Mesoblast (MESO) - 2023 Q2 - Quarterly Report

Unaudited Financial Statements This section presents the unaudited consolidated financial statements, including income statements, balance sheets, and cash flow statements, for the six months ended December 31, 2022 Consolidated Financial Statements The unaudited consolidated financial statements for the six months ended December 31, 2022, show a decrease in revenue and a reduced net loss compared to the prior year period, with cash and cash equivalents rising to $67.6 million due to a private placement Consolidated Income Statement Highlights (Six Months Ended Dec 31) | Metric | 2022 (USD thousands) | 2021 (USD thousands) | Change | | :--- | :--- | :--- | :--- | | Revenue | 3,636 | 5,977 | -39% | | Loss before income tax | (41,496) | (48,732) | -15% | | Loss attributable to owners | (41,370) | (48,590) | -15% | | Basic losses per share (Cents) | (5.78) | (7.50) | -23% | Consolidated Balance Sheet Highlights | Metric | As of Dec 31, 2022 (USD thousands) | As of June 30, 2022 (USD thousands) | | :--- | :--- | :--- | | Cash & cash equivalents | 67,619 | 60,447 | | Total Assets | 668,060 | 662,142 | | Borrowings | 102,922 | 96,634 | | Total Liabilities | 168,058 | 165,098 | | Total Equity | 500,002 | 497,044 | Consolidated Statement of Cash Flows Highlights (Six Months Ended Dec 31) | Metric | 2022 (USD thousands) | 2021 (USD thousands) | | :--- | :--- | :--- | | Net cash outflows in operating activities | (30,741) | (36,418) | | Net cash outflows in investing activities | (237) | (129) | | Net cash inflows/(outflows) by financing activities | 38,286 | (5,083) | | Net increase/(decrease) in cash | 7,308 | (41,630) | Notes to Consolidated Financial Statements The notes detail the basis of preparation, highlighting a material uncertainty related to the company's ability to continue as a going concern, significant events like a $45.0 million private placement, and revenue primarily from JCR and Takeda royalties - A material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern, as additional funding will be required to meet projected expenditure over the next 12 months[33] - In August 2022, the Group completed a $45.0 million financing via a global private placement to facilitate launch activities for remestemcel-L and a new Phase 3 trial for rexlemestrocel-L[44] - On January 31, 2023, the Group resubmitted its Biologics License Application (BLA) to the FDA for approval of remestemcel-L for the treatment of children with steroid-refractory acute graft-versus-host disease (SR-aGVHD)[163] Revenue from Partnerships (Six Months Ended Dec 31) | Partner | Product | 2022 Revenue (USD millions) | 2021 Revenue (USD millions) | | :--- | :--- | :--- | :--- | | JCR | TEMCELL | 3.2 | 4.6 | | Takeda (TiGenix) | Alofisel® | 0.2 | 0.2 | | Takeda (TiGenix) | Milestone | 0.0 | 1.2 | - As of December 31, 2022, the company had a minimum remaining financial commitment of $19.3 million with manufacturer Lonza, payable until June 2024, and $10.2 million in other non-cancellable purchase commitments[158][159] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and operational results, highlighting key developments and future outlook Overview Mesoblast positions itself as a leader in allogeneic cellular medicines with two late-stage platforms, acknowledging a history of significant losses and anticipating continued losses as it prepares for potential commercialization - The company's two primary late-stage product platforms are remestemcel-L (for SR-aGVHD, ARDS, IBD) and rexlemestrocel-L (for CHF, CLBP)[181] - Key operational highlights include the January 31, 2023 resubmission of the BLA for remestemcel-L in SR-aGVHD and receiving RMAT designation for rexlemestrocel-L for CLBP[183][184] - The company had an accumulated deficit of $780.3 million as of December 31, 2022, and anticipates continued significant losses as it moves towards potential commercialization[191][346] Results of Operations This section details the financial results for the three and six months ended December 31, 2022, compared to the prior year, showing decreased revenue, reduced R&D expenses, and an improved net loss primarily due to a gain on contingent consideration remeasurement Comparison for the Three Months Ended December 31, 2022 vs 2021 This subsection compares the financial performance for the three months ended December 31, 2022, against the same period in 2021, highlighting changes in revenue, expenses, and net loss Q2 FY23 vs Q2 FY22 Financial Comparison (USD thousands) | Line Item | Q2 2022 | Q2 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 2,134 | 2,383 | (249) | -10% | | Research & Development | (7,683) | (10,198) | 2,515 | -25% | | Manufacturing Commercialization | (7,894) | (6,590) | (1,304) | +20% | | Loss before income tax | (24,557) | (26,025) | 1,468 | -6% | - The 25% decrease in R&D expenses was driven by a $1.8 million reduction in third-party costs for Phase 3 trials (CLBP, CHF, ARDS) as they transitioned into patient monitoring and data analysis stages[217][219] - Manufacturing commercialization expenses increased by 20% primarily due to higher costs for platform technology, potency assay work supporting the aGVHD BLA resubmission, and MSC development activities[226][227] Comparison for the Six Months Ended December 31, 2022 vs 2021 This subsection compares the financial performance for the six months ended December 31, 2022, against the same period in 2021, detailing changes in revenue, expenses, and net loss H1 FY23 vs H1 FY22 