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Research: Healthcare
It is going to be a busy next several months for Mesoblast. The company recently completed filing the biologics license application (BLA) for Ryoncil (remestemcel-L) with the FDA for approval for the treatment of pediatric steroid-refractory acute graft versus host disease (aGvHD). Mesoblast should be notified by the end of March whether the BLA has been accepted and whether it will have a six-month priority review or a 10-month standard review. Additionally, data from the Revascor DREAM-HF1 Phase III trial in 566 advanced heart failure patients is expected by the middle of 2020. Data from the MPC-06-ID 404-patient trial in lower back pain is also expected around the middle of the year.
Written by
Maxim Jacobs
Mesoblast |
An important next several months |
Financial update |
Pharma & biotech |
16 March 2020 |
Share price performance
Business description
Next events
Analysts
Mesoblast is a research client of Edison Investment Research Limited |
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It is going to be a busy next several months for Mesoblast. The company recently completed filing the biologics license application (BLA) for Ryoncil (remestemcel-L) with the FDA for approval for the treatment of pediatric steroid-refractory acute graft versus host disease (aGvHD). Mesoblast should be notified by the end of March whether the BLA has been accepted and whether it will have a six-month priority review or a 10-month standard review. Additionally, data from the Revascor DREAM-HF1 Phase III trial in 566 advanced heart failure patients is expected by the middle of 2020. Data from the MPC-06-ID 404-patient trial in lower back pain is also expected around the middle of the year.
Year end |
Revenue (US$m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
06/18 |
17.0 |
(68.6) |
(8.14) |
0.0 |
N/A |
N/A |
06/19 |
16.0 |
(86.5) |
(15.69) |
0.0 |
N/A |
N/A |
06/20e |
61.2 |
(37.2) |
(5.49) |
0.0 |
N/A |
N/A |
06/21e |
48.5 |
(49.8) |
(9.28) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Ryoncil aGvHD launch expected in 2020
Mesoblast completed its rolling BLA submission to the FDA on 31 January. Within 60 days of filing (which would be the end of March), the FDA should notify the company of its acceptance and whether it will have a six-month priority review or a 10-month standard review. We expect that it will receive a priority review due to the innovative nature of the therapy and the positive safety and efficacy data in an indication with unmet need.
Revascor Phase III in heart failure readout mid-2020
The company announced that the required accrual of primary endpoint events in its DREAM HF-1 Phase III trial in 566 advanced heart failure patients has occurred. The primary endpoint is a reduction in recurrent heart failure-related major adverse cardiac events such as heart-failure related hospitalization and cardiac death. Also, a protocol for a Phase III in LVAD patients has been agreed upon between Mesoblast and InCHOIR, in line with FDA guidance.
MPC-06-ID Phase III data mid-2020
The 404-patient Phase III in lower back pain has completed recruitment and final study visits have been initiated. Data is expected by the middle of the year. A confirmatory Phase III is currently being planned with partner Grϋnenthal in Europe.
Valuation: A$4.2bn or A$7.89 per share
We have slightly adjusted our valuation to A$4.2bn or A$7.89 per share (A$7.51 per diluted share) from A$4.2bn or A$7.91 per share (A$7.53 per diluted share), mainly due to lower net cash. A number of key valuation inflection points are coming up for the company in the next 12 months including a potential FDA approval and data from two Phase III trials in large indications.
Fiscal Q2 update
Mesoblast reported revenues of US$2.2m for the second quarter of FY20 (the period ending 31 December 2019), US$2.0m of which was related to royalties on Temcell sales in Japan (up 62% year over year). For the first half of the fiscal year, total revenues were US$19.2m (up 43% compared to fiscal H119), due to a US$15m upfront payment that was part of the Grϋnenthal licensing agreement for MPC-06-ID. The operating cash burn rate was US$16.9m for fiscal H120.
