Company Overview: An Australian-based medicine company, Mesoblast Limited (ASX: MSB), is engaged in developing innovative cell-based medicines. The company seeks to offer cardiovascular illnesses, inflammatory ailments, and back pain treatments. It has used its proprietary mesenchymal lineage cell therapy technology platform to establish a broad portfolio of commercial products and late-stage product candidates. The company started trading on ASX in December 2004.

MSB Details

MSB Rides on Positive Clinical Data & Decent Liquidity Position: The demand for MSB’s innovative cell-based medicines and product development capabilities continues to grow, thus boosting orders. The company remains on track to focus on its core strategic areas, which include innovation and optimisation of its technology platform for cell-based therapeutics. The company is well-positioned to enhance its capabilities in the market and continues to experience robust levels of sales inquiries, leads, and contracted work.

Operational Highlights; Analysis by Kalkine Group

A Quick Look at Q2FY22 Financial Results:

• Top and Bottom-Line Update: Total revenues for the period stood at US$2.4 million, as compared to US$2.2 million reported in 2QFY21. Loss after tax for the period came in at US$25.9 million, as compared to a loss of US$25.7 million reported in the year-ago period. During the quarter, the company realised major commercialisation revenue pertaining to royalty income earned on sales of TEMCELL® HS Inj. in Japan, depicting a rise of 7% on pcp basis.
• Senior Debt Facility: During the quarter, MSB finalised the refinancing of a new senior debt facilities of US$90 million five-year facility provided by Oaktree Capital Management LP.
• Operating Activities: The company witnessed a reduction of 40% reduction in net cash usage on a year over year basis, which came in at US$18.2 million in 2QFY22. Notably, regulatory and manufacturing events associated with the Biologics License Application (BLA) resubmission for remestemcel-L in steroid-refractory, accounted for more than half of this cash usage.
• A Drop in Expenses: R&D expenses dropped by 28% to US$10.2 million in 2QFY22, due to the completion of trial recruitment for COVID-19 ARDS, CLBP and CHF candidates.

Cash Highlights; Analysis by Kalkine Group

Shareholder’s Interest Update: Recently, the company informed the market that JPMorgan Chase & Co. and its affiliates have become a substantial shareholder of the company, with a voting power of 5.08%, effective from 12 April 2022.

Top 10 Shareholders: The top 10 shareholders together form around 30.62% of the total shareholdings, while the Top 4 constitutes the maximum holding. Itescu (Silviu) is the entity holding maximum shares in the company at 10.6%. M & G Investment Management Ltd. is the second-largest shareholder, with a holding of 7.96%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Key Metrics: In 2QFY22, the company reported negative cash cycle days of 62.4, as compared to the industry median of positive 190.6 days. Debt to equity in 2QFY22 stood at 0.19x.

Liquidity Profile; Analysis by Kalkine Group  

Key Risks; Analysis by Kalkine Group

Outlook: MSB generated considerable new data to establish the potency assay’s relevance in measuring remestemcel-L. MSB is expected to provide new data to OTAT for the resubmission of the Biological License Application (BLA). The company remains on track to continue its growth trajectory via collaborations and its product candidate's research and clinical development. The company’s vision involves delivering the highest quality products to its clients with exceptional customer service. The company also looks good to reap the advantage of its mesenchymal lineage cell technology platform to establish a broad portfolio of products. Going forward, MSB stands to benefit from the collaboration with Novartis to develop, manufacture and commercialise its essential product Remestemcel L.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Currently, the stock is trading below the average of its 52-week’s high and low levels of $2.34 and $0.965, respectively. The stock of the company went down by ~33.95% in the past six months. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium to its peers, considering the refinancing of its debt, positive results from its phase 3 clinical trial, decent liquidity position, etc. For this purpose of valuation, few peers like Paradigm Biopharmaceuticals Ltd (ASX: PAR), Immutep Ltd (ASX: IMM), Clinuvel Pharmaceuticals Ltd (ASX: CUV), and others have been considered. Considering the increase in royalty income, FDA approval for Remestemcel-L and progress in Rexlemestrocel-L, rise in top-line, decent long-term outlook, valuation indicating upside, current trading levels, and key associated business risks, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $1.04, down by ~5.022% as of 27 April 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

MSB Daily Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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