Morningstar | Newly Approved Competitor for Mesoblast in U.S. Provides Pricing Insight; FVE Under Review
No-moat Mesoblast reported a third-quarter loss of USD 25 million, taking the cumulative nine-month losses to USD 69 million, but is on track to meet our full-year estimated loss of USD 90 million. Importantly, the company made progress in getting its first drug to market in the U.S. with the Biologics Licence Application review of remestemcel-L specifically for the treatment of acute Graft Versus Host Disease, or aGVHD, in children. This suggests a possible mid-calendar 2020 launch date for this application, which represents 20% of the overall aGVHD addressable market. However, on May 29, 2019, the FDA approved an existing competing drug, Jakafi, for treatment of the same disease. The competitor’s head start, as well as far lower pricing than our estimates for remestemcel-L, has us place our fair value estimate for Mesoblast under review.Mesoblast continues to consume cash and raised a further USD 15 million in debt funding in the quarter. The nature of expenses is shifting from R&D to manufacturing and commercialisation as clinical trials are nearing an end and the company builds inventory and a salesforce as it readies for the remestemcel-L launch in the U.S. The interest expense has grown twenty-fold on the year-to-date and we anticipate debt to increase further as it’s likely to take at least three years to be free cash flow-positive.
Mesoblast’s value is based on the pipeline for key drugs for remestemcel-L, which has multiple applications, and Revascor which is targeting reducing hospitalisation in patients with end stage heart failure and a heart pump. Clinical trial results are progressing positively and we don’t anticipate changes to our estimated likelihood of success. In addition the company has a Phase three trial underway for MPC-06-ID which targets chronic low back pain. The commercialisation strategies are not yet set other than for remestemcel-L for aGVHD in the U.S. As such, Mesoblast has a very high fair value uncertainty rating.
Mesoblast is engaged in the development of regenerative medicine products. Co. has leveraged its proprietary technology platform, based on specialized cells known as mesenchymal lineage adult stem cells ("MLCs"), to establish a portfolio of late-stage product candidates. Co.'s allogeneic, "off the shelf" product candidates target advanced stages of diseases with high, unmet medical needs including cardiovascular conditions, orthopedic disorders, immunologic and inflammatory disorders and oncology and hematologic conditions. Each MLC-derived product candidate has technical characteristics, target indications, reimbursement strategy, commercialization potential, and partnering opportunities.
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