Business Context and Reporting Period
Company: Mesoblast Limited (ASX: MSB; Nasdaq: MESO)
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Nine months ended March 31, 2021 (unaudited)
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).
Key Financial Metrics
| Metric (in thousands USD) | Nine Months Ended Mar 31, 2021 | Nine Months Ended Mar 31, 2020 |
|---|---|---|
| Revenue | $5,461 | $31,455 |
| Net Loss | $(76,751) | $(45,330) |
| Loss Per Share (Basic & Diluted) | $(0.1299) | $(0.0866) |
| Operating Cash Flow | $(85,951) | $(36,783) |
| Financing Cash Flow | $114,893 | $48,129 |
| Cash and Cash Equivalents (Mar 31, 2021) | $158,263 | $129,328 (Jun 30, 2020) |
| Total Borrowings | $92,520 | $89,478 (Jun 30, 2020) |
| Net Debt | $56,423 | $30,014 (Jun 30, 2020) |
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased 83% to $5.5 million, primarily due to the absence of $25.0 million in milestone revenue recognized in the prior year from the Grünenthal and Tasly strategic partnerships. Commercialization revenue (royalties) decreased slightly to $5.4 million.
- Increased Net Loss: Net loss increased 69% to $76.8 million. This was driven by higher operating expenses, partially offset by a significant non-cash gain of $18.1 million from the remeasurement of contingent consideration.
- Expense Increases:
- Manufacturing Commercialization: Increased 66% to $25.7 million, largely due to stock build-up for potential remestemcel-L launch and process development.
- Management & Administration: Increased 32% to $23.6 million, driven by higher share-based payments and legal/professional fees related to financing and regulatory activities.
- R&D: Increased 12% to $46.0 million, reflecting increased product support costs for pre-commercial functions.
- Capital Raise: In March 2021, the company completed a private placement raising approximately $110.0 million (A$138.0 million) through the issuance of 60.1 million shares and warrants.
Guidance, Outlook, and Risks
- Regulatory Status (remestemcel-L): The FDA issued a Complete Response Letter (CRL) in September 2020 for the pediatric SR-aGVHD BLA, requesting an additional randomized controlled study. The company is in discussions regarding potential approval with a post-approval commitment to conduct this study.
- Clinical Results:
- COVID-19/ARDS: Top-line results showed remestemcel-L reduced mortality by 46% in patients under age 65, but the trial did not meet the primary endpoint for the full population.
- Heart Failure (DREAM-HF): Rexlemestrocel-L showed a 60% reduction in cardiac death and heart attacks/strokes in NYHA Class II patients, though it did not meet the primary endpoint of reducing recurrent non-fatal decompensated heart failure events.
- Low Back Pain: Phase 3 results indicated significant pain reduction in patients with shorter disease duration.
- Strategic Partnership: A worldwide license and collaboration agreement with Novartis for remestemcel-L (focusing on ARDS) was announced in November 2020. The agreement is subject to closing conditions, including analysis of the COVID-19 trial results. No accounting impact was recorded as of March 31, 2021.
- Liquidity and Going Concern: Management believes cash reserves ($158.3 million) are sufficient for the next 12 months. However, the filing includes a material uncertainty regarding the ability to continue as a going concern beyond 12 months without restructuring loans or securing strategic partnerships.
- Legal Proceedings: A purported class action lawsuit was filed in October 2020 in the U.S. Federal District Court following the FDA CRL and share price decline. The company intends to vigorously defend the action.
Investor Verification Checklist
- Novartis Deal Closure: Verify the status of the Novartis collaboration agreement and whether closing conditions (specifically regarding the ARDS trial analysis) have been met.
- FDA Pathway for SR-aGVHD: Confirm the outcome of ongoing discussions with the FDA regarding the potential for approval of remestemcel-L contingent on a post-approval study.
- Cash Runway: Monitor the company's ability to extend its cash runway beyond the 12-month horizon mentioned in the "Going Concern" note, specifically regarding loan restructuring with Hercules and NovaQuest.
- Manufacturing Commitments: Review the financial commitment details regarding the Lonza manufacturing agreement, noting the option to extend the non-cancellable term to June 2024.
- Legal Exposure: Track the progress and potential cost implications of the securities class action lawsuit filed in October 2020.