The company is awaiting a response from the FDA regarding its BLA application for Ryoncil for steroid-refractory aGvHD, which we expect by the end of March. At that point we will learn both whether the application was accepted for review and the expected length of the review. The company is seeking a six-month priority review and we expect it to receive it due to the innovative nature of the therapy and the positive safety and efficacy data in an indication with unmet need. A six-month review would mean the PDUFA date would be around the end of September this year.
Additionally, the company announced positive outcomes from an investigator trial of remestemcel-L (the same product as Ryoncil; the Ryoncil name will only be used for aGvHD) in chronic graft versus host disease (cGvHD) patients. All three patients (two children and one adult) had clinically meaningful outcomes within 28 days after just two infusions. This compares favorably to Imbruvica (from Johnson & Johnson and AbbVie), which needs to be taken orally on a daily basis and had a median time to response of 12.3 weeks in the pivotal trial. Mesoblast is now planning a pivotal trial of remestemcel-L in cGvHD. For reference, cGvHD has around 14,000 patients in the United States, with the average annual cost estimated to be US$291,357 per patient.1
Bachier et al. Epidemiology and Real-World Treatment of Chronic Graft-Versus-Host Disease Post Allogeneic Hematopoietic Cell Transplantation: A US Claims Analysis. Blood (2019) 134 (Supplement_1): 2109.
Importantly, in March the company announced its intention to develop remestemcel-L for the treatment of acute respiratory distress syndrome (ARDS) due to coronavirus (COVID-19). In one study of 191 coronavirus patients in Wuhan, China, 31% had ARDS, including 93% of patients who would eventually not survive the infection.2 With regards to efficacy, there are two particular studies that are encouraging. First, in an investigator sponsored trial in China in seven coronavirus patients (five of which were severe cases), treatment with allogeneic mesenchymal stem cell therapy (which is what remestemcel-L is) resulted in significantly improved pulmonary function in all seven patients within two days of treatment.3 Additionally, in a post-hoc analysis of a trial of remestemcel-L in chronic obstructive pulmonary disease (COPD), remestemcel-L significantly reduced inflammatory biomarkers and improved pulmonary function in those patients with elevated inflammatory biomarkers. The company is currently in discussions with various governmental, medical and pharmaceutical organizations on the best way to proceed with development.
Zhou et al., Clinical course and risk factors for mortality of adult inpatients with COVID-19 in Wuhan, China: a retrospective cohort study. Lancet. www.thelancet.com/pb-assets/Lancet/pdfs/S014067362305663.pdf
Leng Z, et al. Transplantation of ACE2- Mesenchymal Stem Cells Improves the Outcome of Patients with COVID-19 Pneumonia. Aging and Disease. Volume 11, Number 2; 216-228, April 2020
For Revascor, the necessary number of primary endpoint events has occurred in the DREAM HF-1 Phase III trial in 566 advanced heart failure patients and final study visits have been initiated. Study data is expected in mid-CY20. The primary endpoint is a reduction in recurrent heart failure-related major adverse cardiac events such as heart-failure related hospitalization and cardiac death. With regards to the use of Revascor to treat end-stage heart failure patients with a left ventricular assist device (LVAD), Mesoblast and the International Center for Health Outcomes and Innovation Research (InCHOIR) have agreed on a protocol for a confirmatory Phase III trial, which incorporates FDA guidance.
The MPC-06-ID Phase III trial is also on track to provide data by the middle of this year. It enrolled 404 patients with chronic low back pain due to degenerative disc disease and had a composite primary endpoint that included measures of pain and disability/function at 12 and 24 months. As with the DREAM HF-1 trial, final study visits have been initiated. Two Phase III trials will likely be necessary for approval in this indication and a confirmatory European Phase III is currently being planned with partner Grϋnenthal.
Valuation
We have slightly adjusted our valuation to A$4.2bn or A$7.89 per share (A$7.51 per diluted share) from A$4.2bn or A$7.91 per share (A$7.53 per diluted share), mainly due to lower net cash. A number of key valuation inflection points are coming up for the company in the next 12 months including a potential FDA approval and data from two Phase III trials in large indications.
