Mesoblast Ltd.

MSB Details

Mesoblast Limited (ASX: MSB) operates as a regenerative medicine company providing allogeneic cellular medicines for the treatment of complex inflammatory diseases. Its Remestemcel-L (RYONCIL) product is used for the treatment of steroid-refractory acute graft versus host disease, and Rexlemestrocel-L (REVASCOR) for the treatment of advanced chronic heart failure. 

Key Business Updates:

• On January 18, 2022, MSB announced the issuance of ~1.76 million shares related to consideration paid for the acquisition of certain intellectual property assets and in connection to Kentgrove Facility Agreement.
• On January 12, 2021, it has concluded a three-year phase 3 trial from the 404-patient of its Remestemcel-L which suggests a durable reduction in the back pain lasting for at least three years from a single intra-discal injection of Remestemcel-L+hyaluronic acid carrier. MSB plans to conduct an additional phase 3 trial that may support submissions for potential approval in both the US and EU region.
• As per the announcement on January 06, 2022, MSB to issue ~1.769 million warrants in connection with the refinancing of existing senior debt facility of US$90 million five-year facility provided by Oaktree Capital Management LP. The warrants have an exercise price of US$7.26.

Key Operational Highlights for Q1FY22:

• Increase in Royalties: Revenue from TEMCELL HS Inj royalties in Japan surged 22% YoY to US$2.4 million and 90% on QoQ basis. Total revenue reported an increase of US$2.3 million to reach US$3.6 million in Q1FY22.
• Reduction in Expenses: R&D expenses dropped by 52% to US$9.3 million due to completion of trial recruitment for COVID-19 ARDS, CLBP and CHF candidates. Manufacturing expenses nose dived 37% to US$4.4 million. Loss after tax improved to settle at US$22.6 million as compared to US$24.5 million in Q1FY21.
• Decline in Cash Outflows: MSB witnessed reduction in operating cash outflows to US$19.6 million, a reduction of US$8.6 million from the preceding quarter. It had closed the period with a cash balance of US$116 million.

Revenue and Net Losses (Source: Analysis by Kalkine Group)

Key Risks: MSB is yet to reach commercialisation of its product candidate, Remestemcel-L. Any delay in regulatory approvals may affect clinical trials and revenue realization. MSB has history of loss making. Widening of losses may drain financial resources. The success of trials is based on fund rising which is influenced by monetary tightening across the globe.

Outlook: MSB’s Remestemcel-L has met FDA norms for Emergency Use of Authorization in the treatment of ventilator-dependent patients with moderate or severe ADS due to COVID-19. The company is progressing in the final clinical trial phase and potency assay test for its Remestemcel-L. Its Rexlemestrocel-L proved safe, and a single-dose reduces cardiac death in NYHA class II.

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: Over the last six months, the stock has been corrected by ~33.16%. The stock reached 52-week low price of $1.300 as on January 18, 2022. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers, considering the refinancing of its debt and positive results from its phase 3 clinical trial. For this purpose of valuation, few peers like CSL Ltd. (ASX: CSL), Clinuvel Pharmaceuticals Ltd. (ASX: CUV), Regeneus Ltd. (ASX: RGS), and others have been considered. Considering the increase in royalty income, narrow down of losses, FDA approval for Remestemcel-L and progress in Rexlemestrocel-L, valuation indicating upside, current trading levels, and key associated business risks, we recommend ‘Speculative Buy’ rating on the stock at the closing market price of $1.300, down ~0.384% as of 18 January 2022.  

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 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 analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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 the 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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