Business Context and Reporting Period
Mesoblast Limited (Mesoblast) is a clinical-stage biotechnology company developing allogeneic cellular medicines based on mesenchymal lineage adult stem cells. The company is incorporated in Australia and dual-listed on the Australian Securities Exchange (ASX) and the Nasdaq Global Select Market (Nasdaq). This Form 6-K reports unaudited financial results for the three months ended September 30, 2022.
Key Financial Metrics
| Metric (in thousands USD) | Q3 2022 | Q3 2021 |
|---|---|---|
| Revenue | 1,503 | 3,594 |
| Net Loss | (16,884) | (22,645) |
| Loss Per Share (Basic & Diluted) | (2.43) cents | (3.49) cents |
| Operating Cash Flow | (14,287) | (18,199) |
| Cash and Cash Equivalents (End of Period) | 85,502 | 115,956 |
| Total Borrowings | 99,675 | 96,634 |
| Net Debt | (26,716) | (48,643) |
Note: Revenue consists primarily of royalty income from licensees JCR (Japan) and Takeda (Europe). There was no milestone revenue recognized in Q3 2022, compared to $1.2 million in Q3 2021.
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by 58% ($2.1 million) year-over-year. This was driven by a 40% decrease in commercialization revenue (royalties) and the absence of milestone revenue recognized in the prior year from Takeda.
- Reduced Net Loss: The net loss narrowed by 25% ($5.8 million) to $16.9 million. This improvement was primarily due to a $4.5 million non-cash gain from the remeasurement of contingent consideration and reduced operating expenses.
- Expense Reductions:
- Research & Development expenses decreased 38% to $5.7 million, driven by reduced third-party costs for completed clinical trial enrollments.
- Manufacturing and commercialization expenses decreased 35% to $4.9 million.
- Management and administration expenses increased 17% to $6.9 million due to higher labor and corporate overheads.
- Financing Activity: In August 2022, the company completed a $45.0 million global private placement. Proceeds were used to fund commercialization activities for remestemcel-L and the commencement of a second Phase 3 trial for rexlemestrocel-L.
Guidance, Outlook, and Risks
Outlook and Capital Requirements: Management anticipates continuing to incur significant losses for the foreseeable future. While operating cash usage decreased by 22% to $14.3 million for the quarter, the company states there is "material uncertainty" regarding its ability to continue as a going concern beyond the next 12 months without additional financing. Additional capital will be required to meet projected expenditures for FDA resubmission efforts and commercial launch preparations.
Key Developments:
- Regulatory: On October 3, 2022, Mesoblast submitted substantial new information to the FDA regarding the Biologics License Application (BLA) for remestemcel-L for pediatric SR-aGVHD, following a Complete Response Letter in 2020.
- Clinical: Analysis from the DREAM-HF Phase 3 trial showed rexlemestrocel-L demonstrated greater improvement in left ventricular ejection fraction in chronic heart failure patients.
Risks and Contingencies:
- Going Concern: The financial statements include a material uncertainty warning regarding the company's ability to realize assets and discharge liabilities in the normal course of business if additional funding is not secured.
- Legal Proceedings: The company is defending against consolidated shareholder class actions in Australia related to the FDA Complete Response Letter and market price declines. No amounts have been accrued as the outcome is uncertain.
- Debt Covenants: The company must maintain a minimum unrestricted cash balance of $35.0 million in the U.S. to comply with its Oaktree loan facility covenants.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $85.5 million cash balance against the stated need for additional capital within the next 12 months to fund FDA resubmission and commercialization.
- Debt Structure: Review the terms of the $90 million Oaktree facility and the $40 million NovaQuest facility, specifically the interest rates, maturity dates, and covenants regarding minimum cash balances.
- Regulatory Timeline: Monitor the FDA's review of the resubmitted BLA for remestemcel-L and the potential for further delays or requests for additional data.
- Revenue Sustainability: Assess the volatility of royalty revenue from JCR and Takeda, noting the significant drop in milestone revenue compared to the prior year.
- Legal Exposure: Track the status of the Australian class action lawsuits and potential financial impact if settlements or judgments are unfavorable.