MSB trading, page-2125

FYI Morningstar

Mesoblast On Track for Solid Near-Term Growth; Maintaining AUD 3.00 FVEInvestment ratingWe expect Mesoblast to enjoy substantial near-term growth from a U.S. launch of its MSC-100-IV treatment for acute graft versus host disease, or aGvHD, following strong outcomes in the product's ongoing phase 3 trial. The company also continues to develop additional adult stem cell therapies based on its proprietary mesenchymal precursor cells, or MPCs, extracted from bone marrow. Beyond aGvHD, large underserved potential markets include heart failure patients, bone marrow regeneration in cancer patients, and several orthopaedic indications. Mesoblast has additional products in trials targeting these areas, including MPC-150-IM for chronic heart failure, scheduled to complete phase 3 recruitment in first-half 2019. Continued success in future milestones could massively lift profits, albeit with a great deal of uncertainty.EventImpactRecommendation impact (last updated: 10/10/2018)--Event analysisMesoblast On Track for Solid Near-Term Growth; Maintaining AUD 3.00 FVEWe reiterate our AUD 3.00 per share value estimate for no-moat Mesoblast following a transfer of analyst. Although we still view the company with a very high degree of uncertainty, we're encouraged the firm has continued to receive good news regarding its MSC-100-IV treatment for acute graft versus host disease, or aGvHD. As we had previously expected, the recently announced third round of phase 3 data for this treatment has proven positive. Following top-line 100-day results from the 55 children cohort participating in the trial demonstrating an overall survival rate of 75%--significantly higher than 30% observed in patients who typically fail to respond to initial steroid therapy--180-day results showed an overall 69% survival rate. And importantly, survival was 79% for patients who had a positive response to treatment at day 28.We continue to view MSC-100-IV as Mesoblast's most likely product candidate to be advanced in the near term. Given its fast-track designation status with the FDA, we expect a potential U.S. launch in 2019. Our modelling of MSC-100-IV estimates sales of around USD 240 million by 2023 for the product based on the addressable market in the U.S.Beyond this treatment, we consider the 600-patient phase 3 trial with MPC-150-IM for chronic heart failure, to be the next key value driver. This trial should complete recruitment in first-half 2019, and Mesoblast is scheduled to present data from the complementary 120-patient phase 2b trial evaluating the benefits of the same compound in patients with end-stage heart failure requiring mechanical circulatory support at a major cardiovascular conference in November 2018. We assign a 25% probability of success for this product but see a larger potential market than aGvHD. We estimate the treatment could generate sales of nearly USD 1.4 billion by 2023 based on the addressable market in the U.S. and Europe, with the company capturing 40% of this revenue under our assumed partnering arrangement.