Macquarie $1.33 Value Price, page-55

For those of you interesting in the MQ note:

Mesoblast
In need of a partner
Event
 We examine the funding outlook for MSB in light of Friday’s US$55m
IPO/capital raise which was undertaken at a 34% discount to its last trade.
Impact
 MSB unlikely to be cash self-sufficient before FY22: In analysing the
progress of each of MSB’s indications and FDA requirements for approval
(see inside), we see it unlikely the company will generate meaningful sales
prior to FY22, even assuming all of its studies are successful (something we
see plenty of risk in, see here for more detailed analysis).
 In meantime ~$1b of additional capital will be required: With MSB
currently burning A$170m cash pa, this IPO provides them with another 5 ½
months of capital (until Oct 16), we estimate). Beyond this, simple math
suggests the company will need a further ~A$1b of capital, assuming cashburn
remains flat and it reaches self-sufficiency in FY22. We note however
that if partner Teva chooses not to continue funding the CHF study beyond
the upcoming interim analysis, cash requirements will likely increase.
 Best outcome for MSB is to find partners, but won’t be easy: Partnering
deals for adult-derived stem cell companies were relatively commonplace
prior to 2010 with MSB itself entering a highly attractive deal with Cephalon. In
recent years, however, big pharma has shown waning interest in the area as
highlighted by Sanofi exiting an agreement with Osiris, Pfizer exiting an
agreement with Athersys and Osiris itself giving up on stem-cells (it sold its
stem-cell business to MSB for US$50m).
 In absence of partners, MSB faces multiple capital raisings: In the
absence of partner investments, funding requirements for MSB will fall on
equity markets – the patience of which appears to be wearing thin, given the
discount of this IPO to (a) MSB’s last trade (-34%) and (b) MSB’s previous
capital raise (-64%, undertaken in March 2013).
Earnings and target price revision
 EPS: F16 -11.5%; F17 -3.5%; F18 -47.6%. TP reduced from $2.50 to $1.33
as we move from DCF valuation to peer / trade-sale benchmarking (see
inside).
Price catalyst
 12-month price target: A$1.33 based on a Sum of Parts methodology.
 Catalyst: CHF interim analysis early CY16
Action and recommendation
 Maintain Underperform: In the absence of finding partners to co-develop its
products, we envisage significant funding difficulty for MSB in coming years
given (i) the long duration before potential self-sufficiency (we estimate 5-7y),
and (ii) its high current levels of cash burn (~$170m pa). And whilst entering a
partnership(s) remains very possible, we see risk MSB fails to do so (at least
at favourable terms) given the apparent waning interest from big pharma in
the therapeutic area in recent years.​

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To be fair to Dr Collie, he's called this one pretty well over the years: