Ann: Appendix 4C Quarterly Activity Report, page-79

I’ll give this another go
From ET
So do we have enough cash???
Enjoy MSB’ers…


Mesoblast 4C Quarterly Cash Flow Statement Better Than Expected

1. I had expected Cash on Hand at end Sep Q of $US110m - it was actually $US116m. Tick.

2. "Cash burn" includes inventory build which is being expensed until FDA approvals are given. Those inventories will be sold if approvals are given and will become positive cash flow in the future - probably at a gross margin of 60% on sales, meaning every $1m of inventory could be sold for $2.5m.

The majority of the $US7.1m "Product manufacturing & operating costs and manufacturing commercialization payments" were "for commercial manufacturing and inventory build in

anticipation for product launch of remestemcel-L." So, without that inventory build, the cash burn would only have been $US12.5m - note that inventory will eventually be able to be sold for around $US17.5m - so it isn't "burned" it's an investment in the future at very high Return On Investment.

3. Implications for future cash burn if Meso is just producing and selling that much inventory per Q and all other costs stay the same - cash burn would drop to $US2m per Q.

However, the plan for US children's aGvHD is to treat 100 kids per quarter (or 400 per year) - that is revenue of $US30m per quarter, which would've tipped this Q's minus $20m to positive $US5m.

But it is even better than that, because Meso is wearing heavy costs at present in analysing the biomarker data, submitting data to the FDA, and preparing for 3 meetings with the FDA this Q. Those costs are heavy now, but should drop in the future. The 4C disclosed "Research and Development payments were US$7.0 million for the current Q. This comprises payments for the recently completed trials in COVID-19 ARDS, CHF and CLBP, as well as potency assay work in support of these programs."

So without the heavy one-off cash spend on regulatory approvals the cash burn would've been significantly lower. How much lower is a moot point as there will always be R&D expenditure, but it is a good reason to expect the cash burn looks like $US20m is now an upper limit for expectations going forward - and it could be significantly less once aGvHD is approved and the sales commence, especially as Temcell royalties continue to grow.

Another "approximately 50% of the operating net cash usage, US$9.7 million was an investment in the

remestemcel-L platform to support the regulatory pathway to approval, manufacturing scale-up, and

lifecycle management." This could include a lot of fixed salaries etc, and I don't know how much of it is one-off to "support the regulatory pathway to approval" but that's possibly another few $ millions which won't be in the cash burn once approvals have been granted.

4. Temcell royalties are running at $US9.6m pa annualised on the Sep quarter's numbers and are 90% higher than the Sep Qtr last year. Remember the shorts running around like headless chooks last year when royalties fell to allow for a manufacturing expansion? They are strangely quiet on this front now!

5. So you can see why it doesn't tell the whole story to just divide the "Total Available Funding" of $US126m (being "Cash on Hand" of $US116m and undrawn loan facilities of $US10m) by the Sep Q cash burn of $US19.6m and say Meso has 6.4 quarters of funding available, because:

a) The Novartis first milestone payment and proposed equity investment to total $US50m are not included - which would increase that funding to 9 quarters ie out to Dec Q 2023

b) The actual cash burn is likely to be much less once aGvHD sales start and with Meso very confident about the upcoming OTAT meeting, we could see first sales of aGvHD within 2 to 6 months of resubmitting the BLA - ie by June 2022. If we have 3 quarters of cash burn by then offset by the Novartis payments, the funding level would only be $US10m less than it is now, or $US116m - and that could last several years even if we only sell US kids aGvHD at half the projected level of sales.

c) So no chance of a capital raise - not needed as Meso is in discussions to "complete a refinancing of its existing senior secured debt facility by calendar year end"

6. These figures only take aGvHD sales for the US paediatric market into account (sales potential $US120m pa) - it is Meso's smallest indication, and expansion into Europe and adult aGvHD is expected to open up potential annual sales of $US750m. So, very strong positive cash flows would be flowing once the adult and European markets open up - however these figures are potentially swamped by heart, back pain and ARDS, if approved.

ARDS is the mother of them all if it is approved, and the 4C Statement noted:

"The FDA advised Mesoblast that if an additional clinical study in acute respiratory distress syndrome (ARDS) due to COVID-19 showed statistically positive outcomes, it could provide a dataset in conjunction with the recently completed 222 patient clinical study that might be sufficient to support an emergency use authorization (EUA)".

Exciting times!