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Research: Healthcare
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.
Written by
Mesoblast |
Waiting for readouts |
Trial timing and FY17 results |
Pharma & biotech |
7 November 2017 |
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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$84.0m on 30 June.
Year |
Revenue (US$m) |
PBT* |
EPS* |
DPS |
P/E |
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.
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Research: Consumer
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