Mesoblast Limited

MSB Details

Termination of Agreement: Mesoblast Limited (ASX: MSB) is a global leader in allogeneic cellular medicines for inflammatory diseases. Recently, the company notified the market that Novartis has terminated the agreement to develop a COVID-19 treatment prior to the closing.  MSB is highly focused on implementing its short-term objective to bring remestemcel-L to market for patients with acute respiratory distress syndrome (ARDS) due to COVID-19. As announced on 6 December 2020, the company provided new analyses from the landmark DREAM-HF Phase 3 trial showing the greatest treatment benefit from rexlemestrocel-L is in HFrEF patients with diabetes and/or ischemia.

Financial and Operational Highlights:

• 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.
• MSB posted a net cash outflow from operating activities of US$19.6 million, out of which 50% was used to support the regulatory pathway to approval, manufacturing scale-up, and lifecycle management of the remestemcel-L platform.
• MSB had refinanced its existing senior debt facility with a new US$90 million five-year facility provided by funds managed by Oaktree Capital Management, L.P., with final payment due no later than November 2026.
• Research & Development expenses in 1QFY22 stood at US$9.3 million, down by US$10 million from the year-ago period, as the company witnessed a reduction in its clinical trial activities for COVID-19 ARDS, CLBP and CHF product candidates.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks

• The company’s operational and financial health could be impacted by the rising market share of peers.
• A substantial portion of the company’s operating expenses are denominated in U.S. dollars and its main currency requirements are U.S. dollars, Australian dollars, and Singapore dollars. This, in turn, exposed MSB to the risks related to the fluctuations in the foreign currency exchange rates

Outlook:

• Looking forward, MSB would 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.
• MSB is focused on the commencement of the next Phase 3 trial for acute respiratory distress syndrome (ARDS) associated with COVID-19 pandemic.

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 is trading near to its 52-week low level of $1.310, offering a decent opportunity for accumulation. The stock has been corrected by ~29.99% and ~21.76% in the past one and three months, respectively. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average EV/Sales multiple, considering the COVID-19 led uncertainties and inefficiency of business to generate profits, etc. For the purpose of valuation, peers such as Paradigm Biopharmaceuticals Ltd (ASX: PAR), Telix Pharmaceuticals Ltd (ASX: TLX), Clinuvel Pharmaceuticals Ltd (ASX: CUV), and others have been considered. Considering the expected upside in valuation, decent liquidity position, improving leverage, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.320, as on 15 December 2021, 12:10 PM (GMT+10), Sydney, Eastern Australia.

MSB Weekly 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 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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