Mesoblast Limited

MSB Details

Issue of Warrants: Mesoblast Limited (ASX: MSB) is involved in developing innovative cell-based medicines and seeks to offer treatments for cardiovascular illness, inflammatory ailments, and back pain. On January 6, 2022, MSB informed the market that it would release 1,769,669 warrants over American Depository Shares (ADS), with an exercise price of US$7.26, representing five fully paid ordinary shares for every ADS. This announcement was in connection with the refinancing of MSB’s existing senior debt facility provided by funds managed by Oaktree Capital Management, L.P.

Recent Update on Meeting with FDA’S OTAT:

• Recently, MSB provided an update regarding a meeting held with the US Food & Drug Administration’s (FDA) Office of Tissues and Advanced Therapies (OTAT) on remestemcel-L in the therapy of steroid-refractory severe graft as opposed to host infection in infants.
• OTAT suggested that MSB’s attempt to address the outstanding chemistry, manufacturing, and controls (CMC) items is reasonable.
• MSB will generate new data to support the proposed in vitro immunomodulatory activity of remestemcel-L. Notably, the company will provide these new data to OTAT and deliver remaining complete response letter (CRL) items as required for the Biologics License Application (BLA) resubmission.
• MSB will continue to be in discussion with the FDA with an objective to attain the approval of remestemcel-L in the treatment of SR-aGVHD in children, moving forward.

Rise in Revenues from TEMCELL® HS Inj: During the quarter ended 30 September 2021, MSB recorded a rise of 22% in revenues from TEMCELL® HS Inj. royalties in Japan to US$2.4 million against the previous quarter.

Key Result Highlights (Source: Analysis by Kalkine Group)

Risk Analysis: MSB’s mounting losses may throw tough challenges at the company’s overall functioning and may dampen margins in the future. Any adverse movement in foreign exchange price may impact the financial performance of the company. The company is exposed to a complex regulatory landscape in the healthcare space.

Outlook: The company remains on track to develop product candidates for distinctive symptoms based on its remestemcel-L and rexlemestrocel-L stromal cell technology programs. These two products have been marketed in Japan and Europe. Further, the company is well equipped to establish commercial partnerships in Europe and China for Phase 3 assets, resulting in improved survival outcomes.

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

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: In the last one year, the stock has been corrected by ~40.59% and is trading close to its 52-weeks’ low level of $1.31. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). The company can trade at a slight discount to its peers, considering the COVID-19 led uncertainties, inefficiency of business to generate profits, etc. For the valuation purpose, peers such as Telix Pharmaceuticals Ltd (ASX: TLX), Clinuvel Pharmaceuticals Ltd (ASX: CUV), Paradigm Biopharmaceuticals Ltd (ASX: PAR), and others have been considered. Considering the issue of warrants, a recent positive update on remestemcel-L, commercialising key products, geographical expansion, rise in royalty revenues from TEMCELL® HS Inj., current trading levels, modest outlook, indicative upside in the valuation, and key associated risks, we give a “Speculative Buy” rating on the stock at the closing market price of $1.32, up by ~0.763%, as on 7 January 2022.

MSB Daily Technical Chart, Data Source: REFINITIV

OncoSil Medical Limited 

OSL Details

Results of PanCO Clinical Study: OncoSil Medical Limited (ASX: OSL) was incorporated in 2005 and is a biotechnology company, whose focus is on pancreatic cancer (LAPC) and bile duct cancer.

• In a recent update, the company highlighted the final results of the PanCO clinical study, which depicted the safety and effectiveness of the OncoSil^TM device in mixture with standard of-care chemotherapy for treating patients with unresectable locally advanced pancreatic cancer (LAPC).
• The PanCO study revealed that the percentage of applicants suffering from the local disease was under control at 16 weeks. This study was attained in ~90.5% of the patients. Further, ~23.8% PanCO study participants progressed to surgical resection with healing intention subsequent with chemotherapy treatment plus OncoSil™.

Quarterly Update for the Period Ended 30 September 2021:

• The company remains on track to engage with hospitals in the APAC region where the OncoSil^TM device is authorised. OSL remains in talks to obtain Osprey registry approvals in Singapore, Hong Kong, and New Zealand to treat a higher number of patients and generate revenue growth.
• The cash outflow from operating activities in 1QFY22 stood at ~$2.68 million, owing majorly to the staff costs of ~$1.83 million. The company exited the quarter with a cash balance of ~$9.56 million compared to ~$12.24 million at the end of 30 June 2021.

Liquidity Highlight (Source: Analysis by Kalkine Group)

Key Risks:  

• Forex Headwinds:Any foreign exchange movement may impact the company's financial performance.
• Failure of Clinical Trials: The clinical trial process is designed to assess the safety and efficacy of a medical device before commercialisation. A failure to achieve the desired results may hamper the company’s financial performance.

Outlook: Although COVID-19 lingers to interrupt operations in the UK, Europe and the Middle East, however, OSL remains on track to advance its commercialisation plans and expects to capitalise on the post-COVID period, where it foresees situation to return to normality with higher site beginning and commercial throughput.

Stock Recommendation: The stock of the company has given a negative return of ~57.14% in the past nine months. Currently, the stock is trading below the average of its 52-week low and high levels of $0.037 and $0.140, respectively. On a TTM basis, the stock of OSL is trading at a P/BV multiple of 3x, lower than the industry’s mean (Biotechnology and Medical Research) of 12.9x, thus seems to be undervalued. Considering the current trading levels, valuation on a TTM basis, 1QFY22 performance, positive data from clinicals study, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.045, as on 7 January 2022.

OSL Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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 the 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.

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