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Mesoblast limited - Here is why this is doing good!

Sep 23, 2015 | Team Kalkine
Mesoblast limited - Here is why this is doing good!

Company Updates

In the latest development, the company announced that its licensee JCR Pharmaceutical Co Ltd has received full approval from the Japanese Ministry of Health for TEMCELL, an allogeneic mesenchymal stem cell product. This is a treatment for children and adults for acute Graft Versus Host Disease which is a severe complication arising from hematopoietic cell transplants; and has been developed by JCR using technology licensed from Mesoblast. Under the agreement, Mesoblast is entitled to receive a milestone payment on the product receiving regulatory approval as well as royalties and other payments at predefined thresholds of cumulative net sales.

 

Product updates 

The company has reported its results for the full year FY 2015 and provided updates on the important changes to its phase 3 chronic heart failure program. Chief Executive Sylviu Itescu said that strong progress had been made during the past year in moving forward in the phase 3 clinical programs and the portfolio targeting inflammatory diseases has emerged as a potentially major new opportunity. Following a meeting between development and commercialisation partner, Teva Pharmaceutical Industries Ltd and the US FDA, important changes have been agreed to the chronic heart failure program. Among the key outcomes of the meeting was a reduction in the total number of subjects to be recruited for the ongoing phase 3 trial from approximately 1730 to 1165, an interim analysis to be performed when 50% of the HF-MACE have occurred and a second confirmatory study to be conducted in parallel on an identical population of approximately 500 patients using recurrent HF-MACE as the primary endpoint.
 
The Chronic Discogenic Low Back Pain Program is recruiting well across the sites in North America and positive feedback has been received from discussions of the European Medicines Authority. The program is also expected to be expanded to sites in Europe. With regards to the Acute Graft Versus Host Disease program, a pathway to accelerated US approval has been clarified through the FDA; and an open-label phase 3 study of approximately 60 children has been commenced in the US. The emerging inflammatory portfolio shows the potential of being a major growth opportunity and MPC-300-IV has been raised to the Tier 1 portfolio on the basis of positive clinical results in patients with diabetic kidney disease. The results of the phase 2 trial demonstrated that a single infusion resulted in preservation or improvement in renal function over at least 24 weeks. Clinical trial design planning is in progress for a phase 2b/3 study.
 
The portfolio targeting inflammatory diseases is an emerging opportunity because the Mesenchymal Lineage Adult Stem Cells have receptors that respond to pro inflammatory signals and induce the release of multiple anti-inflammatory mediators and therefore target multiple immune pathways at the same time. This should position product candidates as ideal therapeutics for immune mediated diseases wherein multiple pathways are associated with diseases for which there are no alternatives or which are resistant to other forms of therapy. These, therefore, have the potential for better safety in terms of infectious or neoplastic complications compared to other forms of therapy. The company is developing product candidates to target diabetic kidney disease, biologic refractory rheumatoid arthritis and biologic refractory Crohn's disease.


Programs (Source: Company Reports)
 

Manufacturing objectives

Distinct manufacturing processes are being developed for each product aimed at commercial scale processes with consistency and reproducible release criteria from batch to batch. The objective is to ensure that commercial supply of the product is aligned with the projected needs of the market. The focus on producing commercial quantities is progressing with substantial advances being made in the development of consistent high yield manufacturing processes to improve efficiency and yield in large bioreactors of commercial grade. In-house serum-free media process has been identified and is being developed to deliver step change yield improvements and eliminate source capacity constraints such as those relating to fetal bovine serum. Robust sources of readily available standardised products are also being developed for clinical and commercial use.
 

Results for FY 2015

Revenue from continuing operations declined by 9% to $ 23.7 million while other income grew by 69% to $ 18.8 million. Expenses from continuing operations increased by 37% to $ 161.9 million and the loss after tax increased by 47% to $ 119.4 million. The increase in expenses is because of continuing investment in the late stage product pipelines. $15.3 million has been spent on two of the Tier 1 phase 3 programs during the year as well as $ 11.5 million of non-cash contingent consideration on milestones and royalties as the company moves closer to the market. The depreciating currency rate increased the cost base by 9% to $ 10.6 million. Research and development expenditure increased by 40% because of continued investment in phase 3 programs and the underlying content denominated in USD grew from 74% to 80% and will continue to grow. This is why the company has decided that USD will be its reporting currency from FY 2016. The 15% non-cash content comes mainly from contingent consideration and share-based payments.
 
Cash on hand declined from $ 196.4 million to $ 144.1 million as at 30 June 2015 with a net decrease after considering the effects of exchange rates of $ 52.2 million. The net cash consumption is reduced by half over the previous year to this figure because investing cash outflows have reduced significantly to $ 5.6 million and the financing cash inflows include an equity investment of $ 58.5 million. The company has enough cash on hand for at least 12 months requirements and there is scope to raise more in the near term because a number of discussions with partners are in advanced stages of negotiation. Besides, there is always access to the major capital markets.
 

Investment Scenario (Source: Company Reports)

In our opinion, these numbers are typical of early stage drug development companies and the company looks particularly promising because of the large number of product candidates at an advanced stage of testing and development. Over the next year, it is looking to bring in partners in various regions to commercialise production and boost the chances of success. Several of these products are potential blockbusters. Subject to the level of appetite for risk, a Buy is recommended for the stock at the current price of $3.57.


MSB Daily Chart (Source: Thomson Reuters)

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