This will be a meaty one because of the figures, but otherwise...

This will be a meaty one because of the figures, but otherwise pretty concise.

There has been a lot of talk on these forums about possible valuations for the various indications that MSB is pursuing, which I have enjoyed reading. However, I feel like these forums have a real case of deficient object permanence, as the passing of time seems to make people forget what has already been discussed and established.

There hasn't been much done on the potential value of Covid-19 ARDS, for good reason. It is a massively variable target that is not an established disease with established case numbers that has stabilised yet. @wombat777 did some interesting analysis a while back here:

With respect to him, I think he could have potentially lowballed the US Covid-19 ARDS market size, but that's much better than the alternative. I loved reading his analysis and I hope he makes a return to these forums sometime soon as he would make a welcome contrast

However, we can also look at how institutional investors have valued MSB's current prospects. Dawson James released their report on Feb 11th following the data on CLBP. Their indication-specific valuations are detailed below:


A few things to note here:

• The end of the FY is given as June 30th
• They estimated GvHD paediatric would be commercial by the year-end of 2021, we are on track for that, depending how our potency assays look.
• They estimated CLBP would be commercial (I assume following a confirmatory trial) by the year-end 2023
• They estimated CHF would be commercial (I assume following a confirmatory trial) by the year-end 2024
• ARDS is not included in their valuations
• They estimate it will take ~5 years for each indication following commercialisation to start reaching a stable market capture.
• Together, assuming the above, MSB would reach a stable-ish EPS by the year-end 2029 of $24.08 (MESO)
• Since this report, MSB did a capital raise so the EPS figures will be slightly altered

So, considering this:

• Any ARDS revenue (partnership or royalties) is an upside not included in these valuations, and is thus a massive potential upside. I say "potential" to be diplomatic, 75% reduction in mortality relative to SoC is ... so obscene. Having worked in the design of clinical trials, it would be insane to not approve if this were a small molecule/biologic. Just depends if the FDA is satisfied by MSB's cell potency assays.
• If CLBP or CHF do not require a confirmatory trial, fast-forward these estimations but acknowledge the ~5 year wait for market penetration.
• Any partnership for CHF (which are currently in process, as confirmed by SI himself) would alter this revenue profile, potentially hastening market penetration, lump-sum + milestones cash before sales, and revenue share.

A bit of background for the newbies:

• One way to estimate a company's valuation is to forecast earnings, and divide them by the total shares on issue - this gives you the 'earnings per share' or EPS. Now a company's share price does not mirror it's earnings per share.
• The per share valuation will almost always have a multiplier on the EPS, known as a 'price/equity' ratio or PE ratio.
• This ratio illustrates the markets belief/sentiment that the company will grow - or just illustrates how much the company is over/underhyped.
• You can't calculate the PE ratio in a company that is not profitable as you can't divide by a negative as that will lead to a negative value in a company .
• In the pharma industry, as supplied by Wombat777, the industry average PE ratio is ~22. CRL has an average PE ratio of ~33 and TSLA has an average PE ratio of ~940 .
• Doing a conversion - and taking into consideration the recent capital raise, 22 EPS MESO becomes ~5.8 EPS for MSB.
• Assuming industry average PE ratio of 22, that gives an estimated MSB valuation of ~$128 by the end-year 2029 assuming the estimations above are correct.
• Therefore, WITHOUT EVEN CONSIDERING ARDS (COVID OR NOT!!!), MSB has a very real chance of getting to $128 in 8 years.
• That is >58x multiplier on current investment over 8 years, or a CAGR of 7.3x per annum.
• Now a growth rate like that would definitely lead to some hype, probably making the PE ratio higher than 22
• Now add ARDS, a treatment that reduces mortality in the disease caused by a global pandemic by 75%....
• Estimations can get pretty crazy...

Takeaways:

• Don't reinvent the wheel, use what's already been done for you by institutional investors as they will just be better at it (and let's face it, it's who is better at guessing than the other persons guess).
• MSB has a better potential return profile than any other company that I have found to date.
• All this is reliant on the removal of regulatory barriers by the FDA
• Regardless of "true" eventual valuation, it has the potential to be huge. I see it as a matter of when not if.

Gang gang