MESO

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 and nine months ended March 31, 2022.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 46% to $7.99 million for the nine months ended March 31, 2022, compared to $5.46 million in the prior year. This was driven by a $1.38 million increase in commercialization revenue (royalties from TEMCELL and Alofisel) and $1.17 million in milestone revenue from Takeda.
• Expense Reduction: Research and development expenses decreased 40% to $27.78 million, and manufacturing commercialization expenses decreased 23% to $19.72 million, primarily due to reduced third-party costs and product support costs as clinical trial enrollment completed for several programs.
• Debt Refinancing: In November 2021, the company refinanced its senior debt facility with Hercules Capital, Inc., replacing it with a new $90.0 million five-year facility from Oaktree Capital Management. The company drew $60.0 million to repay the Hercules loan.
• Non-Cash Gains: The company recognized a $3.05 million gain from the fair value remeasurement of warrant liabilities and a $0.60 million gain from the remeasurement of contingent consideration. These gains partially offset operating losses.
• Cash Position: Cash reserves decreased from $136.88 million at June 30, 2021, to $76.76 million at March 31, 2022, reflecting a net cash outflow of $59.73 million for the period.

Guidance, Outlook, Risks, and Unusual Items

• Going Concern Uncertainty: Management has prepared the financial report on a going concern basis but notes a material uncertainty regarding the company's ability to continue as a going concern. The company expects to require additional inflows (strategic partnerships, debt, or equity) to meet forecast expenditure over the next 12 months.
• Debt Covenants: The Oaktree facility requires the company to maintain a minimum unrestricted cash balance of $35.0 million in the United States. The company is currently in compliance.
• Legal Proceedings: A U.S. securities class action lawsuit was settled in principle for $2.0 million (paid by insurer in May 2022). A new class action proceeding was served in the Federal Court of Australia in May 2022 regarding the FDA Complete Response Letter and COVID-19 product claims; no accrual has been made as the outcome is uncertain.
• Unusual Items: The financial results include significant non-cash items, including the $3.05 million gain on warrant liability remeasurement and a $1.3 million loss on the extinguishment of the Hercules loan.
• Outlook: The company anticipates continuing to incur significant losses for the foreseeable future as it advances clinical development and seeks regulatory approvals for product candidates including remestemcel-L and rexlemestrocel-L.

Investor Verification Checklist

• Cash Runway: Verify the sufficiency of the $76.76 million cash balance against the stated need for additional capital within the next 12 months.
• Debt Structure: Review the terms of the Oaktree facility, specifically the interest-only period, amortization schedule, and the $30.0 million additional tranche availability subject to milestones.
• Revenue Sustainability: Assess the reliance on royalty revenue from licensees (JCR and Takeda) versus the timeline for potential product sales of Mesoblast's own candidates.
• Legal Exposure: Monitor the status of the Australian class action proceeding and the final court approval of the U.S. settlement.
• Regulatory Status: Track updates on the resubmission of the Biologics License Application (BLA) for remestemcel-L for pediatric SR-aGVHD following the FDA's Complete Response Letter.