Exhibit 1: Valuation of Mesoblast
Product |
Indication |
Probability of success (%) |
Launch |
Peak sales (US$m) |
rNPV |
Active projects |
|||||
Ryoncil (remestemcel-L) |
Acute graft versus host disease (GvHD) |
Range 50–80% |
2020 |
574 |
1,200.6 |
Revascor (MPC-150-IM) |
Congestive heart failure (CHF) (includes use with LVAD) |
50% |
2023 |
3,208 |
1,926.1 |
MPC-06-ID |
Intervertebral disc repair |
50% |
2022 |
3,302 |
1,634.0 |
On-hold projects |
|||||
MPC-300-IV |
Diabetic nephropathy |
5.0% |
On hold |
2,186 |
49.1 |
MPC-300-IV |
Rheumatoid arthritis |
5.0% |
On hold |
1,350 |
27.9 |
MPC-25-IC |
Acute myocardial infarction (AMI) |
5.0% |
On hold |
1,057 |
43.5 |
MPC-25-Osteo |
Lumber fusion |
5.0% |
On hold |
662 |
18.4 |
Total value |
4,899.7 |
||||
R&D expenses |
(307.6) |
||||
Manufacturing expenses |
(70.1) |
||||
G&A expenses |
(122.9) |
||||
Net cash/(debt) (at 31 December 2019) |
(5.3) |
||||
Non-dilutive funding interest and repayments |
(153.9) |
||||
Total (A$) |
|
|
|
4,240 |
|
Shares (m) |
|
|
|
537.12 |
|
Value per share (A$) |
7.89 |
||||
Options outstanding (2019 onwards) (m) |
27.17 |
||||
Fully diluted shares in issue (m) |
564.29 |
||||
Fully diluted value per share (A$) |
|
|
7.51 |
||
Source: Edison Investment Research
Financials
For the period ending 31 December 2019, Mesoblast reported cash and equivalents of US$81.3m with US$18.9m in current borrowings and an additional US$66.0m in long-term borrowings. We continue to forecast no additional financing requirement for FY20 and US$50m in FY21, which we record as illustrative debt.
Exhibit 2: Financial summary
US$000s |
2018 |
2019 |
2020e |
2021e |
|||
Year end 30 June |
IFRS |
IFRS |
IFRS |
IFRS |
|||
PROFIT & LOSS |
|||||||
Revenue |
|
|
|
16,975 |
16,003 |
61,244 |
48,510 |
Cost of Sales |
0 |
0 |
0 |
0 |
|||
Gross Profit |
16,975 |
16,003 |
61,244 |
48,510 |
|||
R&D Expenses |
(62,289) |
(57,531) |
(50,000) |
(50,000) |
|||
Manufacturing & Commercialisation Expenses |
(4,040) |
(14,466) |
(12,000) |
(10,500) |
|||
SG&A Expenses |
(18,165) |
(18,293) |
(15,920) |
(18,745) |
|||
EBITDA |
|
|
|
(66,207) |
(75,373) |
(23,849) |
(37,751) |
Operating Profit (before amort. and except.) |
|
|
|
(67,116) |
(75,935) |
(24,099) |
(38,001) |
Intangible Amortisation |
(1,741) |
(1,577) |
(1,750) |
(1,750) |
|||
Exceptionals |
10,541 |
(6,264) |
(1,152) |
0 |
|||
Share-based payments |
(6,198) |
(4,368) |
(5,330) |
(5,330) |
|||
Operating Profit |
(64,514) |
(88,145) |
(32,330) |
(45,081) |
|||
Net Interest |
(1,463) |
(10,609) |
(13,124) |
(11,829) |
|||
Profit Before Tax (norm) |
|
|
|
(68,579) |
(86,544) |
(37,223) |
(49,830) |
Profit Before Tax (FRS 3) |
|
|
|
(65,977) |
(98,754) |
(45,454) |
(56,910) |
Tax |
30,687 |
8,955 |
7,728 |
