It is at times like this (< 6 months to a binary event with a...

It is at times like this (< 6 months to a binary event with a high probability of success) that I like to consider the value of my shares in Mesoblast. It can be particularly confusing given the recent significant changes in Shares on Issue and share price.

The relevant part of my analysis goes like this:

• What does it typically cost to get a drug approved through FDA?

Reference: JAMA. 2020 Mar 3;323(9):844-853. doi: 10.1001/jama.2020.1166.Estimated Research and Development Investment Needed to Bring a New Medicine to Market, 2009-2018Olivier J Wouters 1, Martin McKee 2, Jeroen Luyten 3

"Data were analyzed on new therapeutic agents approved by the US Food and Drug Administration (FDA) between 2009 and 2018 to estimate the research and development expenditure required to bring a new medicine to market.

The FDA approved 355 new drugs and biologics over the study period. Research and development expenditures were available for 63 (18%) products, developed by 47 different companies. After accounting for the costs of failed trials, the median capitalized research and development investment to bring a new drug to market was estimated at $985.3 million (95% CI, $683.6 million-$1228.9 million), and the mean investment was estimated at $1335.9 million (95% CI, $1042.5 million-$1637.5 million) in the base case analysis."

IMO, Mesoblast's products are ground-breaking new treatments in a whole new sphere of medical science. It would be reasonable to expect the approval cost to be a lot more expensive than the median. As the above cost study was over the period from 2009 to 2018, the present day cost for the median approval would be likely to be at least 50% higher (possibly double). Taking into account costs inflation since the period of this study and the likely higher than median cost for Ryoncil, I estimate that an entity embarking on such an approval path now would need to expect a total capital cost of about US$2B plus.

• How does the market cap of Mesoblast compare with the total (current) cost of getting Ryoncil (remestemcel-L) FDA approved for the treatment of children with steroid-refractory acute graft versus host disease (SR-aGVHD)?

The market cap of MESO/MSB is around the US$1B mark, which is only half of the likely total capital cost of about US$2B.

This analysis does not even start to consider the value of the other, very advanced indications being progresses by Mesoblast. I believe that even a very conservative risked analysis of these other indications (which I have not yet done), would come up with a value very, very much greater than the above costs and market cap analysis for Ryoncil.

Even though there is still the risk of not getting approval for this BLA, I consider the risk / reward balance to be highly in favour of shareholders in Mesoblast.