responce to macquarie

Event
We have noticed some comments circulating in the market regarding Mesoblast’s adult stem cells.
This is a by no means comprehensive list of those comments and associated inaccuracies. Some of those comments are listed below with the Lodge view occurring in italics:
a) Stem cells don’t engraft in target tissue – Truth: Mesoblast’s stems don’t need to engraft in the target tissues to have an effect. Instead they appear to secrete factors and interact with tissues to cause the tissues themselves to regenerate. To do this Mesoblast’s cells only need survive in the body for a short period of time.
b) Immune system may kill stem cells – Truth: Mesoblast stem cells are from a very early in the lineage and numerous animal and human studies have failed to show an immune response to them, despite actively seeking evidence. The cells simply do not appear to have the markers needed for the body to recognise them as foreign.
c) Some of Mesoblast’s clinical trials may have to be redone due to manufacturing issues – Truth: Mesoblast’s stem cell are a highly defined population and scale is not an issue in the medium to longer term. Mesoblast has already developed the tests to demonstrate that early stage materials are identical to trial and commercial materials. Also, Mesoblast and Lonza are already developing new manufacturing technologies now, to address forecast demand towards the end of this decade.
d) The clinical utility of Mesoblast products can be questioned. Truth: While drug development is inherently risky, Mesoblast’s science has now passed due diligence by three expert third parties, Cephalon, Inc who originally licensed some of Mesoblast’s products, Teva Pharmaceuticals, who bought Cephalon and, of course, Lonza above. This provides a great deal of validation for the technology.
e) Numerous stem cell competitors exist. Truth: A number of potential competitors do exist, some who are more advanced than Mesoblast in certain indications. But, most of these competitors are cash strapped and none have the pipeline depth of Mesoblast. Furthermore, some are autologous stem cell-based companies that cannot compete with Mesoblast’s allogeneic technology. Moreover, variations in the way these companies and researchers prepare their stem cells are thought to have lead to much of the variation in the performance of the cells in the clinical literature.
f)
Mesoblast is over-valued relative to other stem cell companies. Truth: A high vale is attributed to Mesoblast relative to other stem cell companies, but Mesoblast has very significant advantages over all of these companies, namely no funding risk, highly reduced manufacturing risk, impeccable news flow and solid preclinical and clinical results support their pursuit of a range of indications.
g) Little peer reviewed information has been published on Mesoblast’s technology. Truth: Research is often not published until two or three years after the studies were done. This happens because it helps to maintain a company’s commercial advantage and it often takes that long for all of the authors to agree on the content of the paper and for the reviewers to review it, request changes and, subsequently slot it in for publication. Mesoblast has, however, published a long list of abstract where the lead to time to getting them into press is quicker.
While there are further comments in the market that lodge would like to address, we will do this in subsequent notes
Valuation
Mesoblast looks to be in as strong as a position as it has ever been, hence we maintain our BUY with our existing 12-month price target of $11.75.
Lodge Partners Pty Ltd 1 Thursday, 27 October