0 |
|||
Profit After Tax (norm) |
(37,892) |
(77,589) |
(29,495) |
(49,830) |
|||
Profit After Tax (FRS 3) |
(35,290) |
(89,799) |
(37,726) |
(56,910) |
|||
Average Number of Shares Outstanding (m) |
465.7 |
494.4 |
537.1 |
537.1 |
|||
EPS - normalised fully diluted (c) |
|
|
|
(8.14) |
(15.69) |
(5.49) |
(9.28) |
EPS - normalised (c) |
|
|
|
(8.14) |
(15.69) |
(5.49) |
(9.28) |
EPS - (IFRS) (c) |
|
|
|
(7.58) |
(18.16) |
(7.02) |
(10.60) |
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 |
|
|
|
591,372 |
589,593 |
596,930 |
597,542 |
Intangible Assets |
584,606 |
583,126 |
582,338 |
582,588 |
|||
Tangible Assets |
1,084 |
826 |
1,554 |
1,916 |
|||
Investments |
5,682 |
5,641 |
13,038 |
13,038 |
|||
Current Assets |
|
|
|
101,071 |
62,522 |
87,979 |
87,444 |
Stocks |
0 |
0 |
0 |
0 |
|||
Debtors |
50,366 |
4,060 |
3,091 |
3,091 |
|||
Cash |
37,763 |
50,426 |
76,020 |
75,485 |
|||
Other |
12,942 |
8,036 |
8,868 |
8,868 |
|||
Current Liabilities |
|
|
|
(24,003) |
(44,331) |
(80,949) |
(80,949) |
Creditors |
(18,921) |
(13,060) |
(19,241) |
(19,241) |
|||
Deferred revenue |
(5,082) |
(17,264) |
(42,780) |
(42,780) |
|||
Short term borrowings |
0 |
(14,007) |
(18,928) |
(18,928) |
|||
Long Term Liabilities |
|
|
|
(122,432) |
(126,732) |
(112,476) |
(143,548) |
Long term borrowings |
(59,397) |
(67,279) |
(65,996) |
(97,068) |
|||
Deferred revenue |
0 |
0 |
0 |
0 |
|||
Other long term liabilities |
(63,035) |
(59,453) |
(46,480) |
(46,480) |
|||
Net Assets |
|
|
|
546,008 |
481,052 |
491,484 |
460,489 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
|
(74,563) |
(54,572) |
(8,937) |
(19,681) |
Net Interest |
(449) |
(3,217) |
(12,952) |
(11,390) |
|||
Tax |
0 |
0 |
0 |
0 |
|||
Capex |
(201) |
(279) |
(612) |
(612) |
|||
Acquisitions/disposals |
(952) |
0 |
0 |
0 |
|||
Financing |
40,566 |
30,258 |
51,053 |
0 |
|||
Dividends |
0 |
0 |
0 |
0 |
|||
Other |
(31,742) |
21,203 |
0 |
0 |
|||
Net Cash Flow |
(67,341) |
(6,608) |
28,553 |
(31,684) |
|||
Opening net debt/(cash) |
|
|
|
(45,761) |
21,634 |
30,860 |
8,904 |
Loan movements |
0 |
0 |
0 |
0 |
|||
Other |
(54) |
(2,619) |
(6,597) |
77 |
|||
Closing net debt/(cash) |
|
|
|
21,634 |
30,860 |
8,904 |
40,511 |
Source: company reports, Edison Investment Research
|
|
Research: Healthcare
BioPorto Diagnostics reported sales of DKK26.6m for 2019, driven in the largest part by sales of The NGAL test for research purposes (DKK11.6m). The company reported 9% growth in NGAL Test sales year-on-year for the US (DKK4.9m) and 9% growth as a whole, representing increasing interest in the technology. The company remains on track to submit a De Novo 510(k) application for the paediatric NGAL Test in mid-2020.
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