EUR 850.00 For Business Accounts Only

Morningstar | Mesoblast On Track for Solid Near-Term Growth; Maintaining AUD 3.00 FVE

We reiterate our AUD 3.00 per share value estimate for no-moat Mesoblast following a transfer of analyst. Although we still view the company with a very high degree of uncertainty, we’re encouraged the firm has continued to receive good news regarding its MSC-100-IV treatment for acute graft versus host disease, or aGvHD. As we had previously expected, the recently announced third round of phase 3 data for this treatment has proven positive. Following top-line 100-day results from the 55 children cohort participating in the trial demonstrating an overall survival rate of 75%--significantly higher than 30% observed in patients who typically fail to respond to initial steroid therapy--180-day results showed an overall 69% survival rate. And importantly, survival was 79% for patients who had a positive response to treatment at day 28.

We continue to view MSC-100-IV as Mesoblast’s most likely product candidate to be advanced in the near term. Given its fast-track designation status with the FDA, we expect a potential U.S. launch in 2019. Our modelling of MSC-100-IV estimates sales of around USD 240 million by 2023 for the product based on the addressable market in the U.S.

Beyond this treatment, we consider the 600-patient phase 3 trial with MPC-150-IM for chronic heart failure, to be the next key value driver. This trial should complete recruitment in first-half 2019, and Mesoblast is scheduled to present data from the complementary 120-patient phase 2b trial evaluating the benefits of the same compound in patients with end-stage heart failure requiring mechanical circulatory support at a major cardiovascular conference in November 2018. We assign a 25% probability of success for this product but see a larger potential market than aGvHD. We estimate the treatment could generate sales of nearly USD 1.4 billion by 2023 based on the addressable market in the U.S. and Europe, with the company capturing 40% of this revenue under our assumed partnering arrangement.

Despite rapid growth expected in the near term, we don’t assign Mesoblast an economic moat. The company is highly exposed to the binary nature of event-driven risk in addition to the myriad risks typically associated with emerging biotech companies. Although we see the potential of engineered stem cell therapies to address major unmet needs, the technology is unproved and therefore exposed to considerable clinical and regulatory risk. Nonetheless, a solid patent portfolio underpinning its proprietary mesenchymal precursor stem cell and mesenchymal stem cell platforms could form the basis of a moat, should clinical trials currently under way render positive data and lead to FDA approvals.