Mesoblast (ASX:MSB)

Silviu Itescu
CEO & MD
Market Cap (AUD): 2.03B
Sector: Health Care
Last Trade (AUD): 3.22 -0.24 (-7.47%)
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1. About

Mesoblast is a world leader in developing innovative cellular medicines. The Company has established what it believes is the industry’s most clinically advanced and diverse portfolio of cell-based product candidates with three programs in Phase 3 clinical studies. Consistent and durable clinical outcomes have been demonstrated across multiple difficult-to-treat diseases. Mesoblast was publically listed on the Australian Securities Exchange (ASX:MSB) in December 2004. The Company has a Level 3 American Depositary Receipt program facility and listed on the Nasdaq (Nasdaq: MESO) in the United States in November 2015.

Its lead product candidates under investigation are:

  • MSC-100-IV for acute graft versus host disease
  • MPC-150-IM for advanced heart failure
  • MPC-06-ID for chronic low back pain due to disc degeneration
  • MPC-300-IV for biologic refractory rheumatoid arthritis and diabetic nephropathy

2. Business model

 

The Company operates the following divisions:

 

Divisions

Revenue ($’000)

% of Revenue

% of Loss (before Tax)

Profit drivers[1]

Commercialization Revenue

$3,641

21.0%

N/A

Commercialization revenue was $3.6 M in the year ended June 30, 2018, an increase of $2.2 M as compared with $1.4 M in the year ended June 30, 2017. This $2.2 M increase in commercialization revenue is from royalty income earned on sales of STEMCELL in Japan by its licensee JCR, with $3.6 M of royalty revenue recognized in the year ended June 30, 2018, compared with $1.4 M of royalty revenue recognized in the year ended June 30, 2017

Milestone Revenue

$13,334

76.9%

N/A

Milestone revenue was $13.3 M in the year ended June 30, 2018, an increase of $12.8 M as compared with $0.5M in the year ended June 30, 2017. This $12.8 M increase in the year ended June 30, 2018, is due to increases in milestone revenues for Alofisel®, licensed with Takeda, and STEMCELL, licensed with JCR. There was an $11.8 M increase in milestone revenue recognized in relation to its patent license agreement with Takeda

Interest Revenue

$366

2.1%

N/A

The $0.1 M decrease in interest revenue from the year ended June 30, 2018, compared with the year ended June 30, 2017, was primarily driven by us retaining higher cash reserves in the year ended June 30, 2017, when compared with the year ended June 30, 2018

3. Strategy

 

Key strategies include:[2]

 

The Company is focused on the following core strategic imperatives:

  • Continue to innovate and optimize its disruptive technology platform for cell-based therapeutics
  • Develop a portfolio of clinically distinct products
  • Focus on bringing late-stage products to market and portfolio prioritization
  • Enabling manufacturing scale-up to meet demands of the portfolio
  • Leverage talent base to continue to establish a culture of shared leadership and accountability
  • Focus on strategic partnerships
  • Focus on prudent cash management
  • Continue to strengthen its substantial and robust intellectual property estate

4. Markets

    

The Company operates in markets including:[3]

 

Industry

Industry Revenue (2018)

Growth Rate (annual- 14-19)

Biotechnology in Australia

$8 billion

2.9%

5. Competition

 

Major competitors include:[4]

 

  • Pharmaxis Ltd. (ASX:PXS)
  • Alchemia Limited (ASX: ACL)
  • TBG Diagnostics Ltd. (ASX: TDL)
  • Kazia Therapeutics Ltd (ASX: KZA)

6. History

 

2004[5]   

ASX listing and application agreement

 

2005   

Mesoblast signed agreement with major international medical company

Mesoblast targeted United States investor base

 

2006   

Further investment in Angioblast which completed phase 2 cardiovascular trial

Mesoblast achieved a major milestone positive results accelerated product commercialization

 

2007   

Mesoblast raised new capital which expanded clinical programs

 

2008   

Agreement with Abbott for stem cell heart failure therapy    

 

2009   

Mesoblast raised capital for new clinical programs

 

2010   

Mesoblast acquired Angioblast systems, 37M capital raised

Acquired US company ratified by Mesoblast shareholders

 

2011   

Alliance highlighted with Cephalon Inc. at JPMorgan healthcare conference

Mesoblast included in S and P/ASX 200 Index

 

2012   

Key manufacturing agreement with FDA for phase 3 trials

 

2013   

Mesoblast acquired Osiris' cultured stem cell business   

 

