSC) homing to inflammation sites, and saline. In the HA combination arm, statistically significant reductions in pain (as measured by a visual analog score, VAS) versus saline were seen at the 12-month (p=0.014) and 24-month (p=0.036) time points, all from a single injection.

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Healthcare

Mesoblast

A significant impact on back pain

Development update

Pharma & biotech

15 March 2021

Price

A$2.35

Market cap

A$1,522m

US$0.78/A$

Net cash (US$m) at 31 December 2020 + offering

96.8

Shares in issue

647.7m

Free float

84.5%

Code

MSB

Primary exchange

ASX

Secondary exchange

Nasdaq

Share price performance

%

1m

3m

12m

Abs

(9.3)

(48.9)

52.6

Rel (local)

(8.4)

(49.8)

16.8

52-week high/low

A$5.50

A$1.10

Business description

Mesoblast is an Australian-based biotechnology company developing adult stem-cell therapies based on its proprietary MPC and MSC platforms. Its lead programs are in pediatric aGvHD, heart failure, ARDS and lower back pain, all of which are in Phase III or later.

Next events

FDA guidance on clinical programs

CY21

Analysts

Maxim Jacobs

+1 646 653 7027

Nathaniel Calloway

+1 646 653 7036

Mesoblast is a research client of Edison Investment Research Limited

Mesoblast announced results from the MPC-06-ID trial in 391 patients with chronic low back pain due to degenerative disc disease. Patients were randomized to receive a single intra-discal injection of either rexlemestrocel-L alone or rexlemestrocel-L in combination with hyaluronic acid (HA), a vehicle thought to improve mesenchymal stromal cell (MSC) homing to inflammation sites, and saline. In the HA combination arm, statistically significant reductions in pain (as measured by a visual analog score, VAS) versus saline were seen at the 12-month (p=0.014) and 24-month (p=0.036) time points, all from a single injection.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/19

16.0

(86.5)

(15.69)

0.0

N/A

N/A

06/20

31.6

(79.6)

(13.28)

0.0

N/A

N/A

06/21e

72.9

(55.7)

(9.06)

0.0

N/A

N/A

06/22e

8.6

(92.6)

(14.29)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Next steps in back pain

While rexlemestrocel-L showed a significant impact on pain, the primary endpoint was a composite responder analysis (at the 24-month time point) involving pain (via VAS) and the Oswestry Disability Index (ODI). This endpoint was not met and a new trial, with a pain-focused endpoint, might be necessary (although opioids, the current mainstay of treatment, have not shown a functional benefit either and additionally, rexlemestrocel-L appears to be opioid sparing (40% reduction)).

US$110m private placement completed

In March, the company announced a US$110m private placement led by the principals of SurgCenter Development, one of the largest private operators of ambulatory surgical centers in the United States specializing specifically in spine, orthopedic and joint procedures. This investment provides some validation for the back pain data from medical specialists familiar with treating back pain.

Heart failure trial hits 3P-MACE

The company also recently announced the results of Revascor in 537 patients with chronic heart failure. The trial demonstrated a benefit on the three-point major adverse cardiovascular events (3P-MACE) endpoint, which focuses on reduction in cardiac death, heart attack or stroke with a p-value of 0.027. However, the primary endpoint, which focused more on symptom worsening than actual cardiac events, was not met and we believe an additional trial will be necessary for approval.

Valuation: A$4.1bn or A$6.35 per share

We have decreased our valuation from A$4.9bn or A$8.41 per share (A$7.88 per diluted share) to A$4.1bn or A$6.35 per share (A$5.86 per diluted share). We now expect launch in low back pain in FY25 versus FY22 previously, and launch in congestive heart failure (CHF) in FY26 compared to FY23 previously.

