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Stock: MSB AU Name: Mesoblast Price: A$8.20 Market Cap (m): A$2,299 Current valuation (DCF): A$4.30 - 7.29 12mth price target: A$5.80 Recommendation: Underperform Volatility index: Very High
Event
MSB overnight presented data from its phase II study examining its MPC cells for the treatment of heart failure.
Impact
Data disappointing with trial failing to meet every end-point except MACE: No significant changes were seen in any efficacy measure (LVEF, 6 min walk test, NYHA class, SPECT perfusion, BNP) at 12 months. The exception was MACE (major adverse cardiac event), which did show a material benefit for MPC treated subjects. However, as highlighted in an earlier note, this could be explained by the control goup appearing to be sicker before the trial started (as evidenced by worse NYHA class and worse 6-minute walk test). Data did not replicate earlier findings on LVEF: The metric most commonly used to assess the level of overall functioning in the heart is LVEF (left ventricular ejection fraction). Many stem-cell studies (including two large meta-analyses) have shown a mild-moderate LVEF benefit, in-line with the data MSB presented at the 2009 AHA conference (3-5% improvement). However the full 12-month data has found no difference in LVEF between MPC-treated and control groups. Immune rejction and cell-delivery issues highlighted in discussion: The presentation was immediately followed by a discussion presentation from an independent expert in the field (Milica Radisic, PhD). Interestingly she highlight two of the same challenges we have highlighted in previous notes: (i) whether or not the immune system attacks and kills cells before they have enough time to exert their effect and (ii) how to ensure a sufficient number of cells are delivered to the target tissue. She even went further to suggest possible strategies to address these issues that MSB is not currently trialling. No dose-response relationship seen: As highlighted by the independent researcher critiquing the presentation, there was a lack of dose-response relationship. This is of concern as one generally expects a response to increase as the dose increases. When this relationship does not occur, it points to a random effect, rather than an underlying mechanism. The researcher in fact linked immune rejection and cell-delivery challenges discussed above as possible mechanisms as to why this occurred. Questions now larger as to whether a phase III trial will proceed: Given (i) this study missed every efficacy end-point except MACE, (ii) well-known questions around correctly matched control, (iii) the fact that no benefit was seen for LVEF, and (iv) the lack of dose-effect response seen, we believe real questions now exist about whether Teva and the FDA will provide funding/clearance for a phase III trial to proceed.
Action and recommendation
Maintain Underperform.
June 2011A 2012E 2013E 2014E Sales revenue m 0.0 0.0 0.0 0.0 EBITDA m 86.3 -14.9 -22.5 -31.2 EBIT m 87.6 -15.4 -23.0 -31.8 EBIT growth % nmf nmf -49.6 -38.2 Recurring profit m 92.2 -5.2 -13.6 -23.5 Adjusted profit m 90.6 -5.2 -13.6 -23.5 EPS adj ¢ 59.8 -1.9 -4.9 -8.4 EPS adj growth % nmf nmf -160.6 -72.3 PE adj x 13.7 nmf nmf nmf Total DPS ¢ 0.0 0.0 0.0 0.0 Total div yield % 0.0 0.0 0.0 0.0 Franking % nmf nmf nmf nmf EV/EBITDA x 23.6 -136.9 -90.6 -65.2 GCFPS ¢ 59.9 -1.7 -4.7 -8.2 PGCFPS x 13.7 nmf nmf nmf Net debt/equity % -51.0 -48.0 -44.8 -40.3 Price/book x 4.5 4.5 4.6 4.9 *All values are in AUD unless otherwise stated. Source: Company data, Macquarie Research, Nov 2011.
MSB Price at posting:
$7.80 Sentiment: Buy Disclosure: Held
(20min delay)