2014   

Key Mesoblast patent claimed upheld in Europe

 

2015   

Celgene and Mesoblast extended Agreement

Mesoblast received $5.8m from the Australian government for R&D

 

2016   

GVHD product launched in Japan

Key US patent granted for treatment of Rheumatoid Arthritis

 

2017    

Mesoblast received A$3.7 Million from Australian Government for research and development activities

 

2018   

MSB Enters Into $75 Million Non-Dilutive Credit Facility

Partnership For Allogeneic Cell-based Cancer Immunotherapies

MSB Enters Into US$50M Financing With NovaQuest Capital

MSB Enters Into Cardiovascular Alliance For China With Tasly

Mesoblast and Tasly pharmaceutical group complete transaction for strategic cardiovascular partnership in China

Mesoblast expands partnership with jcr pharmaceuticals for the treatment of wound healing in epidermolysis bullosa

7. Team

 

Board of Directors[6]

 

Joseph R. Swedish – Non-executive Chairman

William M. Burns – Non-Executive Vice Chairman

Silviu Itescu – Chief Executive Officer (Executive Director)

Donal O’Dwyer – Non-Executive Director

Eric Rose – Non-Executive Director

Michael Spooner – Non-Executive Director

Shawn Cline Tomasello – Non-Executive Director

Charlie Harrison – Company Secretary

 

Management Team

 

Silviu Itescu – Chief Executive Officer & Managing Director

Josh Muntner – Chief Financial Officer

Roger D. Brown – Spinal Orthopedic Disorders

Peter Howard – Corporate Executive & General Counsel

John McMannis – Manufacturing

Julie Meldrum – Global Corporate Communications

Michael Schuster – Pharma Partnering

Paul Simmons – Research & New Product Development

Donna Skerrett – Chief Medical Officer

Geraldine Storton – Head of Regulatory Affairs & Quality Management

Eric Strati – Commercial

Jonathan R. Symonds – Corporate Finance & Strategy


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8. Financials

 

2018 Full Year Results Presentation

     

Financial Year 2017/18 (ended 30 June):[7]

 

Division

Revenue ($’000)

% Change

Profit/(Loss)  (before Tax) ($’000)

% Change

Commercialization Revenue

$3,641

152.1%

N/A

N/A

Milestone Revenue

$13,334

2566.8%

N/A

N/A

Interest Revenue

$366

(21.8%)

N/A

N/A

Total

$17,341

618.9%

($65,977)

(26.9%)

9. Risk

 

Market risk[8]

 

- Currency risk

The Group has foreign currency amounts owing primarily in USD in Mesoblast Limited (AUD functional currency) relating to clinical,  regulatory  and  overhead  activities  as  well  as Euro  deposits  and  Euro  receivables  held  in  the  Swiss  and  Singapore  entities, respectively  (USD  functional  currency)  primarily  relating  to  revenue  recognized  from  its  patent  license  agreement  with  Takeda entered  into  in  December  2017.  The Group also has foreign currency amounts owing in various other non-USD currencies  in  USD functional currency entities in the Group relating to clinical, regulatory and overhead activities. These foreign currency balances give rise to a currency risk, which is the risk of the exchange rate moving, in either direction and the impact it may have on the Group’s financial performance. Currency risk is minimized by ensuring the proportion of cash reserves held in each currency matches the expected rate of spend of each currency. As of June 30, 2018, the Group held 92% of its cash in USD, and 8% in AUD.

As of June 30, 2017, the Group held 95% of its cash in USD, and 5% in AUD

 

- Interest rate risk

The Group ’s main interest rate risk arises from long-term borrowings with a floating interest rate under its loan facility with Hercules, which exposes the Group to cash flow interest rate risk.  As interest rates fluctuate, the amount of interest payable on financing where the interest rate is not fixed will also fluctuate. This interest rate risk can be managed by interest rate swaps which can be entered into to convert the floating interest rate to a fixed interest rate as required.  Additionally,  the Group can repay its loan facility at its discretion and can also refinance if the terms are suitable in the marketplace or from the existing lender.

 

- Price risk

Price risk is the risk that future cash flows derived from financial instruments will be altered as a result of a market price movement, which is defined as movements other than foreign currency rates and interest rates.  The  Group is exposed to price risk which arises from long-term borrowings under its facility with NovaQuest,  where the timing and amounts of principal and interest payments are dependent on net sales of product candidate MSC-100-IV for the treatment of aGVHD in pediatric patients in the United States and other territories excluding  Asia.  As net sales of MSC-100-IV for the treatment of aGVHD in pediatric patients in these territories increase/decrease, the timing and amount of principal and interest payments relating to this type of financing arrangement will also fluctuate, resulting in an adjustment to the carrying amount of financial liability. The adjustment is recognized in the Income Statement as income or expense in the period the revision is made.