A question of endpoints

Mesoblast recently announced results from the MPC-06-ID trial in 391 patients with chronic low back pain due to degenerative disc disease. Low back pain is an extremely common problem with the Centers for Disease Control and Prevention (CDC) reporting that 28% of US adults (65.8 million people as of the date of the survey) have had low back pain that has lasted a day or more during the prior three months.1 Degenerative disc disease is usually caused by ageing, trauma or repetitive motion, and often results in inflammation and extreme pain. It has been estimated to include about 39% of those with chronic low back pain,2 many of whom are not well served by current treatments.

  Blackwell et al., Summary health statistics for US adults: national health interview survey, 2012. Vital Health Statistics Series 10 2014 Feb;(260):1-161.

  Schwarzer et al., The Prevalence and Clinical Features of Internal Disc Disruption in Patients with Chronic Low Back Pain. Spine, 1995. 20(17), 1878–1883.

Treatments include physical therapy, non-steroidal anti-inflammatory medications (NSAIDs) such as acetaminophen or ibuprofen, chiropractic procedures, spinal injections and opioids. Opioid use is especially high, with 59% of opioid prescriptions estimated to go to people with chronic low back pain.3 Data show that the biggest therapeutic impact of opioids is over the short term (less than three months), with that impact dissipating over time. In a review of opioid use for low back pain, short-term opioid use led to placebo-adjusted pain improvements of 10.1 points (out of 100), while intermediate-term use (more than three months but less than 12 months) was associated with a lower 8.1 point placebo-adjusted improvement. There appears to be little evidence of benefit for opioid use beyond 12 months.4

  Hudson et al., Epidemiology of Regular Prescribed Opioid Use: Results from a National, Population-Based Survey. Journal of Pain Symptom Management. 2008 September; 36(3): 280–288.

  Shaheed et al., Efficacy, Tolerability, and Dose-Dependent Effects of Opioid Analgesics for Low Back Pain. JAMA Internal Medicine, 2016 176(7), 958.

What makes the pain data from the MPC-06-ID trial so remarkable is that rexlemestrocel-L plus HA (which, as mentioned, can improve the targeting of MSCs to the points of inflammation5) was able to demonstrate the same level of pain relief that opioids typically achieve in the short term, over a 24-month time frame with a single injection.

  Corradetti et al. Hyaluronic acid coatings as a simple and efficient approach to improve MSC homing toward the site of inflammation. Nature – Scientific Reports 2017;7:7991

Exhibit 1: Back pain change from baseline in MPC-06-ID trial – ITT analysis

Source: Mesoblast

The improvement in pain scores (through VAS) was even better in those who had back pain of shorter duration. This is likely due to the fact that degenerative disc disease is the source of the pain and the longer it goes on, the more intractable the pain might become. In this subset, the difference is even more pronounced, with both 12- and 24-month p-values at p<0.0001.

Exhibit 2: Back pain change from baseline in MPC-06-ID trial – shorter duration subgroup

Source: Mesoblast

Rexlemestrocel-L also demonstrated significantly (p<0.05) greater pain reduction in opioid users (n=168) compared to saline, as well as a significant 40% reduction in opioid use versus baseline over 24 months (p=0.03). Patients treated with saline experienced the opposite: an increase in opioid use. Additionally, on the EuroQoL 5-Dimensional (EQ-5D) Index, a measure of function and disability, rexlemestrocel-L with HA showed a statistically significant improvement over saline at both 12 and 24 months (p=0.009 and p=0.02, respectively).

An interesting development following the release of the data was that principals of SurgCenter Development, one of the largest private operators of ambulatory surgical centers in the United States, specializing specifically in spine, orthopedic and joint procedures, led a US$110m financing round for the company. This investment provides some validation for the data from medical specialists familiar with treating back pain.

The company plans to discuss these results with the FDA as well as potential approval pathways. There is an argument to be made for approval based on these results given the significant impact on pain and opioid use, with a generally safe therapy consisting of a single injection over two years. However, our base case is that additional clinical development will be needed, with a launch in FY25.

