Mesoblast Limited

MSB Details

FY21 Results Update: Mesoblast Limited (ASX: MSB) is a biotechnology company engaged in manufacturing allogeneic cellular medicines for inflammatory diseases. The company has recently updated about its financial performance for the year ended 30 June 2021.

• Revenues from TEMCELLL® royalties have increased by 10% YoY to US$7.2 million in FY21.
• MSB expects to recognise the existing US$21.9 million of remestemcel-L pre-launch inventory on its balance sheet if it achieves FDA sanction.
• The company has signed a contractual amendment to extend the interest-specific period of its present senior debt facility by at least January 2022. MSB is in discussion to refinance this facility.
• MSB ended the period with a cash balance of US$136.9 million as of 30 June 2021.
• Finance cost stood at US$10.7 million in FY21, compared to US$14.1 million in FY20.
• The loss after tax stood at US$98.8 million in FY21, compared to a loss of US$77.9 million in FY20.
  

Trend in Cash & Short-Term Investments (Source: Analysis by Kalkine Group)

Key Risks: The company is dependent on the regulatory bodies to approve its products and processes. Any delay or negative results from the trials could impact the company's profitability.

Outlook:

• The company has met with the US FDA regarding the potential emergency use authorisation of (EUA) for remestemcel-L in the treatment of ventilator-dependent patients with acute respiratory distress syndrome (ARDS) due to COVID-19. MSB will have to conduct an additional clinical study in COVID ARDS as per the FDA’s advice.

• In Q4CY21, MSB plans to meet with the FDA’s Office of Tissue and Advanced Therapies (OTAT) to discuss the potency assays for remestemcel-L in conjunction with SR-aGvHD.

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 company has entered into a licensing and collaboration agreement with Novartis to develop, manufacture, and commercialise remestemcel-L. As per ASX, the stock of MSB is trading below its average 52-weeks’ levels of $1.570-$5.700. The stock of MSB gave a negative return of ~13.17% in the past three months and a negative return of ~31.85% in the past six months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers' average, considering the increase in losses and key risks associated with the sector. For the purpose of valuation, few peers like Telix Pharmaceuticals Ltd (ASX: TLX), Paradigm Biopharmaceuticals Ltd (ASX: PAR), Clinuvel Pharmaceuticals Limited (ASX: CUV) have been considered. Considering the expected upside in valuation & current trading levels, increase in revenues from TEMCELL royalties, decrease in finance cost, decent cash position and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.595 as on 02 September 2021, 9:53 AM (GMT+10), Sydney, Eastern Australia.

MSB Daily Technical Chart, Data Source: REFINITIV

Next Science Limited

NXS Details

Complaint Filed by Irrimax Corporation: Next Science Limited (ASX: NXS) is a medical technology firm engaged in the developing and commercialising its proprietary technology Xbio^TM to mitigate the impact of biofilm-based infections on human health. On 27 August 2021, NXS reported a complaint lodged by Irrimax Corporation against the company’s US FDA cleared No-Rinse antimicrobial solution, XPerience^TM. The complains has been filed in the US District Court for the Northern District of Georgia. The company strongly supports the independently verified performance of its XPerience^TM solution and will defend the complaint.

Key Takeaways from 1HFY21:

• Increase in Revenue: NXS posted a revenue increase of 271% YoY to US$3.9 million and a gross profit increase of 234% YoY in 1HFY21 due to the signs of recovery witnessed in the US elective surgical market from the COVID-19 lockdown.
• A Decline in Net Loss: The company registered a decline in a net loss to US$4.19 million, down by 37% YoY. The EBIT improved by 38% YoY in the reporting period.
• Liquidity Position: The company held US$13.2 million cash on hand as of 30 June 2021.
• US FDA Approval: In April 2021, NXS obtained FDA sanction for its XPerience^TM No-Rinse Antimicrobial solution to drive commercial sales now.
• Sales of BlastX^TM Growing: In March/April 2021, the sales of Blast-X transitioned from 3M to NXS. Since then, NXS has been marketing Blast-X directly to the hospitals in the US and wound care clinics. The company has also obtained sanctions from TGA for the distribution of BlastX in Australia in 1HFY21.

Revenue & Net Loss After Tax from 1HFY20-1HFY21; (Analysis by Kalkine Group)

Key Risks:

• Regulatory Risks: The company operates in the healthcare equipment and services market and must comply with the changing regulations to avoid delays in seeking clearance.
• Technology Risk: The company innovates products for safeguarding human health against new infections, hence, faces the risk of updating technology and solutions.

