Mesoblast Limited

MSB Details

Initial Substantial Shareholding: Mesoblast Limited (ASX: MSB) is an Australia based company involved in the development of regenerative medicine products. It offers allogeneic cellular medicines for inflammatory diseases. Recently, JPMorgan Chase & Co. and its affiliates became company’s substantial shareholder.

Legal Proceedings in Australia and U.S.A: On 19^th May 2022, the company announced that a law firm William Roberts Lawyers - on behalf of persons who acquired an interest in Mesoblast shares, American Depository Receipts, and/or related equity swap arrangements between 22 February 2018 - 17 December 2020 – filed a legal suit against MSB. The company showed its intention of defending with its full efforts, as it has recently resolved a similar lawsuit in the U.S. for $2 million with no admission of liability. The amount was paid by the insurer of the company and final hearing is scheduled for 15 August 2022.

Financial Highlights of Q3FY22

• Top-Line Update: MSB clocked US$2.1 million in revenues for the quarter, including TEMCELL® HS Inj. Royalties of US$1.9 million on sales for SR-aGvHD in Japan, up by 5% as compared to the previous year.
• Cash Position: With the cash receipts of US$2.44 million, the company closed its accounts with a cash balance as of 31 March 2022 at US$76.76 million.

Q3FY22 Cash Flow Summary; Analysis by Kalkine Group

Key Risks and Challenges

The company stands a substantial legal risk from the legal actions taken by the law firm mentioned above. Another risk is the potential regulatory risks from U.S. FDA’s disapprovals and clinical trials.

Outlook

MSB generated considerable new data to establish potency assay’s relevance measuring remestemcel-L. It is expected to provide the new data to FDA and address all chemistry, manufacturing and controls (CMC) outstanding items, which is required for the planned BLA resubmission. Mesoblast remains to be in the discussions with the collaborators to start the trial of remestemcel-L in 11, to confirm the observed outcomes in patients < 65, with a potential pathway to seek Emergency Use Authorization.

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 negative return of ~48.15% in the past year. The stock is currently trading near 52-weeks’ low of $0.955, creating a decent opportunity to accumulate. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the recent legal actions by the law firm against MSB and negative ROE, the company might trade at some discount to its peers’ EV/Sales multiple average. For valuation, few peers like Paradigm Biopharmaceuticals Ltd (ASX: PAR), Bionomics Ltd (ASX: BNO), and Antisense Therapeutics Ltd (ASX: ANP) have been considered. Considering the cash receipts from customers in the 3QFY22, rising revenues in 1HFY22 Vs. 1HFY21, upside indicated by valuation, current trading levels, and key risks associated with the business like the recent litigation filings against the company, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.970, down by ~1.02%, as of 26 May 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

MSB 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 depend on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and is 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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