Revascor

The company also recently announced the results of the DREAM-HF trial of Revascor (the brand name of rexlemestrocel-L in heart failure) in 537 patients with chronic heart failure. As in the back pain trial, patients received only a single dose of the medicine. The trial missed the primary endpoint of time to recurrent, non-fatal, decompensated heart failure major adverse cardiac events (HF-MACE) that occur prior to the first terminal cardiac event. However, this is a non-standard endpoint that focuses more on worsening symptoms related to heart failure than cardiac-specific events such as heart attacks and strokes. Revascor did demonstrate a benefit on the 3P-MACE endpoint, which focuses on reduction in cardiac death, heart attack or stroke (see Exhibit 3). Revascor was able to reduce these events by a significant 30% (p=0.027), which is a larger effect size than typically seen with heart failure drugs.

Exhibit 3: Revascor reductions in cardiovascular death, heart attack or stroke

Source: Mesoblast

Importantly, there was a dramatic 55% effect size (p=0.009) in the 206 New York Heart Association functional classification (NYHA) class II subgroup. The trial enrolled NYHA class II and class III patients, with class II patients being less severe with only a slight limitation in physical activity versus the marked limitation with class III patients.

Exhibit 4: Revascor reductions in cardiovascular death, heart attack or stroke (class II)

Source: Mesoblast

Revascor was also able to significantly reduce hospitalization rates from non-fatal heart attacks and strokes in all patients by 68% (p=0.0002), with similar effects in both class II and class III patients.

Exhibit 5: Hospitalization rates for non-fatal heart attack or stroke in DREAM-HF trial

Source: Mesoblast

So, while the DREAM-HF trial missed the primary endpoint of HF-MACE (which was negotiated by former partner Teva Pharmaceuticals around eight years ago), there were significant effect sizes across a number of other endpoints. Also, while not the primary endpoint, 3P-MACE has been a standard primary endpoint for cardiovascular outcomes trials involving diabetes drugs.6 Importantly, Novo Nordisk’s Victoza (liraglutide), which had US$3.9bn in peak sales in 2018, received a label expansion to include reduction of risk of major adverse cardiovascular events in 2017 based on data from a trial (LEADER) with a 3P-MACE primary endpoint. Effect sizes were generally small, with the large size of the trial (9,340 versus 537 in the Mesoblast trial) assisting in obtaining statistically significant p-values.

  Marx et al., Composite Primary End Points in Cardiovascular Outcomes Trials Involving Type 2 Diabetes Patients: Should Unstable Angina Be Included in the Primary End Point? Diabetes Care. 2017 Sep;40(9):1144-1151.

Exhibit 6: Victoza LEADER trial results

Endpoint

Liraglutide (n=4668), percent of patients in arm with event

Placebo (n=4672), percent of patients with event

Risk reduction

p-value

3P-MACE

13.0

14.9

13%

0.01

Death

8.2

9.6

15%

0.02

Cardiovascular death

4.7

6.0

22%

0.007

Myocardial infarction (heart attack)

6.3

7.3

14%

0.046

Stroke

3.7

4.3

14%

0.16

Hospitalization for heart failure

4.7

5.3

13%

0.14

Source: FDA review, Marso et al, Liraglutide and Cardiovascular Outcomes in Type 2 Diabetes, NEJM, 2016; 375:311-322

With regard to heart failure-specific medications, Entresto (sacubitril/valsartan) was approved in 2015 to treat NYHA class II–IV heart failure patients and had sales of US$2.5bn in 2020, with expectations for around $4.5bn in peak sales according to EvaluatePharma. Entresto obtained approval based on a primary endpoint of heart failure hospitalization or cardiovascular death. Interestingly, just as in Mesoblast’s DREAM-HF trial, the data were particularly strong in NYHA class II patients, where there was a 26% risk reduction. NYHA class III patients saw only a 7% reduction in the primary endpoint, which was not significant (see Exhibit 7). It is therefore possible that these patients are too severely afflicted for medical therapy to have much of an impact.