Outlook:

• The company will prioritise executing on XPerience^TM and commercialise VAC submissions to active accounts. NXS has made 270 submissions covering 371 hospitals so far.
• NXS aims to build on the sales momentum of BlastX^TM with successful pilots in Home Health.
• The company will pilot direct sales representation in specific locations and lean into XPerience^TM clinical studies in Orthopaedics to aid mainstream adoption breakthroughs.

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 NXS gave a positive return of 11.33% in the past six months and a positive return of 5.36% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.100 - $2.060. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ average, considering its increase in revenue, reduction in net loss after tax, US FDA approval for XPerience^TM and business recovery from COVID-19 impact. For the purpose of valuation, few peers like Cochlear Limited (ASX: COH), Polynovo Limited (ASX: PNV), Nanosonics Limited (ASX: NAN), have been considered. Considering the current trading levels, decent financial performance in 1HFY21, decent outlook for growing sales of BlastX^TM, commercialise VAC submissions, valuation, and associated risks of COVID-19, technology, and regulations, we give a ‘Speculative Buy’ rating on the stock at the current market price of $1.375 as on 2 September 2021, 1:32 PM, (GMT+10), Sydney, Eastern Australia.

NXS Daily Technical Chart, Data Source: REFINITIV

PainChek Limited

PCK Details

Study Results Published in Lancet Digital Health: PainChek Limited (ASX: PCK) is a developer of pain assessment technologies. PCK has developed a smartphone-driven device, PainChek®, to measure pain levels and update the medical record on the cloud. On 2 September 2021, PCK announced a study in Lancet Digital Health journal confirming the use of its PainChek® Infant assessment tool to measure pain in infants under one year of age.

• PainChek® Infant presents a considerable market opportunity with 140 million children born per year globally.
• PCK has obtained the regulatory approval for PainChek® Infant in UK, Europe, Australia, Canada, New Zealand, and Singapore.
• PCK is discussing with clinical partners to formulate strategies for the implementation of PainChek® Infant in various clinical settings.

FY21 Result Highlights:

• A Decline in Loss After Tax: PCK reported a lower loss after tax of $6.06 million in FY21 versus $12.39 million in FY20.
• Lower Revenue: PCK registered a fall in revenue by 13% YoY to $215,000 in FY21.
• Clinical Pain Assessments: PCK recorded ~480,000 clinical pain assessments in its Australian aged care as of 30 June 2021 and has established more than 60% market share in Aged Care.
• Increase in License Beds: PCK held 46,843 active, licensed beds in RACs as of 30 June 2021 versus 24,435 beds as of 30 June 2020.
• Projected ARR: PCK has over $5.5 million of projected annual recurring revenue (ARR), assuming full implementation of all agreements and transitioning onto standard commercial contracts.

Revenue & Net Loss from FY20-FY21; (Analysis by Kalkine Group)

Key Risks:

• COVID-19 Impact: PCK faces the impact of COVID-19 in seeking regulatory approvals for new product and App launches in new markets.
• Changes in Consumers’ Spending: The company faces changes in consumers’ preferences, income, and spending pattern due to negative macro conditions and prevalent COVID-19 situation.

Outlook:

• PCK plans to undertake PainChek® Adult App FDA studies in the USA, delaying due to COVID-19 situation.
• The company plans to negotiate collaborations for hospital access and distribution for the PainChek® Infant.
• The company plans to expand internationally by increasing UK RAC (Residential Aged Care) beds penetration and developing the hospital, home, and infant markets. PCK will continue to evaluate new market entry opportunities in Asia, Canada, and Europe and seek US market clearance for the de-Novo application with the FDA.

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 PCK gave a negative return of 28.98% in the past three months and a negative return of 36.36% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.046 - $0.105. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ average, considering nil debt, decline in net loss, approvals for various markets for Universal and Infant Apps and plans to develop hospital, home, and infant markets overseas. For the purpose of valuation, few peers like Mach7 Technologies Limited (ASX: M7T), Beamtree Holdings Limited (ASX: BMT), Pro Medicus Limited (ASX: PME), and others have been considered. Considering the current trading levels, increase in active, licensed beds, RAC facilities in FY21, launch of PainChek® Universal App in FY21 and regulatory clearances for Infant and Universal Apps for various markets, expansion of new RAC sales in the UK, New Zealand, Canada, and Singapore, nil debt in FY21, valuation, and key risks associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.049 as on 2 September 2021, 10: 53 AM, (GMT+10), Sydney, Eastern Australia.  

PCK 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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