DYOR. Not specific financial advice is intended. Make your own investing decisions.
Analysis is highly speculative and intended to provide an indication of upside assuming positive outcomes from trials and associated regulatory approval. Actual revenues and earnings will depend on regulatory outcomes, trials results and commercialisation strategies selected by Mesoblast.
So on the basis of positive regulatory/trial outcomes and the assumptions/reasoning below for Paediatric GVHD and COVID ARDS I arrive at a potential (highly-speculative) valuation by June 2021 (using P/E 20.0):
- MSB $33.05
- MESO $117.03 ( at exchange rate $0.71, 5 x MSB = 1 x MESO )
Exclusions:
- Blockbuster indications for Chronic Lower Back Pain and Heart Failure. If we have positive trial outcomes I will update this analysis. We can expect trials readouts in the next 3 months.
- Sales into Europe and other parts of the world. I will updates this analysis at a later point once pricing is clear.
COVID ARDS:
I have this extract from the transcript of the Panel discussion on MSC scale up at the Alliance for Cell Therapy.
The key piece of information is the plan to scale to treating 10,000 COVID ARDS patients in the first 6 months ( i.e. January 2021 to June 2021 ).
The following analysis points to the reasonable likelihood of success for Stem Cells in treating COVID ARDS.
Based on the overlapping cytokine signature between COVID-19 and GvHD, plus the evidence that these signatures have prognostic significance, it is not unreasonable to hope that the Remestemcel-L MSC product that can suppress GvHD may also have benefit for COVID-19 patients. Mesoblast is currently running a clinical trial NCT04371393 for COVID-19-induced ARDS that started at Mount Sinai hospital but has expanded to 17 locations and hopes to recruit 300 patients.
Also remember that Mesoblast achieved a stunning outcome in the original 12-patient trial.
https://www.asx.com.au/asxpdf/20200424/pdf/44h6wqsq3bmfb5.pdf
Non-COVID ARDS
My calculations for Non-COVID ARDS are based on the following parameters.
Some of the input data (% of cases moderate and severe) is from this study:
https://jamanetwork.com/journals/jama/fullarticle/2492877
Incidence for US is from this source (2016 figures):
https://ardsglobal.org/acute-respiratory-distress-syndrome/
I have assumed 20% of US cases of Moderate and Severe ARDS treated.
Assumptions:
- Treatment cost @ USD $70k per dose (I assumed a slightly lower figure than Edison and Bell Potter estimates)
- Gross margin at 60% on 100% of revenue
- GVHD
- 4 doses per patient
- 396 paediatric patients pa (198 in the second half of FY2021)
- 1,662 adult patients ( I assume label extension from FY2023)
- COVID ARDS
- 2 doses per patient
- 10,000 patients treated in the second half of FY2021 (6-month period)
- 10,000 patients treated in FY2022 (12-month period, assumption is that vaccine rollout reduces number of COVID ARDS patients treated starting in middle of next year, this recognises time to vaccinate large populations)
- patients treated then reduces at a rate of 50% per year
- Non-COVID ARDS
- 2 doses per patient
- Ramp-up over 3 years from 7,000 patients in FY2022 to 21,000 patients in FY2024
- Interest 10% pa on USD $67.5M debt (conservative interest rate used)
- Depreciation/amortisation at either 7% of EBITDA
- Tax at 30% (Australian company tax rate)
- Cash at end of June quarter USD $129M is sufficient to bootstrap commercial operations and achieve positive cashflow without further dilution
- Prior losses USD $549M will reduce tax in this financial year
I also think there is a reasonable probability of an upfront payment of some form for a partnership.
When major new Biotech / Pharma products become available, the revenue growth can be astonishing. This was the revenue growth of the cancer drug Keytruda over 5 years from my own analysis of their annual reports:
That's average Year on Year growth of 116%.
Why can P/E or price sentiment go so high for Biotechs ... well earnings can grow very quickly once a biotech achieves breakeven.
( chart from https://avance.ch/ubercooluploads/2018/12/Avance_on_PEratio.pdf )
Break-even becomes an inflection point for astonishing growth in after-tax profits. That's because of the growth of sales of new products in their initial 5 years, particularly when growth into new regions is taken into account.
So P/Es in the 40.0 to 70.0 band are justified. From my analysis we could see on the basis of Paediatric GVHD and COVID ARDS revenues over USD $1B this financial year (just in the US). That sort of price sentiment on that sort of revenue could see MSB trading at around AUD $100.00 by the middle of next year ( highly speculative ).
Estimates below are speculative analysis. Remember that this exclude Europe and other parts of the world and also excluded the blockbuster potential from Chronic Low Back Pain and End-Stage Heart Failure.
(20min delay)