Was Teva Ever There? - Jason Kolbert

July 5, 2016

Maxim Group analyst, Jason Kolbert, Mesoblast (NASDAQ: MESO) announced that Teva has walked away from Revascor, returning 100% of the product rights and writing off all the investments (of tens, if not more) of millions of dollars. Mesoblast positioned this as a positive, and the analyst challenged that assumption.
He spent time speaking with management and KOLs and drew the following conclusions:

1. Teva was never really "there", only its money was. We visited Teva (TEVA- $50.05-Buy) in 2014 and left our visit with the impression that Mesoblast was a legacy program the company had inherited. In our view, Dr. Itescu did a masterful job of keeping Teva as a partner all the way through the PIII trial, with it paying the bulk of the cost. If there was ever a perfect time for Teva to leave, it is now, we believe. It paid for 90% of the development of Revascor and is leaving with none of the benefit.

2. Can Mesoblast raise the capital? We evaluated the trading volume in local shares, which has risen substantially (approaching a million shares a day). As such, a local ATM facility will allow the company to preserve its balance sheet, potentially beyond the current forecast of 12-15 months.

3. Has the probability of success for Revascor changed? We don't think so...and we can argue that Celyad's C-cure (which did show a signal) is an inferior product to Revascor. As such, we believe the fact that it did show a signal is actually a positive for Revascor's odds of success.

4, Mesoblast announced plans for an interim analysis expected 1Q17 in the CHF trial. Good data should assuage investor concerns. The cost to get there is $13M. This combined with spending rationalizations extend the capital runway ($80M) for 12-15 months.

Maxim Group Buy Mesoblast Limited (NASDAQ: MESO) price target of $14.00

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