JPM Initial report...

Mesoblast
Initiation
Overweight
MESO, MESO US
Initiating at Overweight; MLC Technology Platform with Multiple Shots on Goal
Price: $6.09
Price Target: $10.00
SMid Biotechnology Anupam Rama AC
(1-212) 622-0900 [email protected] Bloomberg JPMA RAMA
Eric W Joseph
(1-212) 622-0659 [email protected]
J.P. Morgan Securities LLC
YTD 1m 3m 12m
Abs -65.6% -50.6% -50.3% -66.6%
Rel -62.7% -47.6% -52.8% -66.4%
Mesoblast Ltd (MESO;MESO US)
FYE Jun 2015A 2016E 2017E 2018E 2019E 2020E
EPS Reported (A$)
H1 (Dec) - 0.08 - - - -
H2 (Jun) - (0.12) - - - -
FY (0.30) (0.04) (0.29) (0.22) 0.38 0.06
Source: Company data, Bloomberg, J.P. Morgan estimates.
Company Data
Price ($) 6.09
Date Of Price 07 Dec 15 52-week Range ($) 18.44-5.54
Market Cap ($ mn) 464.50 Fiscal Year End Jun Shares O/S (mn) 76 Price Target ($) 10.00 Price Target End Date 31-Dec-16
See page 36 for analyst certification and important disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
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Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
Price Performance
MESO share price ($)
RTY (rebased)
We are initiating coverage of Mesoblast (MESO) with an Overweight rating and December 2016 price target of $10. Mesoblast’s core technology focuses on mesenchymal lineage adult stem cells (MLCs) and applications to regenerative medicine. MESO shares are down ~50% post US relisting as MESO (vs. Nasdaq up ~2%). Indeed, broader market dynamics, low appetite for new ideas, and mixed mid-stage data sets are likely contributing factors to the significant stock price slide. That said, we believe the multiple product candidates with supportive trends in multiple indications/disease specialties is validating for the company’s core technology platform. We extensively stress tested our model, given mixed mid-stage data, and overall think our model takes a very conservative approach. Indeed, our Overweight thesis is based on conservative probability of success (POS) assumptions of ≤40% for all programs except MSC-100-IV in pediatric aGVHD. We believe the reward/risk is attractive ahead of the 3Q16 pediatric aGVHD data, which we believe has the highest probability of success (75%). Importantly, excluding MPC-150-IM in CHF, which we believe is the highest risk/ highest reward program, there still appears to be ~20%+ upside from current levels.
 MSC-100-IV in aGVHD. Interim data from the phase 3 trial of MSC-100-IV in pediatric acute graft-versus-host disease (GVDH) are expected in 3Q16, a key catalyst for MESO shares next year (for US approval). In our view, prior data are de-risking, as is the recent approval of sister product JCR’s TEMCELL in Japan. Hence, the pediatric program has the highest POS in our model (75%).
 MPC-150-IM for CHF. In our view, the MSC-150-IM late-stage pipeline program potentially has the highest risk but with the highest reward, given mixed prior data (POS 20%). Key interim biomarker data from the ongoing phase 3 trial in congestive heart failure (CHF) are expected in 1Q16. We believe these data should support the program moving forward; however, we note ultimately events are most important endpoint in this trial (earliest expectation of 1Q17).
 MPC-06-ID for back pain. MPC-06-ID for chronic lower back pain due to degenerative disc disease is currently in a phase 3 trial, with initial interim data expected 4Q16 (likely low investor focus; POS 40%). That said, a potential partnership for this program could be an important source of non-dilutive financing.
 Overweight rating; December 2016 PT of $10. We use a sales multiple/sum-of-the-parts analysis, which comprises ~$3/share for aGVHD, ~$2-3/share for CHF, ~$2/share for back pain, ~$1/share in technology value, and ~$2 /share in cash...............36 plus page document will read  it ..Vin