Stocks’ Details

Mesoblast Limited

Update on COVID-19 ARDS’ Trial: Mesoblast Limited (ASX: MSB) is a developer and marketer of off-the-shelf new cellular medicines to help provide solutions for life-threatening diseases. MSB has an IP portfolio secured through to at least 2040 in all its key markets. It operates in Australia, US, and Singapore. As on 22^nd December 2020, the market capitalization of the company stood at ~$1.35 billion. In a recent announcement, MSB has updated on the results of the third interim analysis on the first 180 patients tested for remestemcel-L, ventilator-dependent with moderate to severe acute respiratory distress syndrome (ARDS) due to COVID-19 infection. The Data Safety Monitoring Board (DSMB) confirmed that there were no safety issues. However, it recommended that the trial will not be able to meet the 30-day mortality reduction endpoint (43%) for 300 patients. Rather, it will have to be finished with the currently enrolled 223 patients. Due to the evolving nature of the virus and disease, the is no data on the secondary endpoints. All 223 enrolled patients will be examined through 60 days of follow-up for studying the potential treatment effects on these outcomes. MSB and Novartis will together analyse results to arrive at meaningful clinical results.

September 2020 Quarter (Q1FY21) Result Highlights: MSB reported a decrease of US$15.7 million in revenue from US$17 million in Q1FY20 to US$1.3 million in Q1FY21. Loss after tax for Q1FY21 stood at US$24.5 million versus US$5.5 million in Q1FY20. During the quarter, manufacturing expenses rose to US$11.9 million due to higher expenditure on clinical supply for ARDS phase 3 trials and inventory for RYONCIL’s potential launch. MSB signed an exclusive agreement with Novartis for developing and marketing MSC (its key product candidate), and remestemcel-L initially to treat ARDS. MSB had $108.1 million cash on hand as on 30 September 2020.

Q1FY21 Highlights (Source: Company Reports)

Results from Phase III Trial of REXLEMESTROCEL-L: The results of the trial show that the early use of rexlemestrocel-L majorly reduces cardiovascular mortality in patients detected early on with heart failure though at the risk of disease progression. However, the primary endpoint of the trial which was a decrease in the recurrent non-fatal decompensated heart arrest was not met.

Outlook: The company looks forward to progress on its projects in partnership with Novartis’ manufacturing and commercial strength. MSB anticipates receiving more payments over the next 1 year under its partnership with Novartis for finishing a few milestones. It may receive a sum of US$67.5 million through present funding sources and key partnerships over the next 1 year.

Key Risks: The company is exposed to the risks of delays and desired results from the trials undertaken on the ongoing projects (especially on its lead candidate remestemcel-L). Further, there is also uncertainty due to the impact of COVID-19 on the priority filings with the FDA, timely availability of ingredients for the manufacture and commercialization of lead candidates.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of MSB gave a negative return of 56.77% in the past three months and a negative return of 35.98% in the past six months. The stock is currently inclined towards its 52-weeks low price of $1.02, offering a decent opportunity for accumulation. On the technical analysis front, the stock of MSB has a support level of ~$1.839 and a resistance level of ~$2.517. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of a low double-digit upside (in % terms). For the purpose, we have taken peers like Clinuvel Pharmaceuticals Ltd (ASX: CUV), Starpharma Holdings Ltd (ASX: SPL), and Telix Pharmaceuticals Ltd (ASX: TLX). Considering the current trading levels, expected revenue payments from projects, recent contract with Novartis, decent outlook for FY21, and valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $2.170, down by 5.653% on 22^nd December 2020.

Mayne Pharma Group Limited

Extension of Syndicated bullet facility on Improved Covenant Terms: Mayne Pharma Group Limited (ASX: MYX) is a specialty pharmaceutical producer and distributor of branded and generic pharmaceuticals. It also offers contract manufacturing and development services to over 100 companies globally. As on 22^nd December 2020, the market capitalization of the company stood at ~$596.06 million. MYX has sought an extension on its 3-year bullet facility till November 2024 on better compliance terms to fund the company’s growth. Its current net debt under the new terms stands at $208 million (as at 30 November 2020), down from $15 million from 30 June 2020, due to free cash flow and favourable forex.

