Mesoblast Limited

MSB Details

Mesoblast Receives Complete Response Letter from the FDA: Mesoblast Limited (ASX: MSB) is a biopharmaceutical firm engaged in the development and marketing of allogeneic cellular medicines using its proprietary technology platform. As on 6^th October 2020, the market capitalization of the company stood at ~$2.09 billion. As on 2nd Oct 2020, MSB announced that the US FDA has issued a response letter for its Biologics License Application for the proposed treatment of SR-aGVHD, a COVID alike respiratory ailment in pediatric patients, wherein the FDA has recommended that MSB should conduct at least one additional randomized, controlled study in adults or children to provide additional proof of the effectiveness of Remestemcel-L.

Robust Growth in Revenue Income: For FY20, the company reported a 92% jump in sales to US$32.2 million compared to US$16.7 million for FY19. This was mainly due to an increase in milestone revenue from strategic partnerships, licensing agreements and royalty from sale of its product - TEMCELL in Japan. In the same time span, the company saw a reduction of 13% in loss after tax to US$77.9 million, from US$98.8 million in FY19.

FY20 Financial Highlights (Source: Company Reports)

New Product launch, Innovation and Partnerships: Amidst the COVID crisis, the company has achieved good growth through milestone revenue receipts, commercialization of its product in Japan and cost controls on clinical trials. It has also won Fierce Biotech Innovation Award in Life Sciences Edition 2020 for its discovery of new therapy and drug to cure COVID patients with moderate to severe acute respiratory distress.

Valuation Methodology: Price to Sales Multiple Based Relative Valuation (Illustrative)

Price to Sales Based Market Multiple Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company retains a healthy balance sheet with a cash balance of US$129.3 million and is scaling up manufacturing for projected increase in capacity requirements. As per ASX, the stock of MSB gave a return of 96.14% in the past six months but a negative return of 23.93% in the past one month. The stock is trading on average 52-weeks’ levels. The stock of MSB has a support level of ~$2.834 and a resistance level of ~$3.668. We have valued the stock using the Price to Sales based market multiple valuation and have arrived at a target upside of lower double-digit (in % terms). Considering the current trading levels, attractive returns in the past six months, and the modest long-term outlook, we recommend a ‘Buy’ rating on the stock at the current market price of ~$3.410, down by 4.213% on 6 October 2020.

MSB Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Recce Pharmaceuticals Limited

RCE Details

Increase in Loss after tax from FY19 to FY20: Recce Pharmaceuticals (ASX: RCE) is a Sydney headquartered biotechnology firm involved in producing and developing synthetic antibiotics. The company owns close to 15 patents and has issued applications across USA, Japan, China, Europe, and Australia. As on 6^th Oct 2020, the market capitalization of the company stood at ~$189.26 million. The company reported 67% increase in other Income from FY19 to FY20 but an operating loss of US$4.31 million owing to R&D activities. It also received R&D tax incentive rebate of AU$0.6 million from the tax office for FY20. It has raised capital of AU$6.76 million from institutional investors to fund its programs. The company reported a cash and cash equivalents balance of $2.68 million at FY20.

FY20 Financial Highlights (Source: Company Reports)

Outlook: The firm is meeting at its set developmental milestones. It has received positive results for its clinical studies undertaken for various infections suggesting a broad therapeutic dosing window. It has entered into its first in-human clinical trial agreement and allocated additional resources to expand the clinical pipeline.

Stock Recommendation: As per ASX, the stock of RCE gave a return of 60.29% in the past three months but a negative return of 32.92% in the last one month. The stock is also inclined towards its 52-weeks’ high level and thus retains limited potential for further growth. On a Technical front, the stock of RCE has a support level of ~$1.04 and a resistance level of ~$1.698. On a TTM basis, the stock of RCE is trading at price to book value multiple of 81.8x, higher than the industry average (Pharmaceuticals) of 9.2x, and thus seems overvalued. Considering the current trading levels, volatility in returns in the past three months and softer market conditions, we suggest investors to wait for better entry levels and give an expensive rating on the stock at the current market price of $1.145, up by 5.046% on 6 October 2020.

RCE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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