Business Context and Reporting Period
Company: Mesoblast Limited (ASX: MSB; Nasdaq: MESO)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Three months ended September 30, 2021
Business Overview: Mesoblast is a clinical-stage biotechnology company developing allogeneic cellular medicines based on mesenchymal lineage adult stem cells. Key product candidates include remestemcel-L (for pediatric SR-aGVHD, ARDS, and IBD) and rexlemestrocel-L (for chronic heart failure and chronic low back pain). The company generates revenue primarily through licensing agreements and royalties from partners such as JCR Pharmaceuticals and Takeda.
Key Financial Metrics
| Metric (in thousands USD) | Q3 2021 | Q3 2020 |
|---|---|---|
| Revenue | $3,594 | $1,305 |
| Net Loss | $(22,645) | $(24,544) |
| Loss Per Share (Basic & Diluted) | $(3.49) | $(4.21) |
| Cash and Cash Equivalents (End of Period) | $115,956 | $108,123 |
| Net Debt | $8,760 | $31,386 |
| Total Borrowings | $96,498 | $94,245 |
| Operating Cash Flow | $(19,606) | $(28,167) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 175% to $3.6 million, driven by a $1.2 million milestone payment from Takeda (regulatory approval of Alofisel in Japan) and increased royalty income from JCR ($2.3 million vs. $1.2 million).
- Expense Reduction:
- R&D Expenses: Decreased 52% to $9.3 million, primarily due to reduced third-party costs for clinical trials (enrollment completed for several Phase 3 studies) and lower share-based payments.
- Manufacturing Commercialization: Decreased 37% to $7.5 million due to lower platform technology costs.
- Management & Admin: Decreased 23% to $5.9 million, largely driven by a reduction in share-based payment expenses.
- Non-Cash Gains: The fair value remeasurement of contingent consideration decreased significantly from a $15.1 million gain in Q3 2020 to a $0.3 million gain in Q3 2021.
- Liquidity: Net debt improved from $31.4 million to $8.8 million, despite a net cash outflow of $20.4 million for the quarter, due to the reduction in borrowing liabilities relative to cash holdings.
Guidance, Outlook, and Risks
- Debt Refinancing (Subsequent Event): On November 19, 2021, the company refinanced its senior debt facility with Hercules Capital, Inc. with a new $90.0 million five-year facility from Oaktree Capital Management. The first tranche of $60.0 million was drawn to discharge the Hercules loan. The new facility has a 9.75% interest rate with a three-year interest-only period.
- Cash Runway: Management believes existing cash reserves ($116.0 million) are sufficient for operations for the next 12 months. Extending the runway beyond 12 months depends on accessing remaining debt tranches or securing strategic partnerships.
- Going Concern: The filing notes material uncertainty regarding the ability to continue as a going concern beyond the 12-month period if additional financing or partnerships are not secured.
- Clinical Updates:
- Phase 3 results for rexlemestrocel-L in chronic heart failure were presented at the AHA meeting, showing a relationship between systemic inflammation and treatment benefit.
- Data published showing 64% survival for children with SR-aGVHD treated with remestemcel-L compared to 10% with other therapies.
- Risks:
- Regulatory: The FDA issued a Complete Response Letter (CRL) in September 2020 for the remestemcel-L BLA for pediatric SR-aGVHD, requesting additional data. The company is working on a resubmission.
- Manufacturing: Reliance on Lonza in Singapore exposes the company to pandemic-related disruptions and supply chain delays.
- Legal: A purported class action lawsuit was filed in October 2020 regarding the FDA CRL and stock price decline; the company intends to vigorously defend it.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the new Oaktree facility covenants, specifically the requirement to maintain a minimum unrestricted cash balance of $25.0 million.
- BLA Resubmission: Monitor the status of the resubmission of the Biologics License Application (BLA) for remestemcel-L for pediatric SR-aGVHD following the FDA's Complete Response Letter.
- Cash Burn Rate: Assess the sustainability of the current operating cash outflow (~$20 million per quarter) against the $116 million cash balance and the $30 million remaining available under the Oaktree facility.
- Manufacturing Continuity: Confirm the operational status of the Lonza Singapore facility and any potential delays in raw material supply due to pandemic restrictions.
- Legal Proceedings: Track the progress and potential financial impact of the class action lawsuit filed in the Southern District of New York.