Mesoblast — Confident management

Mesoblast (AU: MSB)

Last close As at 20/12/2024

0.93

0.23 (32.86%)

Market capitalisation

605m

More on this equity

Research: Healthcare

Mesoblast — Confident management

Mesoblast has raised cash and cleared an interim futility analysis of its Phase III heart failure (HF) trial, will complete enrolment in H218 vs H217. In 2017, Mesoblast expects data from a Phase III trial in paediatric graft vs host disease (GvHD) by H217. An NIH-funded Phase IIb in end-stage HF may be reported by NIH in Q417. Mallinckrodt has an option until the end of Q3 to in-license the GvHD and the Phase III in chronic low-back pain (full enrolment expected in H217). Our indicative valuation is unchanged at A$1.72bn (A$4.02 per share) as we await these potential catalysts.

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Written by

Healthcare

Mesoblast

Confident management

Q317 results

Pharma & biotech

7 June 2017

Price

A$2.03

Market cap

A$869m

US$0.76/A$

Cash (US$m) at 31 March 2017

69.1

Shares in issue

427.9m

Free float

66.1%

Code

MSB

Primary exchange

ASX

Secondary exchange

NASDAQ

Share price performance

%

1m

3m

12m

Abs

(22.8)

14.7

5.7

Rel (local)

(20.7)

16.3

0.6

52-week high/low

A$3.3

A$1.0

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

Top-line data GvHD Phase III

H217

Top-line data NIH end-stage HF Phase IIb

Q417

Fully enrol MPC-06-ID back pain Phase III

H217

Analysts

John Savin PhD

+44 (0)20 3077 5735

Dennis Hulme

+61 (0)2 8249 8345

Mesoblast is a research client of Edison Investment Research Limited

Mesoblast has raised cash and cleared an interim futility analysis of its Phase III heart failure (HF) trial, will complete enrolment in H218 vs H217. In 2017, Mesoblast expects data from a Phase III trial in paediatric graft vs host disease (GvHD) by H217. An NIH-funded Phase IIb in end-stage HF may be reported by NIH in Q417. Mallinckrodt has an option until the end of Q3 to in-license the GvHD and the Phase III in chronic low-back pain (full enrolment expected in H217). Our indicative valuation is unchanged at A$1.72bn (A$4.02 per share) as we await these potential catalysts.

Year
end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/15

32.4

(96.2)

(30.0)

0.0

N/A

N/A

06/16

44.2

(87.4)

(0.2)

0.0

N/A

N/A

06/17e

5.8

(82.0)

(20.6)

0.0

N/A

N/A

06/18e

9.0

(81.0)

(18.9)

0.0

N/A

N/A

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

HF Phase III clears futility; end-stage IIb HF data Q4

The Phase III trial of MPC-150-IM in HF cleared the April interim futility analysis in the first 270 of 600 planned subjects with Class II / Class III HF. The trial will report once 540 non-fatal HF-related major adverse cardiac events have occurred. Mesoblast, FDA and investigators remain blinded to the numerical results of the analysis. An NIH-funded 159-patient Phase IIb in end-stage HF is expected to be fully enrolled soon and the NIH may report data in Q417. Positive results might lead to an application for accelerated approval under the 21st Century Cures Act.

HF Phase III half enrolled, European sites planned

On the Q3 quarterly call, management said that the HF Phase III had recruited substantially above half the target of 600 patients and is currently on track to complete recruitment in H2 CY18 vs our prior target of H217. Most enrolled patients are Class III, so events are more likely. MSB is at an advanced stage of planning for additional recruitment sites in Europe.

Mallinckrodt option could drive partnering news

A paediatric GvHD Phase III is expected to complete enrolment and read out top-line data in H217. The chronic low-back pain Phase III is on track to complete recruitment in H217. Mallinckrodt Pharmaceuticals has an exclusive negotiation period that runs until September 2017, covering these two programmes.

Valuation unchanged, cash runway to Q417

Although the Phase III HF trial end has potentially slipped by 12 months, we have left our valuation unchanged for now at A$1.72bn (A$4.02/share), as there is potential for accelerated approval under the under the 21st Century Cures Act. Operating cash burn for the first nine months of FY17 was US$73m. Edison estimates that cash of US$69m on 31 March could fund operations into Q4 CY17. Additional funds may come from partnering agreements or from the US$90m discretionary equity facility with Kentgrove Capital.

