Mesoblast Limited

MSB Details

Update on Chronic Back Pain Program: Mesoblast Limited (ASX: MSB) is developing regenerative medicine products. MSB has a regenerative medicine technology platform based on specialised cells known as mesenchymal lineage adult stem cells. As of 6 July 2021, the market capitalisation of MSB stood at ~$1.32 billion. On 1 July 2021, MSB announced its plan to bring rexlemestrocel-L in the US to patients suffering from chronic low back pain (CLBP). MSB is expected to hold talks with the US FDA in the present quarter. The meeting would discuss the best possible pathway for seeking approval for rexlemestrocel-L after being administered to the patients with CLBP in the Phase III trial.

March Quarter (Q3FY21) Highlights: The company earned revenues of US$1.91 million from the TEMCELL® royalties in Q3FY21 versus US$12.20 million in Q3FY20. During the quarter, MSB raised US$110 million via a private placement led by a US investor group. In Q3FY21, MSB amended its contract with Hercules to seek an extension for the interest-only period on loan through to at least October 2021. In addition, MSB is in talks with the US FDA to seek approval for remestemcel-L to treat SR-aGVHD in children.

MSB reported that the sales of TEMCELL® HS Inj.1 in Japan is recovering from the temporary production shutdown in mid-2020. MSB held a cash balance of US$158.3 million as of 31 March 2021. 

Revenue & Net Income from FY16-FY20; (Analysis by Kalkine Group)

Key Risks: The company is exposed to regulatory risks and delays from the government authorities. MSB faces the risk of unsuccessful outcomes from the clinical trials and the ongoing COVID-19 uncertainty.

Outlook: The company has raised capital for operational and regulatory initiatives across multiple products. MSB will also invest in the commercial distribution of remestemcel-L and manufacturing for major markets. MSB is likely to meet with the USFDA in the current quarter for seeking approval for the development of product candidate rexlemestrocel-L. In addition, MSB plans to use the results of its US trial to seek accelerated product approvals in the US and EU.

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: The stock of MSB gave a positive return of 8.64% in the past month and a negative return of 10.66% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.700 - $5.700. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount than its peer average, considering lower revenue and increased net loss after tax for Q3FY21 and YTD21. For this purpose, we have taken peers like Paradigm Biopharmaceuticals Limited (ASX: PAR), Kazia Therapeutics Limited (ASX: KZA) and others. Considering the current trading levels, USFDA approval plans for the development of product candidates, decent outlook and valuation, we give a ‘Hold’ rating on the stock at the current market price of $2.010, down by 1.952% on 6 July 2021.

MSB Daily Technical Chart, Data Source: REFINITIV  

Atomo Diagnostics Limited

AT1 Details

Obtained FDA Sanction for COVID-19 Antibody Test: Atomo Diagnostics Limited (ASX: AT1) is a developer and manufacturer of medical devices for professional users and untrained self-testers. As of 6 July 2021, the market capitalisation of AT1 stood at ~$113.71 million. On 1 July 2021, AT1 announced that Perennial Value Management Limited (PVM), one of the substantial shareholders in the company, now holds 7.56% voting rights with 42.96 million votes from 29 June 2021. On 28 June 2021, AT1 declared that its recent business partner Access Bio Inc. (Access Bio), obtained an Emergency Use Authorisation (EUA). The approval has been given from the USFDA (U.S. Food and Drug Administration) for the application of Access Bio’s COVID-19 antibody test via CareStart™ EZ COVID-19 IgM/IgG. In September 2020, AT1 extended its existing agreement with Access Bio to provide rapid diagnostic test (RDT) devices in Australia, New Zealand, and India besides North America previously.

Q3FY21 Result Highlights: The company reported ~$1.5 million in sales revenue in Q3FY21 versus ~$2.0 million in Q2FY21. With the addition of Q3FY21 revenue, AT1 registered $6.1 million of revenue on a year-to-date basis for 2021. The company continued to provide devices to Lumos Diagnostics, its long-term OEM customer. During Q3FY21, AT1 supported the implementation of a multi-year contract between Unitaid and Viatris. AT1 is the sole product manufacturer and distributor of HIV self-tests to Viatris. AT1 recorded $1.5 million of cash receipts in Q3FY21 versus $2.8 million in Q2FY21. AT1 stood debt-free in Q3FY21 and held $21.4 million of cash balance as of 31 March 2021.

Revenue and Net Loss Trend from FY17-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces regulatory delays for the marketing authorisation of new devices in existing/new markets. It faces the risk of COVID-19 uncertainty and foreign currency changes.

Outlook: AT1 has plans to grow its HIV unit and business under the Unitaid and Viatris partnership in more than 130 countries. AT1 aims to optimise avenues for COVID-19 related testing products, thereby enhancing its medium-term revenue. The firm is progressing well on its U.S. expansion strategy and securing an alliance with larger diagnostics firms to lock in new OEM contracts. 

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: The stock of AT1 gave a positive return of 18.18% in the past month and a negative return of 21.99% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level of $0.130 - $0.455. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium than its peer average, considering its increased demand for the COVID-19 related testing products in Australia, debt-free balance sheet and key partnerships entered. For this purpose, we have taken peers like Cleanspace Holdings Limited (ASX: CSX), Oventus Medical Limited (ASX: OVN), Somnomed Limited (ASX: SOM) and others. Considering the current trading levels, nil debt as of 31 March 2021, plans of expansion in the US, revenue growth for HIV unit , we give a ‘Hold’ rating on the stock at the current market price of $0.195, down by 2.501% on as on 6 July 2021.

AT1 Daily Technical Chart, Data Source: REFINITIV

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.

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.

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