Mesoblast Limited

MSB Details

MSB Receives Feedback from FDA: Mesoblast Limited (ASX: MSB) is involved in developing innovative cell-based medicines and seeks to offer treatments for cardiovascular illness, inflammatory ailments, and back pain.

• Recently, MSB notified that it had received review from the US Food & Drug Administration’s (FDA) Office of Tissues and Advanced Therapies (OTAT) on the Phase 3 program of rexlemestrocel-L in patients suffering from chronic low back pain (CLBP).
• The company also intends to conduct a further US Phase 3 trial to support proposals for possible approval in the US and EU.
• If this trial is adequate and goes ahead to EU regulatory approval, MSB will be entitled to obtain payments up to US$112.5 million before product introduction in the EU. Collective milestone payments might get to US$1 billion, subject to the outcome of Phase 3 studies and patient acceptance.
• MSB is highly focused on demonstrating reduction in pain and opioid usage, thereby positioning rexlemestrocel-L as a potential opioid-saving agent.

Delve into Key Highlights:

• For the quarter ending 30^th September 2021, the company reported revenues from TEMCELL® HS Inj. royalties in Japan of US$2.4 million, up 90% on pcp, and 22% from the prior quarter.
• Net operating cash outflow for the September quarter stood at US$19.6 million, a reduction of US$8.6 million on the comparative quarter last year.
• Loss after tax in 1QFY22 came in at US$22.7 million, as compared to a loss of US$24.5 million reported in the year-ago period.

Cash and Cash Equivalent Highlights (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks related to fluctuations in the foreign currency exchange rates. It is also exposed to the risk related to the adverse global economic or political conditions, which could adversely affect the company’s business.

Outlook: The company is well-positioned to enhance its capabilities in the market and continues to experience robust levels of sales inquiries, leads, and contracted work. The demand for the company’s innovative cell-based medicines and product development capabilities continues to grow, thereby boosting orders.

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

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 29.29% and is trading lower than the average 52-week price level band of $1.31 - $2.9. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). The company can trade at a slight discount to its peers, considering the mounting losses, uncertainty surrounding the COVID-19 pandemic and associated key risks with the business. For the valuation purpose, peers such as Telix Pharmaceuticals Ltd (ASX: TLX), Clinuvel Pharmaceuticals Ltd (ASX: CUV), Paradigm Biopharmaceuticals Ltd (ASX: PAR), etc., have been considered. Considering the company’s rise in revenues from TEMCELL® HS Inj. royalties, beginning of the next Phase 3 trial, current trading levels, modest outlook, indicative upside in the valuation, and key associated risks, we give a “Speculative Buy” rating on the stock at the closing market price of $1.385, down by 0.36% as on 29 December 2021.

MSB Daily Technical Chart, Data Source: REFINITIV

Paragon Care Limited

PGC Details

Managerial Changes: Paragon Care Limited (ASX: PGC) is engaged in offering end to end healthcare solutions, consisting of equipment and service solutions for acute, aged, and primary care. Recently, the company appointed Mark Hooper as its Chief Executive Officer (CEO) and Managing Director.

Update on Merger Between Paragon and Quantum:

• As announced on 8 November 2021, the company and Quantum Health Group Limited (QTM) entered a scheme implementation deed (SID) to merge both businesses. As per the terms of SID, PGC would acquire 100% shares of Quantum Health Group Ltd.
• Post-merger QTM shareholders would own around 43.83% of the merged entity. The shareholders of Quantum would receive consideration of 0.243 Paragon Care shares for each Quantum share held on the scheme record date, which is likely to be in early-mid February 2022.
• On 17 December 2021, QTM and PGC updated, that the Australian Securities and Investments Commission (“ASIC”) has registered the Scheme Booklet in relation to the proposed acquisition by way of a scheme of arrangement.
• On 21 December 2021, QTM and PGC updated the market, Quantum has despatched to its shareholders, the scheme booklet issued earlier on 17 December 2021.
• PGC believes that the merged entity would be equipped with an opportunity to cross-sell the combined product portfolio into the higher-growth Asian markets.

Q1FY22 Financial and Operational Updates:

• Despite the challenges posed by COVID-19 led lockdowns across Sydney, Melbourne and NZ, the company’s revenue for the quarter moved down by only 2% to $56 million.
• The gross profit margin for the quarter stood at 41.6% as compared to 37.5% in Q1FY21 because of selling higher-margin products. In addition, the underlying EBITDA for the quarter increased by 49% to $6.1 million against $4.1 million in Q1FY21.
• During the three months period, the company managed to decrease its total debt by $4 million.

EBITDA Trend (Source: Analysis by Kalkine Group)

Key Risks: The company’s operational and financial performance could be impacted by the adverse movement in foreign exchange as it deals in multiple geographies. PGC is exposed to a more complex regulatory environment; any failure in the compliances could lead the business to fines, penalties, etc.

Outlook: For FY22, the company possesses a decent growth pipeline with 15 of the largest opportunities in the group, having the potential to increase sales by up to $100 million in a 3 - 5-year time period. The company’s plans are progressing in a decent manner to more than double manufacturing capacity in its world-class proprietary blood reagent business which would facilitate the growth of Immulab into China and other Asian markets.

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: Recently, the company has entered a strategic partnership for the long-term lease of a state-of-the-art clean room facility, laboratories, and office complex in the Monash precinct with Centuria Healthcare. In the past six and nine months, the stock of PGC has provided positive returns of ~30.2% and ~43.7%, respectively. The stock is trading at par its 52-week high level of $0.36. The stock has a support and resistance level of $0.25 and $0.38, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price with a correction of high single-digit upside (in % terms). The company can trade at a slight discount to its peers’ median EV/Sales multiple, considering the COVID-19 uncertainties and high debt to equity ratio, etc. For the purpose of valuation, peers such as Regis Healthcare Ltd (ASX: REG), Sigma Healthcare Ltd (ASX: SIG), Australian Pharmaceutical Industries Ltd (ASX: APT), and others have been considered. Considering the solid rally in the past months, current trading level, indicative downside in the valuation, volatility in the healthcare space, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $0.36, as on 29 December 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

PGC 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 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 analysis has been achieved and 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 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website unless those persons comply with certain safeguards, procedures, and disclosures.

Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.