Exhibit 1: Financial summary

US$'000s

2015

2016

2017e

2018e

2019e

30-June

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

32,403

44,183

5,825

9,048

11,288

Cost of Sales

0

0

0

(1,207)

(2,382)

Gross Profit

32,403

44,183

5,825

7,841

8,906

R&D Expenses

(62,649)

(50,013)

(50,013)

(51,013)

(53,054)

Manufacturing & Commercialisation Expenses

(23,783)

(29,763)

(22,025)

(22,245)

(22,912)

SG&A Expenses

(29,636)

(22,500)

(17,881)

(17,820)

(18,355)

EBITDA

 

 

(97,977)

(86,319)

(81,292)

(80,320)

(82,377)

Operating Profit (before amort and except)

 

(99,001)

(88,511)

(83,594)

(82,737)

(84,914)

Intangible Amortisation

0

0

0

0

0

Exceptionals

0

0

0

0

0

Share-based payments

0

(3,389)

(2,500)

(2,500)

(2,500)

Operating Profit

(99,001)

(91,900)

(86,094)

(85,237)

(87,414)

Net Interest

2,757

1,079

1,619

1,767

101

Profit Before Tax (norm)

 

 

(96,244)

(87,432)

(81,975)

(80,970)

(84,814)

Profit Before Tax (FRS 3)

 

 

(96,244)

(90,821)

(84,475)

(83,470)

(87,314)

Tax

0

86,694

0

0

0

Profit After Tax (norm)

(96,244)

(738)

(81,975)

(80,970)

(84,814)

Profit After Tax (FRS 3)

(96,244)

(4,127)

(84,475)

(83,470)

(87,314)

Average Number of Shares Outstanding (m)

320.9

360.8

398.2

441.1

467.3

EPS - normalised fully diluted (c)

 

 

(29.99)

(0.20)

(20.59)

(18.92)

(19.82)

EPS - normalised (c)

 

 

(29.99)

(0.20)

(20.59)

(18.92)

(19.82)

EPS - (IFRS) (c)

 

 

(29.99)

(1.14)

(21.22)

(19.50)

(20.40)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

86.7

78.9

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

 

 

659,306

595,195

594,893

594,477

593,939

Intangible Assets

650,241

587,823

587,823

587,823

587,823

Tangible Assets

4,398

3,063

2,761

2,345

1,807

Investments

4,667

4,309

4,309

4,309

4,309

Current Assets

 

 

122,460

88,823

66,789

11,236

51,960

Stocks

0

0

0

0

0

Debtors

3,972

4,054

4,054

4,054

4,054

Cash

110,701

80,937

58,903

3,350

44,074

Other

7,787

3,832

3,832

3,832

3,832

Current Liabilities

 

 

(48,407)

(29,415)

(29,415)

(29,415)

(29,415)

Creditors

(43,246)

(27,155)

(27,155)

(27,155)

(27,155)

Deferred revenue

(5,161)

(2,260)

(2,260)

(2,260)

(2,260)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(265,372)

(126,442)

(126,442)

(151,442)

(276,442)

Long term borrowings

0

0

0

(25,000)

(150,000)

Deferred revenue

(22,505)

0

0

0

0

Other long term liabilities

(242,867)

(126,442)

(126,442)

(126,442)

(126,442)

Net Assets

 

 

467,987

528,161

505,826

424,856

340,042

CASH FLOW

Operating Cash Flow

 

 

(104,079)

(89,125)

(81,292)

(80,320)

(82,377)

Net Interest

3,043

1,129

1,619

1,767

101

Tax

0

0

0

0

0

Capex

(2,204)

(922)

(2,000)

(2,000)

(2,000)

Acquisitions/disposals

0

(805)

0

0

0

Financing

45,852

62,066

59,640

0

0

Dividends

0

0

0

0

0

Other

(2,860)

0

0

0

0

Net Cash Flow

(60,248)

(27,657)

(22,034)

(80,553)

(84,276)

Opening net debt/(cash)

 

 

(185,003)

(110,701)

(80,937)

(58,903)

21,650

HP finance leases initiated

0

0

0

0

0

Other

(14,054)

(2,107)

0

0

0

Closing net debt/(cash)

 

 

(110,701)

(80,937)

(58,903)

21,650

105,926

Source: Mesoblast accounts, Edison Investment Research. Note: Mesoblast has changed its reporting currency to 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 p
ersonalised 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 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. 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 p
ersonalised 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 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. 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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