Financial Comparison (USD thousands) | Line Item | H1 2022 | H1 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | 3,636 | 5,977 | (2,341) | -39% | | Research & Development | (13,430) | (19,526) | 6,096 | -31% | | Fair value remeasurement of contingent consideration | 5,989 | (71) | 6,060 | NM | | Loss before income tax | (41,496) | (48,732) | 7,236 | -15% | - The 39% decrease in revenue was due to a $1.4 million decline in TEMCELL royalties and the absence of a $1.2 million milestone payment from Takeda that was recognized in the prior period[253][255] - The net loss improved partly due to a $6.0 million gain on the remeasurement of contingent consideration, resulting from changes in assumptions like probability of payment and development timelines[271] Liquidity and Capital Resources As of December 31, 2022, Mesoblast held $67.6 million in cash, with a significant inflow from a $45.1 million private placement, but reiterates the need for additional funding to meet future expenditures and address going concern uncertainty Cash Flow Summary (Six Months Ended Dec 31, USD thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Operating Activities | (30,741) | (36,418) | | Investing Activities | (237) | (129) | | Financing Activities | 38,286 | (5,083) | | Net Change in Cash | 7,308 | (41,630) | - The company's cash position was $67.6 million as of December 31, 2022, with management highlighting a material uncertainty regarding its ability to continue as a going concern without additional funding[289] - The company has a $90.0 million five-year credit facility with Oaktree, of which $60.0 million was drawn at closing, and in December 2022, Oaktree extended the availability of up to an additional $30.0 million, subject to milestones[302] Risk Factors This section outlines various risks that could materially affect the company's business, financial condition, and results of operations, including financial, clinical, regulatory, manufacturing, and other operational challenges Risks Related to Financial Position and Capital Requirements This section emphasizes the company's significant financial risks, including a history of substantial operating losses, an accumulated deficit of $780.3 million, and the unlikelihood of achieving profitability in the foreseeable future, necessitating substantial additional financing - The company has incurred operating losses since inception, with an accumulated deficit of $780.3 million as of December 31, 2022, and anticipates continued substantial losses[346] - There is a material uncertainty regarding the company's ability to continue as a going concern, as additional funding is required to meet projected expenditures over the next 12 months[357] - The loan facility with Oaktree requires maintaining a minimum unrestricted cash balance of $35.0 million in the United States[358] Risks Related to Clinical Development and Regulatory Review and Approval The company faces significant risks due to the novel nature of its mesenchymal lineage cell technology, making development timelines and costs difficult to predict, with unpredictable regulatory approval processes, as evidenced by the FDA's September 2020 Complete Response Letter for remestemcel-L - The novelty of the company's cell therapy platform makes it difficult to predict development time, cost, and the likelihood of regulatory approval[363] - In September 2020, the FDA issued a Complete Response Letter for the remestemcel-L BLA, recommending at least one additional randomized, controlled study despite a positive ODAC vote[405] - The BLA for remestemcel-L was resubmitted on January 31, 2023, with an anticipated six-month review period if accepted by the FDA, but approval is not guaranteed[406] Risks Related to Manufacturing and Supply Chain Mesoblast has no experience manufacturing its products at a commercial scale and is entirely dependent on its contract manufacturer, Lonza, creating risks related to production capacity, quality control, pricing, and potential supply disruptions, further complicated by reliance on a limited number of suppliers for critical raw materials - The company has no internal manufacturing capability and is dependent on its contract manufacturer, Lonza, for the supply of its product candidates for both clinical and potential commercial use[425][432] - The manufacturing process relies on a limited number of suppliers for critical materials, including fetal bovine serum (FBS), which could be subject to supply interruptions[437][466] - Supply chain and manufacturing could be adversely affected by geopolitical instability, climate events, and the COVID-19 pandemic, potentially increasing costs and causing delays[431] Other Risks This section consolidates various other risks, including reliance on collaborators, commercialization challenges, intellectual property uncertainties, and business/industry risks, alongside a shareholder class action lawsuit and high dependence on key personnel - The company is highly dependent on key personnel, particularly CEO Dr. Silviu Itescu, a pioneer in the field of cell therapeutics[485] - A shareholder class action lawsuit was filed against the company in Australia in mid-2022, relating to the FDA's Complete Response Letter for its GvHD product and representations made about its COVID-19 candidate[520] - Future commercial success is highly dependent on obtaining adequate coverage and reimbursement from government and private payors, which is uncertain for novel, potentially high-cost cell therapies[454][460]