FY20 Result Highlights: The company reported a YoY decrease of 13% in revenue to $457 million in FY20. The net loss after tax available for the members for FY20 stood at $92.8 million versus $279.1 million in FY19, a reduction of 66.8% on a YoY basis. The net operating cash flows were $100 million from operating activities and free cash flows were $43.9 million.

Summarised FY20 Income Statement (Source: Company Reports)

Issue of Shares and Performance Rights: The company issued 8.64 million loans shares and 1.12 performance rights pursuant to MYX’s Long-Term Incentive Plans as on 4^th December 2020. It issued 2.21 million options and 287,846 performance rights to EVP, Women’s Health on the same date. Approx. 132,320 employee performance rights were lapsed with expiry due on 30 September 2025 as per the conditions of Mayne Pharma Employee Performance Right and Option Plan.

Outlook: The company plans to successfully commercialise NEXTSELLIS and complex generic products (such as NUVIRANG) post FDA approval and instrumental for MYX’s further growth. The company will invest in expanding products and developing portfolio in women’s health, dermatology, and infectious disease and expand services in Salisbury and Greenville.  

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of MYX gave a negative return of 5.40% in the past three months. The stock of MYX has a support level of ~$0.281 and a resistance level of ~$0.486. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of a low double-digit upside (in % terms). For the purpose, we have taken peers like Opthea Ltd (ASX: OPT), Sigma Healthcare Ltd (ASX: SIG), Sonic Healthcare Ltd (ASX: SHL), etc. Considering the current trading levels, FY20 results (reduced debt and extension at better terms), decent outlook for FY21, valuation, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.350, down by 1.409% on 22^nd December 2020.

Bard1 Life Sciences Limited

Grant of Patent in China for hTERT Antibody until 2035: Bard1 Life Sciences Limited (ASX: BD1) is a medical technology developer of non-invasive diagnostic tests for early cancer detection in patients. As on 22^nd December 2020, the market capitalisation of the company stood at ~$52.28 million. The company recently informed that one of its Directors, Dr Geoffrey Cumming, who holds an indirect interest in the company, has acquired 9,333 ordinary shares of BD1 at an average price of $0.7571 per ordinary share via On-market purchase. The company recently updated regarding receipt of a Chinese patent for the use of hTERT antibody to identify malignant cells and cure inconclusive cytology. The grant of patent coincides with the timing of regulatory approval and launch of hTERT in FY21 in China. BD1 is revamping its US sales strategy in association with StatLab Medical Products (StatLab), its US distributor to seek high volume clients on-board and has bagged a key high-volume laboratory on-board for in-market hTERT test.

September 2020 Quarter Activities: In July 2020, the company finished the acquisition of Sienna Cancer Diagnostics under a Scheme of Arrangement with an aim to expand its product portfolio and technology. It updated the Board with an experienced team and wider portfolio for the merged entity. During the quarter, the company undertook a strategic review of the business, realised more than $1.1 million cost savings from the operational efficiencies post-merger, received $372,654 in grant to develop liquid biopsy tests for cancer, received a European patent and validated it for Bard1 technology for breast/ ovarian cancer diagnostic kits. The cash balance and net cash used in operating activities stood at $8.9 million and $1.45 million, respectively at the end of the quarter. BD1 received $77k of hTERT as product income, $48k stimulus package from the government as COVID-19 stimulus and $20k as interest income totalling $145k as operating cash receipts for the quarter. 

Q1FY21 Highlights (Source: Company Reports)

Outlook: The company has plans to launch and commercialise new RUO EURO-NET product by 2QCY21. BD1 has estimated realisation of over $450k savings per annum from restructuring measures inclusive of transfer of BARD1 research from Switzerland to Australia in CY21.

Stock Recommendation: The stock of BD1 gave a negative return of 18.51% in the past three months and a negative return of 26.67% in the past six months. The stock is currently inclined towards its 52-week low level of $0.57, offering a decent opportunity for accumulation. The stock of BD1 has a support level of ~$0.578 and a resistance level of ~$0.841. Considering the current trading levels, Q1FY21 results, cost savings from the merger & restructuring initiatives, outlook and plans for the upcoming quarters, grant of new Euro patent for diagnostic kits, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.660, down by 0.763% on 22^nd December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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