Mesoblast Limited

MSB Details

Recent News on the Company: Mesoblast Limited (ASX: MSB) is engaged in offering allogeneic cellular medicines for inflammatory diseases.

• Class Action Proposed Against MSB: As per recent news of 18 February 2022 on MSB, Phi Finney McDonald investigated and proposed to commence a class action against MSB. The allegations state that MSB misrepresented the efficacy of its proposed Remestemcel-L (R-L) product, which was pitched for the treatment of COVID-19 and SR-aGVHD.
• Appointment of Dr Eric Rose: On 2 February 2022, MSB announced the appointment of Dr Eric Rose as MSB’s Chief Medical Officer (CMO), being a non-executive director since 2013.

Q2FY22 Quarterly Activity Report

• Meetings with US Food and Drug Administration (FDA): During the quarter, the conjunction with the US FDA Office of Tissues and Advanced Therapies addressed the assay and Chemistry. Manufacturing and Control (CMC) items were determined in the complete response letter (CRL).
• Supportive Evidence: The results from the investigator-initiated study and indication of OTAT supported the evidence of the immunomodulatory and anti-inflammatory mechanism of remestemcel-L actions.

Key Financial Highlights of Q2FY22

• Top-Line Update: MSB clocked US$3.5 million in revenues, including TEMCELL® HS Inj. Royalties of US$2.5 million on sales for SR-aGvHD in Japan, up by 7% relative to the previous year.
• Operating Activities: The total operating activities led to net cash usage of US$19.8 million during the quarter, a crunch of 38% on a PcP basis.
• Cash Position: The cash balance as of 31 December 2021 stood at US$94.8 million, with an additional undrawn financing facility of US$40 million.

Cash Highlight; Analysis by Kalkine Group

Key Risks and Challenges

The company stands a substantial market risk from the proposed legal actions taken by Phi Finney McDonald. Considering the history of heavy stock dumping in 2020 due to litigation filings, the stock is expected to manifest high volatility. The potential regulatory risks from US FDA’s disapprovals may degrade shareholders’ value.

Outlook

MSB generated considerable new data to establish potency assay’s relevance measuring remestemcel-L. MSB is expected to provide new data to OTAT for the resubmission of the Biological License Application (BLA).

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 ~56.923% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $1.080 - $2.700. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a downside of high single-digit (in percentage terms). Considering the recent legal actions taken by Phi Finney McDonald against MSB and resubmission of BLA, the company might trade at some discount to its peers’ EV/Sales multiple average. For valuation, few peers like Immutep Ltd (ASX: IMM), Clinuvel Pharmaceuticals Ltd (ASX: CUV), Kazia Therapeutics Ltd (ASX: KZA) and others have been considered. Given the recent litigation filings against the company, history of heavy stock dumping in 2020 owing to legal risks, current trading levels, downside indicated by valuation, and key risks associated with the business, we give a “Sell” recommendation on the stock at the current market price of $1.140, as of 18 February 2022, 02:29 PM (GMT+10), Sydney, Eastern Australia.

Investors with a high-risk appetite should evaluate this stock given the technical support and resistance levels and take into consideration associated risks arising from the recent litigation risks, potential stock dumping and regulatory risks from US FDA.

MSB Daily Technical Chart, Data Source: REFINITIV 

Mach7 Technologies Limited

M7T Details

Q2FY22 Financial Performance: Mach7 Technologies Limited (ASX: M7T) develops new data imaging management software solutions to improve patient outcomes and reduce care delivery costs and delays.

• Continued Momentum of Strong Sales: M7T continued its robust sales orders from existing & new customers and reseller partners, coupled with a combined TCV of $5.9 million in Q2FY22. In addition, the company closed 24 new contracts in FY22.
• Resilient Operating Cash Flows: Owing to record sales in Q1FY22, which included Advocate Aurora Health and Trinity Health, the company’s cash collection stood robust, clocking an operating cash flow of $3.0 million. Cash position as of 31 December 2021 stood at $17.2 million with no debt.
• Contract and License Update –
  • Luke’s Boise purchased M7T’s eUnity universe viewing solution license at $443,000 for the first year.
  • Advocate Aurora Health issued a license to M7T’s eUnity universe viewing solution with a contract value of $4.3 million.
  • Trinity Health entered a 7-year contract with M7T at a combined contract value of $16.45 million.
• New Sales Order in Q2FY22: The recent sales have contributed to $1 million since the beginning of FY22, and the contracted annual recurring revenue base stood at $16.8 million. The ARR stood in line with forecasts at $13.4 million, with an additional $3.4 million of CARR expected to convert in FY23 and beyond.

FY21 Financial Snapshot; Analysis by Kalkine Group

Key Risks and Challenges

The threat of substitution is immense in the healthcare technology industry, owing to constantly changing and advancing technologies. Considering the heavily regulated healthcare sector, the technology is highly subject to the risk of regulatory disapproval.

Outlook

M7T has continued to maintain a strong sales order momentum from new & existing customers and reseller partners. The company has entered a five-year agreement with a multispecialty clinic in Clark Country, Washington, with over 1,200 employees and 400 providers. FY22 revenue results are expected to be $19 million over the FY21 reported revenue. M7T is seeking positive EBITDA for FY22.

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 M7T gave a negative return of ~48.965% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.660 - $1.525. On 16 February 2022, M7T disclosed the time and date of the H1FY22 webinar, to be held at 9:30 AM AEDT on Monday, 28 February 2022. 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). The company might trade at a slight discount to its peers, considering business uncertainties, changing and advancing technologies, regulatory concerns, etc. For valuation, few peers like CogState Ltd (ASX: CGS), Alcidion Group Ltd (ASX: ALC), Medadvisor Ltd (ASX: MDR), and others have been considered. Given the current trading levels, increased contract wins, favourable sale orders, key associated risks with the business, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.735, as of 18 February 2022, 12:39 PM (GMT+10), Sydney, Eastern Australia.

M7T 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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