Exhibit 7: Entresto PARADIGM-HF trial results

Endpoint

Entresto (n=4187), % of patients in arm with event

Enalapril (n=4212), % of patients in arm with event

Risk reduction

p-value

Primary endpoint: heart failure hospitalization or cardiovascular death

21.8

26.5

20%

0.0000002

Primary endpoint: NYHA class II patients only (70.5% of randomized)

19.3

25.4

26%

N/A but significant

Primary endpoint NYHA class III patients only (24.0% of randomized)

30.1

31.4

7%

N/A but not significant

Heart failure hospitalization

12.8

15.6

21%

<0.001

Cardiovascular death

13.3

16.5

20%

<0.001

Death (all-cause)

17

19.8

16%

0.0009

Source: FDA review, McMurray et al., Angiotensin-Neprilysin Inhibition versus Enalapril in Heart Failure, NEJM 2014; 371:993-1004

As with back pain, the company plans to discuss these results with the FDA as well as potential approval pathways. The data are complex and the primary endpoint was missed, but some very hard endpoints were hit with both statistical and clinical significance. It is possible that the FDA would accept an accelerated approval pathway, but it is our base case that another trial will be needed, with a launch in FY26.

COVID-19 related ARDS

In December, the DSMB ran the third interim analysis of the remestemcel-L trial in COVID-19 related ARDS patients following the enrolment of 180 patients, and concluded the trial was unlikely to meet the endpoint of a 43% reduction in mortality at 30 days after treatment. This hurdle was based on data from the early part of the pandemic when less was known about how to treat COVID-19 patients. Over the course of the trial, better care of these patients reduced mortality rates, which made the 43% reduction unattainable. So, while this specific endpoint was not met, it is possible that there were trends towards improved mortality. The company has yet to announce any of the secondary endpoints.

As a reminder, in November Novartis signed a partnership with the company to develop remestemcel-L for ARDS, whether or not the ARDS was caused by COVID-19, as well as potentially other conditions. Novartis is expected to make a US$25m upfront payment and an additional US$25m equity investment once the transaction closes. Mesoblast may receive a total of US$505m in development milestones, an additional US$750m in sales milestones and tiered double-digit royalties. Additionally, as part of the agreement, Novartis will fully fund global clinical development for all-cause ARDS and potentially other respiratory indications once the all-cause ARDS Phase III is initiated (however, it is unknown whether the design or timing of this trial will be affected by the DSMB action; the companies are awaiting the 60-day results, expected in Q1). Mesoblast will be responsible for both clinical and commercial manufacturing and Novartis will purchase commercial product from the company. There are also US$50m in manufacturing milestones related to the successful implementation of a next-generation manufacturing process. Novartis will be responsible for any capital expenditure related to increasing capacity requirements for the manufacture of remestemcel-L.

Outside respiratory indications, Novartis also has an option to become the commercial distributor of Ryoncil (the brand name of remestemcel-L in graft versus host diseases). For most non-respiratory indications, Novartis and Mesoblast may fund development and commercialization on a 50/50 profit share basis.

Valuation

We have decreased our valuation from A$4.9bn or A$8.41 per share (A$7.88 per diluted share) to A$4.1bn or A$6.35 per share (A$5.86 per diluted share). This reduction was driven mainly by the fact that we now expect launch in low back pain in FY25 versus FY22 previously, and launch in CHF in FY26 compared to FY23 previously. We have maintained our 50% probabilities of success for both programs. The fact that the trials did not hit their primary endpoints is balanced by the fact that we have strong data indicating efficacy, while we had very limited data previously. We may adjust our probabilities of success as well as launch timing in the future depending on FDA guidance. With regard to ARDS, we have made no changes as we have never included COVID-19 related ARDS in our valuation and do not believe there is a readthrough to the broader ARDS indication. Our valuation was also affected by the recent private placement, which increased net cash, but also increased the number of shares and options outstanding.

