MSB Investment Case, page-17

My thanks to those of you who have indicated their support (through your replies, likes and great analysis awards) for me to keep posting improved updates on my reasons for investing. Just to be clear: most of the attached reasons are cherry picked from excellent posts by others. Hope this cheers you up on these down periods on the market, which I strongly believe to be tree shaking of retail shareholders by large institutional investors.

So here is the next update. Please keep those comments and suggested improvements coming:

Reasons I Invested in Mesoblast (24 June 2020 update):

1. Has world’s best and broadest IP and Patents for stem cell treatments. MSB has foundational patents covering mesenchymal cells from any source at any age. In 2016 Mesoblast acquired exclusive rights to a process called "ex vivo fucosylation", said to significantly improve a cell's ability to home to problem areas that need immune modulation. MSB’s competitors do not have access to this process.

2. Mesoblast is arguably the most advanced listed stem cell company globally with innovative cellular medicines for inflammatory diseases. Remestemcel-L is a type of MSC, mesenchymal stem cells, which are the basis for treatments of Acute Respiratory Distress Syndrome (ARDS), Acute Graft vs Host Disease, Perianal Fistula and Crohn’s Disease. Mesoblast is also developing MPC's, mesenchymal precursor cells, which are the basis for treatments of Advanced and End-Stage Heart Failure, Chronic Low Back Pain, Rheumatoid Arthritis and Diabetic Nephropathy. Collectively MPC's, along with MSC's like remestemcel-L, form a product line referred to as Mesenchymal Lineage Cells, MLC's.

3. MSB is still misunderstood by many analysts and past investors who gave up on the stock due to more than a decade without reaching significant commercialisation. Many of these are unlikely to have kept up-to-date with recent developments. This leads to mispricing.

4. MSB is at the rewarding end of a very long and expensive development cycle, with much capital expended. Present shareholders are benefiting from large capital investments by previous shareholders. It has raised over $1B in fresh equity since listing in 2004.

5. MSB is in transition from an R&D company to a commercial organisation, worth much more as a result. If, as now expected within 6 months, they break through with FDA approvals and USA sales, they would likely gain a large amount of the available market in this broad new field of cellular medicine.

6. Has one product, Ryoncil, expected to get FDA approval by September 2020 for use in children with steroid refractory aGVHD. These children would have a very poor prognosis without Ryoncil. The strategy is to then get a label extension for Adult SR_aGVHD and life-cycle extensions for other indications, including Chronic GVHD and Crohns Disease.

7. Has one product approved and on the market in Japan, on a partner and royalties model, for AGVHD. Partner is upgrading manufacturing due to demand being higher than expected.

8. Has another product approved and on the market in Europe for Perianal Fistula.

9. Two further readouts from completed Stage 3 Trials are due mid year 2020: Advanced heart failure & Chronic lower back pain due to Degenerative Disc Disease.

10. Has products at Phase 2 trials for Crohns Disease, Rheumatoid Arthritis, Diabetic Nephropathy and End-Stage Heart Failure.

11. Has four significant partnership agreements, reflecting growing confidence in cellular medicine.

12. Covid 19 has placed a huge opportunity to have Ryoncil approved or label extended for a completely new indication (Covid 19 ARDS) within 6 months total from first USA trial in March-April 2020. From not even planning to treat ARDS (which is already a very big market before Covid), MSB has had strong cooperation from FDA, medical experts and authorities in USA. A small 12 person trial in New York, had remarkable success on very seriously ill people: 83% survival in ventilator-dependent COVID-19 patients (10/12) with moderate/severe acute respiratory distress syndrome (ARDS) treated with two infusions of Mesoblast’s allogeneic cell therapy remestemcel-L within the first five days under emergency compassionate use at New York City’s Mt Sinai hospital during the period March-April 2020. The trial also reported that 75% of patients managed to come off ventilator support within a ten day period. At two major referral hospital networks in New York during the same time period, there was only 12% survival in ventilator-dependent COVID-19 patients. The remestemcel-L product works by counteracting the inflammatory process in the lungs caused by COVID-19.

13. A subsequent 300 person Stage 3 trial in USA is now about half way through a 3-4 month period to completion, at no cost to MSB (cost would normally be around $50M). It is being conducted as a public-private partnership in a collaboration with the Cardiothoracic Surgical Trials Network (CTSN), which was established by the United States National Institutes of Health’s National Heart, Lung and Blood Institute (NHLBI). This in itself is a major endorsement of the potential of cellular medicine.

14. If Remestemcel-L is approved and used to treat ARDS patients in the USA, estimates for revenue of (100,000 patients x $75,000 x 25% margin) $1.875B have been made by others. Then there is the question of will it also be used in other countries and for other causes of ARDS? This is the big one for the share price upside potential. The only real constraint apart from approval is the ability of MSB or its future partners to manufacture enough product for these kinds of numbers. What a great problem to have. (Does any other Hot Copper poster have information on the likely Total Addressable Market / Renenues for the other indications going through trials?)

15. Although there is likely to be several other treatments for earlier stage Covid 19 patients (e.g. Dexamethazone), it appears there are none that are anywhere near as effective in late stage ARDS. Revenue for Covid ARDS treatment in USA alone is likely to be hundreds of millions, if not billions within a relatively short time, providing MSB can ensure sufficient quantities are manufactured. Then there is a major ongoing application for non-Covid ARDS.

16. There is now an opportunity for strong support to go to 3D manufacturing in the near term, to generate sufficient quantity at stronger margins. Possible major Pharma deal and / or Government assistance.

17. Peak sales estimates ($US) for other indications from various sources (e.g. Mesoblast, Edison) indicate potential of $700M for aGVHD, $3.2B for CHF, $3.3B for Disc Repair, and three other indications for over $1B (Diabetic Nephropathy, Rheumatoid Arthritis, Acute Myocardial Infarction). Bottom line conversion for MSB will depend on share of market, profit sharing, margins etc, but several hundred million for each indication would not be unrealistic.

18. Mesoblast’s recent financial performance is showing improvement. The company recorded an 113% increase in overall revenues to US$31.5 million for the first 9 months of FY 2020, compared to the prior corresponding period. Mesoblast also recorded a 127% increase from milestone revenues involving strategic partnerships.

19. There are many strongly positive announcements likely to come to the market between June and September 2020. Indeed, the near term pipeline is as exciting as any biotech stock on any stock exchange.

20. Health care companies in the US with much less potential and insignificant near-term pipelines relative to MSB's are valued significantly more than MSB.