Mesoblast Limited

MSB Details

Mesoblast Limited (ASX: MSB) is the world leader in the development of allogeneic (off-the-shelf) cellular medicines which can be used for the treatment of severe as well as life-threatening inflammatory conditions.

Results Update (3 months to 31^st December 2020)

The company reported an increase in revenue to US$2.24 million in 3 months to 31^st December 2020 versus US$2.21 million in 3 months to 31^st December 2019 led by commercialization revenue of US$2.19 million. Finally, loss attributable to the owners of MSB grew to US$25.69 million in 3 months to 31^st December 2020 versus US$24.58 million in 3 months to 31^st December 2019.

Financial Performance (Source: Company Reports)

Recent Updates

Successful completion US$110 million private placement: On 31 March 2021, the company disclosed that it has effectively completed US$110 million private placement led by the US based investor group SurgCenter Development, one of the main private operators of ambulatory surgical centers (ASC) in the US specializing in spine, orthopaedic and total joint procedures. This private placement was closed with a pro-forma cash balance at 31 December 2020, of US$187.5 million.

Phase 3 trial update of rexlemestrocel-L: The company mentioned that Phase 3 trial results of rexlemestrocel-L (MPC-06-ID) in 404 patients with chronic low back pain (CLBP) because of degenerative disc disease (DDD) indicated that one injection of rexlemestrocel-L + hyaluronic acid (HA) carrier could provide at least 2 years of pain reduction, with opioid sparing activity in victims using opioids at baseline.

Phase 3 trial update of rexlemestrocel-L (REVASCOR®): The company mentioned that phase 3 trial results of rexlemestrocel-L (REVASCOR®) in 537 patients with chronic heart failure (CHF) with reduced left ventricular ejection fraction (HFrEF) indicated that one dose of rexlemestrocel-L leads in phenomenal decrease in heart attacks and strokes in complete evaluable study population of NYHA class II and III patients and in significant and durable decrease in cardiac death in patients with New York Heart Association (NYHA) class II disease

Joining of Philip J. Facchina as BOD: The company in its release dated 29 March 2021 announced that Philip J. Facchina, who is the Chief Strategy Officer of SurgCenter Development, has joined the company’s Board of Directors.

Positive outcomes of Remestemcel-L in pediatrics:  Pediatrics (Journal of the American Academy of Pediatrics) has released a paper on the first 2 children treated with Mesoblast’s mesenchymal stromal cell (MSC) product candidate remestemcel-L for life-threatening multisystem inflammatory syndrome (MIS-C) associated with COVID-19.

The 2 patients mentioned in the paper were earlier exposed to coronavirus infection and later developed MIS-C. Despite getting standard of care for MIS-C, they were displaying severe heart failure as well as significantly elevated inflammatory biomarkers. When treated with 2 intravenous doses of remestemcel-L separated by 48 hours, normalization of the left ventricular ejection fraction, notable reductions in biomarkers of systemic and cardiac inflammation, and improved clinical status occurred. Notably, there were no safety signals associated with the remestemcel-L treatment. However, both the patients were discharged from the hospital.

Key Risks: The company has reported operating losses since inception and expects the same flow in future periods. It is yet to generate revenue from sale of products. Further, it constantly require big financing to achieve the goals, and failing to this would result in delay, limit, reduce or terminate product development or commercialization efforts.

Outlook: The company’s strengthened balance sheet is expected to underpin the company’s operational preparedness as well as its ongoing discussions with the potential strategic partners to develop as well as commercialize rexlemestrocel-L and remestemcel-L for the big market opportunities of chronic heart failure, chronic lower back pain, and respiratory diseases.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation: As per ASX, the stock of the company has made a 52-week low and high of $1.670 and $5.700, respectively and it is trading towards the lower level. The stock reported a negative return of ~32.2% in the past six months while an increase of ~23.7% in the past one year.  Considering the aforesaid facts, we have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight premium to its peer EV/sales (NTM Trading multiple) considering its collaboration with Novartis, and cost cutting initiatives. Also, the company has successfully completed US$110 million private placement which could help it moving forward.

For the purposes of valuation, have taken peers such as CSL Ltd (ASX: CSL), and Adalta Ltd (ASX: 1AD), to name a few.

Considering the price correction in the recent months, valuation, and the current trading levels, we are of the view that stock can move in positive direction due to its improved financial liquidity requirements. Hence, we provide a ‘Buy’ rating on the stock at the current market price of $2.270 per share, up by 2.714% as on April 08, 2021. 

Note: 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.

MSB Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Aroa Biosurgery Ltd

ARX Details

Aroa Biosurgery Ltd (ASX: ARX) is a soft-tissue regeneration company that develops, manufactures, sells and distributes medical and surgical products in complex wounds and soft tissue reconstruction.

H1FY21 Results Update

ARX posted 10% YoY de-growth in product revenues. It had received US FDA clearance for its Symphony™ product in July for the complex wounds in the patients with severely impaired healing as well as the reimbursement application was submitted to support the limited commercial launch in 2021. Its gross margin slipped to 66% in H1 FY21 as compared to 77% in pcp. Its unaudited normalized EBITDA turned negative to NZ$2.3 million (vs. +NZ$2.15 million in pcp).

H1FY21 Financial Performance (Source: Company Reports)

Recent Updates

Received clearance for Myriad Morcells from US FDA: As per the release dated 6 April 2021, the company has received US FDA 510(k) clearance for Myriad Morcells™, a morcellized (powder) format of Myriad Matrix™ that effortlessly conforms to optimize contact with irregular wound beds.  

The morcellized format increases AROA ECM™ surface area to maximize delivery of important ECM proteins. Notably, the clearance further builds on the applications as well as commercial potential for the Myriad™ portfolio following recent studies demonstrating positive clinical outcomes for Myriad Matrix^TM’s use in the surgical treatment of hidradenitis suppurativa, complex wounds as well as exposed vital structures.

Pilot study indicates benefits of myriad in chronic wounds: The company has gained further validation for Myriad™, which is a device for the soft tissue reconstruction, with the new pilot study indicating that it could be used under the tissue flap to reduce surgical complications in the reconstruction of challenging, non-healing chronic wounds. Notably, the findings were published in the journal “Frontiers of Surgery.”

Received approval to introduce 3 products in India: The company has received Indian regulatory distribution approval for three products based on its Aroa ECM platform. The three products are: Myriad™, Endoform® Natural and Endoform® Antimicrobial. These products will target advanced wound care market in India and the estimates of the value range between US$225-485 million in 2020, with compounding growth of 5.5% to 8% per year.

ARX in added to All Ordinaries: The stock of the company has been added to All Ordinaries.

Key Risks: The company is in tissue engineering, which is a new way of treatment of disease and injury. It includes the concept of the technologies of molecular and cell biology, alongside advanced materials science and processing. This places the company in the challenging product line along with some other aspects of regenerative medicine including gene therapy.

Outlook: The company expects revenue growth on H2 FY 2020 to more than NZ$21.0m in FY21. The company has also announced the plan to significantly expand the direct sales capability as well as capacity in the US market, and to dissolve Appulse joint venture sales team.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Stock Recommendation: As per ASX, the stock of the company has made a 52-week low and high of $0.970 and $1.745 and it is trading towards the lower level. The stock reported a positive return of ~3.04% in the past one month and an increase of ~3.94% in the past 3 months. However, the stock decreased by ~10.9% in last 6 months.

Considering the aforesaid facts, we have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight premium to its peer EV/Sales (NTM Trading multiple) as the company expects revenue growth moving forward. Also, the company’s EBITDA margin is better as compared to the industry median.

However, the company is also open to currency fluctuation, change in exchange rates, unfavourable global economic or political conditions. For the purposes, we have taken peers such as CSL Ltd (ASX: CSL), Mesoblast Ltd (ASX: MSB), and Clinuvel Pharmaceuticals Ltd (ASX: CUV), to name a few.

Considering the price rise in the past months, valuation, and the current trading levels, we are of the view that stock can move in positive direction. Hence, we provide a ‘Speculative Buy’ rating on the stock at the current market price of $1.185 per share, down by 0.421% as on April 08, 2021.

ARX Daily Technical Chart (Source: Refinitiv (Thomson Reuters))

Note: 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.

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