EUR 850.00 For Business Accounts Only

Morningstar | Mesoblast’s Latest Trial Data Offers a Mixed Outlook; Reducing our FVE to AUD 2.35. See Updated Analyst Note from 11 Nov 2018

No-moat Mesoblast’s latest trial data for a key treatment disappointed the market and calls into the question potential efficacy in tangential areas. The company reported the results of its 159-patient Phase 2b trial for MPC-150-IM usage in end-stage heart failure patients implanted with a left ventricular assist devise, or LVAD. While the therapy achieved a significant reduction in major gastrointestinal bleeding episodes, which the U.S. FDA noted was a clinically meaningful outcome, the impact on the goal of temporary weaning for full LVAD support was not considered a clinically meaningful outcome in and of itself.

These results are a potentially negative readthrough for the treatment’s application in patients with advanced chronic heart failure, or CHF, which aims to reduce the usage of LVAD implantation as part of its objectives. Based on previously successful Stage 2 clinical trials for CHF, and an ongoing plan to launch a Stage 3 trial in early 2019, we had assigned a 25% probability to a successful launch of MPC-150-IM. Despite this relatively low probability, the treatment made up more than 33% of our prior sum-of-the-parts AUD 3.00 per share fair value estimate given the very large addressable market for such a product. We estimate a successful launch of the treatment could generate sales of nearly USD 1.4 billion by 2023 for Mesoblast, based on the addressable market in the U.S. and Europe.

We lower our assumed probability of a successful launch for MPC-150-IM to 15% from 25%, and subsequently reduce our fair value estimate 22% to AUD 2.35. Following this change, MSC-100-IV, targeted for use in acute graft versus host disease, now represents the most significant value driver for Mesoblast, making up about 36% of our valuation, while MPC-150-IM falls to less than 25%. We continue to view Mesoblast shares with a very high degree of uncertainty given the inherent riskiness of clinical trial data and the unproven nature of the firm’s treatments.