 

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge its obligation and cause financial loss to the other party.

 

Liquidity risk

Liquidity risk is the risk that the Group will not be able to pay its debts as and when they fall due. All financial liabilities, excluding contingent consideration, held by the Group as of June 30, 2018, and June 30, 2017, are non-interest bearing and mature within 6  months. The total contractual cash flows associated with these liabilities equate to the carrying amount disclosed within the financial statements.

References

  1. ^ Annual Report 2018, P. 69-70
    https://www.listcorp.com/asx/msb/mesoblast/news/annual-report-to-shareholders-2007840.html
  2. ^ http://www.mesoblast.com/company/overview
    Annual Report 2018, P. 64-65
    https://www.listcorp.com/asx/msb/mesoblast/news/annual-report-to-shareholders-2007840.html
  3. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=1901
  4. ^ https://quotes.wsj.com/AU/MSB
  5. ^ http://www.asx.com.au/asxpdf/20041203/pdf/3nyzf12sh1fx2.pdf
    http://www.asx.com.au/asxpdf/20050824/pdf/3s09wj98yffc6.pdf
    http://www.asx.com.au/asxpdf/20050705/pdf/3rfjfvjnn9996.pdf
    http://www.asx.com.au/asxpdf/20060921/pdf/3ylbz6kmlhzzx.pdf
    http://www.asx.com.au/asxpdf/20060607/pdf/3x24wlbx0xmj0.pdf
    http://www.asx.com.au/asxpdf/20071210/pdf/316d01dtcfk3w4.pdf
    http://www.asx.com.au/asxpdf/20080219/pdf/317hzbns8jy5n7.pdf
    http://www.asx.com.au/asxpdf/20090330/pdf/31gtjl6j9z6kf1.pdf
    http://www.asx.com.au/asxpdf/20100512/pdf/31q9dmysgzm438.pdf
    http://www.asx.com.au/asxpdf/20100922/pdf/31snfq761r7jwf.pdf
    http://www.asx.com.au/asxpdf/20110112/pdf/41w4kvhgvqcnmg.pdf
    http://www.asx.com.au/asxpdf/20110418/pdf/41y3d79wbr1ylz.pdf
    http://www.asx.com.au/asxpdf/20121120/pdf/42b9p04vd15fs5.pdf
    http://www.asx.com.au/asxpdf/20131011/pdf/42jz0gs6xjkjqc.pdf
    http://www.asx.com.au/asxpdf/20141216/pdf/42vhpkbvcbsryk.pdf
    http://www.asx.com.au/asxpdf/20151016/pdf/4323y6ng2cf6k3.pdf
    http://www.asx.com.au/asxpdf/20150605/pdf/42z0w47drwqphd.pdf
    http://www.asx.com.au/asx/statistics/announcements.do?by=asxCode&asxCode=MSB&timeframe=Y&year=2016
    https://www.listcorp.com/asx/msb/mesoblast/news/mesoblast-receives-a-3-7m-from-aus-govt-for-r-and-amp-d-1568728.html
    https://www.listcorp.com/asx/msb/mesoblast/news/msb-enters-into-75-million-non-dilutive-credit-facility-1833540.html
    https://www.listcorp.com/asx/msb/mesoblast/news/partnership-for-allogeneic-cell-based-cancer-immunotherapies-1894387.html
    https://www.listcorp.com/asx/msb/mesoblast/news/msb-enters-into-us-50m-financing-with-novaquest-capital-1917721.html
    https://www.listcorp.com/asx/msb/mesoblast/news/completion-of-tasly-transaction-and-appendix-3b-1993968.html
    https://www.listcorp.com/asx/msb/mesoblast/news/msb-expands-partnership-with-jcr-for-skin-disease-2002708.html
  6. ^ http://www.mesoblast.com/company/board-of-directors
    http://www.mesoblast.com/company/management-team
  7. ^ Annual Report 2018, P. 69
    https://www.listcorp.com/asx/msb/mesoblast/news/annual-report-to-shareholders-2007840.html
  8. ^ Annual Report 2018, P. 179-183
    https://www.listcorp.com/asx/msb/mesoblast/news/annual-report-to-shareholders-2007840.html