Exhibit 8: Mesoblast valuation table

Product

Indication

Prob. of success (%)

Launch
(FY)

Peak sales (US$m)

rNPV
(A$m)

Active projects

MSC-100-IV

Acute graft versus host disease (GvHD)

Range 50–60%

2023

574

1,090.0

MSC-100-IV

ARDS

30%

2024

1736

335.7

Revascor (MPC-150-IM)

Congestive heart failure (CHF) (includes use with LVAD)

50%

2026

3016

1,653.2

MPC-06-ID

Intervertebral disc repair

50%

2025

1321

1,501.2

On-hold projects

MPC-300-IV

Diabetic nephropathy

5.0%

On hold

2186

58.4

MPC-300-IV

Rheumatoid arthritis

5.0%

On hold

1,350

33.2

MPC-25-IC

Acute myocardial infarction (AMI)

5.0%

On hold

1057

51.8

MPC-25-Osteo

Lumber fusion

5.0%

On hold

662

21.9

Total value

4745.3

R&D expenses

(345.4)

Manufacturing expenses

(113.7)

G&A expenses

(138.0)

Net cash (debt) (A$m at 31 December 2020 + offering)

124.2

Non-dilutive funding interest and repayments

(162.6)

Total (A$)

 

 

 

4,110

Shares (m)

 

 

 

647.7

Value per share (A$)

6.35

Options outstanding (2020 onwards) (m)

53.94

Fully diluted shares in issue (m)

701.63

Fully diluted value per share (A$)

 

 

5.86

Source: Edison Investment Research

Financials

Mesoblast reported total revenue for the second quarter of FY21 (the period ending 31 December 2020) of US$2.2m, slightly higher than the same period a year ago. US$2.1m of this was royalties on sales of Temcell in Japan, which increased from US$2.0m last year. R&D was essentially flat at US$14.2m. Manufacturing expenses increased from US$5.1m to US$6.5m due mainly to the building up inventory for the planned Ryoncil launch (now put on hold following the FDA complete response letter in calendar Q420). Management and administration expenses also increased to US$7.9m from US$6.8m due to higher share-based payments to employees and consultants and increased overheads. The only meaningful change to our estimates was lower finance costs due to a lower than expected run rate.

Also, for the period ending 31 December 2020, Mesoblast reported cash and equivalents of US$77.5m, down from US$108.1m for the period ending 30 September 2020. Also, the company had US$41.6m in short-term debt (although in January 2021, the interest-only period for the loan was extended up to March 2022, subject to achieving certain milestones) and an additional US$49.1m in long-term debt. In March 2021, the company announced a US$110m private placement led by the principals of SurgCenter Development, one of the largest private operators of ambulatory surgical centres in the United States (80 operational facilities across 20 states) specializing specifically in spine, orthopedic and joint procedures. 60.1m shares were issued at A$2.30 per share, with an additional 15.0m warrants issued with an exercise price of A$2.88/share.

We currently forecast a requirement to raise US$75m by the end of FY23 (modelled as illustrative debt), down from US$140m previously. We believe Mesoblast’s financing needs will depend in part on whether Ryoncil sales start sooner than anticipated, potential future partnership royalties/milestones, as well as the company’s aggressiveness in investing in the business. Additionally, we have not yet included the US$25m equity investment from Novartis and will do so once the transaction closes (guidance on timing has not been provided).

Exhibit 9: Financial summary

US$'000s

2019

2020

2021e

2022e

30-June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

16,003

31,614

72,850

8,600

Cost of Sales

0

0

0

0

Gross Profit

16,003

31,614

72,850

8,600

R&D Expenses

(57,531)

(52,993)

(63,592)

(57,233)

Manufacturing & Commercialisation Expenses

(14,466)

(22,782)

(27,338)

(13,669)

SG&A Expenses

(18,293)

(20,142)

(30,214)

(21,149)

EBITDA

 

 

(75,373)

(64,758)

(46,275)

(83,197)

Operating Profit (before amort. and except.)

