Business Context and Reporting Period
Mesoblast Limited is a clinical-stage biotechnology company developing allogeneic, "off-the-shelf" cellular medicines based on Mesenchymal Lineage Adult Stem Cells (MLCs). The company is incorporated in Australia and dual-listed on the Australian Securities Exchange (ASX) and the Nasdaq Global Select Market. This summary covers the fiscal year ended June 30, 2017.
The company focuses on four Tier 1 product candidates targeting chronic heart failure, chronic low back pain, acute graft versus host disease (aGVHD), and immune-mediated diseases. As of the reporting date, Mesoblast had not yet generated significant revenue from product sales, with commercialization dependent on regulatory approvals and strategic partnerships.
Key Financial Metrics (Year Ended June 30, 2017)
| Metric | 2017 (USD) | 2016 (USD) |
|---|---|---|
| Total Revenue | $2.4 million | $42.5 million |
| Net Loss | $(76.8) million | $(4.1) million |
| Loss Per Share (Basic/Diluted) | $(0.1943) | $(0.0114) |
| Research & Development Expenses | $(58.9) million | $(50.0) million |
| Operating Cash Flow | $(95.5) million | $(88.0) million |
| Cash and Cash Equivalents (Ending) | $45.8 million | $80.9 million |
| Total Assets | $655.7 million | $684.0 million |
| Total Liabilities | $138.9 million | $155.9 million |
| Accumulated Deficit | $(344.9) million | $(268.1) million |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased 94% to $2.4 million. This was primarily due to the absence of $37.5 million in commercialization revenue recognized in 2016, which represented the remaining deferred revenue from a 2011 agreement with Teva that was fully recognized when the joint development ended in June 2016. Royalty revenue from the Japanese licensee JCR increased to $1.4 million.
- Net Loss Expansion: The net loss widened significantly to $76.8 million from $4.1 million. This increase was driven by the loss of the non-cash income tax benefit recognized in 2016 ($86.7 million) and the absence of a $28.1 million gain from the fair value remeasurement of contingent consideration related to the Osiris acquisition.
- Expense Trends: R&D expenses increased 18% to $58.9 million, largely due to the company assuming full responsibility for the MPC-150-IM (heart failure) clinical program after regaining rights from Teva. Conversely, manufacturing commercialization expenses decreased 59% to $12.1 million due to fewer production runs and a tax credit.
- Liquidity: Cash reserves decreased by $35.3 million during the year, resulting in a closing balance of $45.8 million. The company raised approximately $60 million in financing activities during the period.
Guidance, Outlook, Risks, and Contingencies
- Going Concern Uncertainty: Management has disclosed a material uncertainty regarding the company's ability to continue as a going concern. Viability depends on securing non-dilutive funding through partnerships for Tier 1 products, raising additional capital, and implementing cost containment strategies. The auditor has included an "emphasis of matter" paragraph regarding this uncertainty.
- Capital Requirements: The company anticipates continuing to incur substantial operating losses. It requires significant additional financing to advance clinical trials and commercialize products. An equity facility of up to A$120 million (approx. $90 million USD) remains available over 24 months.
- Strategic Partnerships: Mesoblast is actively negotiating commercial and development partnerships, specifically with Mallinckrodt Pharmaceuticals for its CLBP and aGVHD candidates. Success in these negotiations is critical to reducing cash burn.
- Clinical Milestones: The company is advancing three Phase 3 trials (CHF, CLBP, aGVHD). Positive interim futility analyses were reported for the CHF and aGVHD trials in 2017, supporting the continuation of these studies.
- Risks: Key risks include the failure to obtain regulatory approval, inability to raise capital, manufacturing scale-up challenges, and reliance on third-party manufacturers (Lonza) and collaborators.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $45.8 million cash balance against the projected burn rate of ~$95 million annually, considering the timeline for potential partnership deals.
- Partnership Progress: Monitor the status of negotiations with Mallinckrodt Pharmaceuticals and other potential partners for the four Tier 1 assets to confirm non-dilutive funding.
- Clinical Trial Enrollment: Track patient enrollment rates and interim data readouts for the Phase 3 trials in heart failure (MPC-150-IM), low back pain (MPC-06-ID), and aGVHD (MSC-100-IV).
- Manufacturing Scalability: Assess the transition from 2D to 3D bioreactor manufacturing and the reliability of the sole supplier, Lonza, to meet future commercial demand.
- Regulatory Pathways: Review FDA communications regarding the "Regenerative Medicine Advanced Therapy" (RMAT) designation and the specific requirements for the aGVHD and CHF approvals.