Mesoblast ? Affirms Strategy and Direction
Mesoblast (MSB: $7.65) reported an accounting profit of $90.6 million for the year ending
June 30, 2011. The company recorded revenue of $86 million. The revenue included the
revaluation of its investment in Angioblast which followed its acquisition by Mesoblast,
less the write-back of equity-based losses incurred in that same entity.
The merger with Angioblast was based on a valuation US$506 million, recorded in the
FY2011 accounts at $504 million, the difference owing to exchange rate differences. Of the
$504 million, $116 million was recognized as goodwill and $388 million was recognized as
intellectual property acquired.
Just prior to the merger of Mesoblast with Angioblast, Cephalon acquired 26.5% of the
shares of Angioblast from other shareholders for US$134 million. Mesoblast retained its
38.4% stake and other shareholders retained a 35.1% stake, until the merger took place.
[Mesoblast has licensed CNS and cardiovascular product rights of its pre-cursor mesenchymal
stem cell technology to Cephalon.]
Mesoblast has elected to amortise revenue of $130 million from its licensing transaction
with Cephalon over the next 4 ? years, with just $14 million accounted for in the reporting
period ending June 30, 2011. This amortisation is aligned with the clinical-through-toregistration
timeline of the programs licensed to Cephalon.
Mesoblast's retained a cash balance of $263 million at June 30, 2011 compared to $32
million at June 30, 2010. Payments to suppliers and employees were $22.5 million for the
year ended June 30, 2011.
In discussing the Mesoblast's full year results CEO Silviu Itescu said its substantially
improved cash resources are being used to add staff with clinical, regulatory and manufacturing
expertise. Mesoblast has established new strategic business units.
The increased funding base will allow Mesoblast to move into new indications including
Type 2 diabetes and immunologic conditions including lung diseases, inflammatory joint
diseases and eye diseases.
One of Mesoblast's areas of strategic importance is that of manufacturing. The company
intends to develop a state of the art facility via a strategic alliance, which will be cost
neutral to Mesoblast. The facility will provide tax efficiencies and use the latest technology.
Controlling manufacturing (albeit through a third party) will enable Mesoblast to
more directly manage cost of goods and product margins, manage product differentiation
for different partners, and optimize pricing. Near term inflection points include the commencement of the Phase
III heart failure trial, start of the Phase II intra-coronary heart attack
trial, complete Phase II trials in spinal fusion and disc repair
and initiate Phase II trials in diabetes and eye diseases. Mesoblast
also is seeking to expand partnering arrangements.
Comment
Mesoblast is well placed to develop its adult stem cell technology
and to do so across an ever broadening number of indications.
Trials in diabetes and immune-based conditions will worth monitoring
as details come to hand. It is worth noting that Mesoblast is
now, generally speaking, moving into Phase II trials once preclinical
studies are complete, saving time and money on the Phase
I step in clinical development.
Although the publication of data from its Phase II heart failure trial
at the American Heart Association conference in November will
be worth monitoring closely, what may rank in importance is the
company's securing of a strategic manufacturing partner. Mesoblast's
goal of retaining rights over manufacturing is a crucial plank
in the company's value creation strategy which cannot be underestimated.
Mesoblast is capitalised at $2.1 billion.
Bioshares recommendation: Speculative Hold Class A ....... Vin
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