This week has been a most eventful one for Mesoblast...

This week has been a most eventful one for Mesoblast shareholders and finally the all important news of a partnership has been announced. It is also interesting to see many shareholders who were in closet coming out and rejoicing in what was being advised many a time but not quite making it happen. The usual suspects who pop in when there is no good news seem to be conspicuously missing and a few from our competitors who made it a point to remind us that MSB is old generation seem to be having problems of their own and the trading halt as brought some negative vibes to their posts.

Grunenthal is a global leader in pain management and their vision is to move towards a world free of pain. Their philosophy is built around four priorities: transformation, Innovation, growth and culture. They believe that these four elements will build on their strengths and address challenges in a changing environment.

It is interesting to see the transformations happening over the years which Grunenthal has undergone and the ability to adapt and innovate to set themselves up for a sustainable future. Their focus on pain is highly relevant as pain affects 1.4 billion people in the world and when one is in pain the effects are not only both financially and physically damaging to the nations and to the individual but most of all reduces the contributions of such individual to society and reduces the quality of life.

Mesoblast on the other hand has been involved in the technology of stem cells and is a recognised world leader in meeting unmet medical needs, of which pain is one of the areas it has focused on. Finding the right partners to team up with is not an easy task and Mesoblast has had the experience and has endured a lot of pain in seeking a partner who shares common goals. I must congratulate the management of MSB for finding Grunenthal, as the Head of Grants & Partnership at Grunenthal said “ We’re keen to enter into pioneering projects, teaming up with innovators from across the industry and academia.” I believe this marriage is a perfect one and should bring rewards to both the companies. Grunenthal with more than 50 years of experience in the field of pain research and having the personnel to drive the company forward would suit the needs of MSB which now has the European and Latin American markets covered and can now focus on the trials and not have to look at the additional burden of marketing of this product. MSB has also been smart not to give them the US market as this is a much larger market and is not putting all its eggs in one basket. Bearing in mind that Gruenenthal in October 2018 performed the biggest single investment in their history by acquiring the European rights to Nexium and the global rights to Vimovo (excluding US and Japan) for a total consideration of up to US$922 million. Hence they have made significant financial commitments and it justifies t segmentation for marketing rights so as not to put too much of a financial pressure on their financial capabilities.

There is also the issue of opiods and which Grunenthal are also aware that while it can provide benefits for patients in pain it also carries a risk of inappropriate use including misuse, addiction and diversion. They also have the experience of the effects of Thalidomide which contains products from Gruenthal or its licensees and has set up a Foundation for Thalidomide -affected People which runs support projects for affected people. It is therefore in their interest to partner with a company which produces natural products which is safe.

Looking at their financials, they did make a loss in 2017 but in 2018 turned the loss around and made a profit of 102 million euros which was done by reducing cost through efficiencies. This shows that management is quick to tackle issues which arise and put in place strategies which will deal with the issues and make the company more sustainable.

The market has reacted well to this news and this is reflected in the rise of the share price of almost 46%.Those who have been holding the share for a long while now will breathe a sigh of relief and looking at the trades over the last few days it would appear that there is accumulation and confidence that MSB will deliver in the near future and with the products in the pipeline the company can be a very profitable one in years to come.