 

 

(75,935)

(66,851)

(48,368)

(85,290)

Intangible Amortisation

(1,577)

(1,574)

(1,750)

(1,750)

Exceptionals

(6,264)

1,380

15,107

0

Share-based payments

(4,368)

(7,522)

(5,434)

(5,434)

Operating Profit

(88,145)

(74,567)

(40,446)

(92,474)

Net Interest

(10,609)

(12,788)

(7,294)

(7,294)

Profit Before Tax (norm)

 

 

(86,544)

(79,639)

(55,662)

(92,583)

Profit Before Tax (FRS 3)

 

 

(98,754)

(87,355)

(47,740)

(99,768)

Tax

8,955

9,415

656

0

Profit After Tax (norm)

(77,589)

(70,224)

(55,006)

(92,583)

Profit After Tax (FRS 3)

(89,799)

(77,940)

(47,084)

(99,768)

Average Number of Shares Outstanding (m)

494.4

528.8

607.0

648.0

EPS - normalised fully diluted (c)

 

 

(15.69)

(13.28)

(9.06)

(14.29)

EPS - normalised (c)

 

 

(15.69)

(13.28)

(9.06)

(14.29)

EPS - (IFRS) (c)

 

 

(18.16)

(14.74)

(7.76)

(15.40)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

100.0

EBITDA Margin (%)

N/A

N/A

N/A

N/A

Operating Margin (before GW and except) (%)

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

589,593

597,054

596,852

597,340

Intangible Assets

583,126

581,601

581,330

583,423

Tangible Assets

826

10,271

10,413

8,808

Investments

5,641

5,182

5,109

5,109

Current Assets

 

 

62,522

136,548

218,943

120,085

Stocks

0

0

0

0

Debtors

4,060

1,574

3,342

3,342

Cash

50,426

129,328

206,013

107,155

Other

8,036

5,646

9,588

9,588

Current Liabilities

 

 

(44,331)

(90,143)

(91,040)

(140,126)

Creditors

(13,060)

(28,491)

(31,162)

(31,162)

Deferred revenue

(17,264)

(29,197)

(18,307)

(18,307)

Short term borrowings

(14,007)

(32,455)

(41,571)

(90,657)

Long Term Liabilities

 

 

(126,732)

(94,133)

(77,539)

(28,453)

Long term borrowings

(67,279)

(57,023)

(49,086)

0

Deferred revenue

0

0

0

0

Other long term liabilities

(59,453)

(37,110)

(28,453)

(28,453)

Net Assets

 

 

481,052

549,326

647,216

548,846

CASH FLOW

Operating Cash Flow

 

 

(54,572)

(43,911)

(33,055)

(91,420)

Net Interest

(3,217)

(12,454)

(6,952)

(6,951)

Tax

0

0

0

0

Capex

(279)

(2,096)

(488)

(488)

Acquisitions/disposals

0

0

0

0

Financing

30,258

144,946

119,565

0

Dividends

0

0

0

0

Other

21,203

0

0

6,678

Net Cash Flow

(6,608)

86,485

79,070

(92,181)

Opening net debt/(cash)

 

 

21,634

30,860

(39,850)

(115,356)

Loan movements

0

0

0

0

Other

(2,619)

(15,775)

(3,564)

(6,678)

Closing net debt/(cash)

 

 

30,860

(39,850)

(115,356)

(16,498)

Source: company reports, Edison Investment Research

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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Mesoblast and prepared and issued by Edison, in consideration of a fee payable by Mesoblast. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Hellenic Petroleum — A flexible refiner in a challenging time

Despite continued low benchmark refinery margins during H220 due to the impact of COVID-19 on oil products demand, Hellenic Petroleum was able to maintain high production levels and generate substantial positive operating margin thanks to the flexibility of its refining system and increased exports. We anticipate a potentially slower recovery of benchmark margins in 2021 than previously assumed due to continued sluggish demand, at least during H121. However, with Greece looking to prioritise tourism with reduced restrictions on travel, we anticipate this could accelerate a recovery in domestic demand, especially for jet and road fuels. We have updated our estimates and valuation to reflect the Q420 results and peer multiples, and include a contribution from the recently announced 204MW Kozani PV project. Our valuation is unchanged at €6.55/share, representing 13% upside to the current share price.

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