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, 2019
Business Overview: Mesoblast is a clinical-stage biotechnology company developing allogeneic cellular medicines based on mesenchymal lineage adult stem cells. Key product candidates include RYONCIL (remestemcel-L) for pediatric steroid-refractory acute graft versus host disease (SR-aGVHD), REVASCOR (MPC-150-IM) for advanced heart failure, and MPC-06-ID for chronic low back pain.
Key Financial Metrics
| Metric (in thousands USD) | 3 Months Ended Dec 31, 2019 | 6 Months Ended Dec 31, 2019 | 6 Months Ended Dec 31, 2018 |
|---|---|---|---|
| Revenue | $2,206 | $19,254 | $13,507 |
| Net Loss | $(24,584) | $(30,067) | $(44,103) |
| Loss Per Share (Basic & Diluted) | $(0.046) | $(0.058) | $(0.091) |
| Operating Cash Flow | N/A | $(16,888) | $(17,515) |
| Cash & Cash Equivalents (Ending) | $81,348 | $81,348 | $77,022 |
| Total Debt (Borrowings) | $84,924 | $84,924 | $81,286 |
| Net Debt | $(12,950) | $(12,950) | $(30,860) |
Note: Revenue for the six months ended Dec 31, 2019, includes a $15.0 million upfront milestone payment from a strategic partnership with Grünenthal.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 43% year-over-year for the six-month period, driven primarily by the recognition of $15.0 million in milestone revenue from the Grünenthal partnership and a 73% increase in commercialization revenue (royalties from JCR in Japan).
- Expense Reduction: Research and development expenses decreased by 22% ($7.4 million) and manufacturing commercialization expenses decreased by 19% ($1.9 million) compared to the prior six-month period, largely due to reduced third-party clinical trial costs as patient enrollment for Phase 3 trials was completed.
- Net Loss Improvement: The net loss for the six months ended December 31, 2019, decreased by 32% ($14.0 million) compared to the same period in 2018.
- Capital Raise: In October 2019, the company completed a capital raise of approximately $50.7 million (A$75.0 million) through a share placement, increasing cash reserves significantly.
- Accounting Changes: The company adopted IFRS 16 (Leases) on July 1, 2019, resulting in the recognition of right-of-use assets and lease liabilities on the balance sheet.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- RYONCIL (remestemcel-L): A Biologics License Application (BLA) was filed with the FDA in January 2020 for pediatric SR-aGVHD. The company requested Priority Review. If approved, launch is expected in the US in 2020.
- REVASCOR (MPC-150-IM): The Phase 3 trial for advanced heart failure has surpassed the number of primary endpoint events required for completion. Final study visits are targeted for late January 2020.
- MPC-06-ID: A strategic partnership with Grünenthal was announced for the development and commercialization of this candidate for chronic low back pain in Europe and Latin America. The company may receive up to $150 million in upfront and milestone payments prior to launch.
- Capital Requirements: Management anticipates continuing to incur significant losses. Future capital requirements will be met through existing cash, potential milestone payments (up to $27.5 million from Grünenthal and $35.0 million from Hercules/NovaQuest), and potential additional equity or debt financing.
Risks and Contingencies
- Going Concern: The auditor has included an "emphasis of matter" paragraph regarding a material uncertainty that may cast significant doubt on the company's ability to continue as a going concern. This depends on meeting milestones under partnership agreements, drawing down remaining debt facilities, or securing additional financing.
- Regulatory Approval: There is no assurance that the BLA for RYONCIL or future applications for other candidates will be approved by the FDA or other regulatory bodies.
- Debt Covenants: The company has significant debt facilities with Hercules Capital and NovaQuest Capital. These agreements contain restrictive covenants and repayment terms tied to commercial sales milestones. Failure to meet these could trigger default.
- Manufacturing: The company relies on Lonza as its sole manufacturer. Disruptions at Lonza's facilities (e.g., due to COVID-19 in Singapore) could impact supply.
Investor Verification Checklist
- BLA Status: Verify the FDA's acceptance of the RYONCIL BLA for Priority Review and the timeline for the Prescription Drug User Fee Act (PDUFA) target date.
- Cash Runway: Assess the sufficiency of the $81.3 million cash balance against projected operating expenses and debt service obligations over the next 12-18 months.
- Debt Terms: Review the specific milestones required to defer principal repayments on the Hercules and NovaQuest loans, particularly the recent amendment deferring Hercules repayments to July 2020.
- Grünenthal Milestones: Monitor the achievement of the $20.0 million regulatory approval milestone and the $10.0 million clinical/manufacturing milestone to confirm future cash inflows.
- REVASCOR Data: Await the final analysis of the Phase 3 heart failure trial data to determine the likelihood of regulatory filing.