Business Context and Reporting Period
Company: Mesoblast Limited (ASX: MESO, NASDAQ: MESO)
Filing Type: Form 6-K (Quarterly Report)
Reporting Period: Three and six months ended December 31, 2018
Business Overview: Mesoblast is a clinical-stage biotechnology company developing allogeneic cellular medicines based on mesenchymal lineage adult stem cells. The company has three product candidates in Phase 3 trials: MSC-100-IV (remestemcel-L) for acute graft versus host disease (aGVHD), MPC-150-IM (Revascor) for advanced heart failure, and MPC-06-ID for chronic low back pain. The company also holds licensing agreements for products commercialized by partners in Japan (TEMCELL) and Europe (Alofisel).
Key Financial Metrics
| Metric (in thousands USD) | 3 Months Ended Dec 31, 2018 | 3 Months Ended Dec 31, 2017 | 6 Months Ended Dec 31, 2018 | 6 Months Ended Dec 31, 2017 |
|---|---|---|---|---|
| Total Revenue | $1,870 | $13,397 | $13,507 | $14,571 |
| Net Loss | $(24,604) | $13,703 (Profit) | $(44,103) | $6,681 (Profit) |
| Loss per Share (Basic/Diluted) | $(5.00) | $2.91 | $(9.08) | $1.46 |
| Operating Cash Flow | N/A | N/A | $(17,515) | $(35,221) |
| Cash & Equivalents (Dec 31, 2018) | $77,022 | |||
| Total Debt (Borrowings) | $63,482 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue for the three months ended Dec 31, 2018, dropped 86% to $1.9 million from $13.4 million in the prior year. This was primarily due to the absence of $11.8 million in milestone revenue recognized in Dec 2017 from the Takeda patent license agreement. For the six-month period, revenue decreased 7% to $13.5 million.
- Net Loss vs. Profit: The company reported a net loss of $24.6 million for the quarter and $44.1 million for the six months, compared to a net profit of $13.7 million and $6.7 million, respectively, in the prior year periods. The prior year profit was significantly boosted by a $23.3 million non-cash income tax benefit related to the U.S. Tax Cuts and Jobs Act.
- Expense Increases:
- Manufacturing Commercialization: Increased significantly to $5.4 million (quarter) and $9.7 million (six months) from $0.8 million and $1.7 million, respectively. This was driven by process validation activities for the MSC-100-IV Biologics License Application (BLA).
- Finance Costs: Increased to $2.5 million (quarter) and $5.1 million (six months) due to interest on new debt facilities with Hercules Capital and NovaQuest.
- Debt Financing: The company entered into a $75 million credit facility with Hercules (drawn $35 million in March 2018) and a $40 million facility with NovaQuest (drawn $30 million in June 2018). Total borrowings on the balance sheet were $63.5 million as of Dec 31, 2018.
Guidance, Outlook, and Risks
- Going Concern Uncertainty: Management and auditors have highlighted a material uncertainty regarding the company's ability to continue as a going concern. Viability depends on securing non-dilutive commercial partnering transactions or equity-based financing, alongside cost containment strategies.
- Capital Requirements: The company anticipates continuing to incur significant losses. It expects to need additional capital to fund operations, which may be raised through equity offerings, debt financings, or collaborations. A discretionary equity facility of up to A$120 million (approx. US$90 million) remains available for the next 6 months.
- Recent Developments:
- On Jan 14, 2019, the company drew an additional $15 million tranche from the Hercules facility.
- On Jan 7, 2019, the company completed patient recruitment in the Phase 3 trial of Revascor (MPC-150-IM) for advanced heart failure.
- On Dec 13, 2018, the FDA provided guidance supporting the planned regulatory filing for remestemcel-L in aGVHD.
- Risks: Key risks include the failure to obtain regulatory approval for product candidates, inability to raise additional capital, reliance on third-party manufacturers (Lonza), and the high cost of clinical development. The company is also ineligible for the refundable Australian R&D tax offset for the fiscal year ending June 30, 2019, due to turnover exceeding A$20 million.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $77 million cash balance against the $17.5 million operating cash burn for the six-month period and upcoming commercialization costs.
- Debt Covenants: Review the specific covenants and repayment terms of the Hercules and NovaQuest facilities, particularly the sales-based repayment structure of the NovaQuest loan.
- Regulatory Milestones: Monitor the timeline for the BLA filing for remestemcel-L (aGVHD) and the outcomes of the Phase 3 Revascor trial.
- Partnership Revenue: Assess the likelihood of recognizing the remaining $10 million deferred consideration from the Tasly strategic alliance and future milestone payments.
- Going Concern Status: Evaluate the progress of cost containment strategies and the status of potential non-dilutive commercial partnerships to mitigate the going concern warning.