Mesoblast's Delayed Launches, Teva Split Turn Credit Suisse Bearish

Mesoblast limited (ADR) MESO, a developer of adult stem cell-based products, has struggled to meet key clinical timelines and lost a key partnership with Teva Pharmaceutical Industries Ltd (ADR) ADR TEVA for a heart failure program, according to Credit Suisse.

The Analyst

Analyst Alethia Young downgraded shares of Mesoblast from Neutral to Underperform and lowered the price target from $11 to $6.

The Thesis

Citing a potential need for larger data sets, Credit Suisse pushed back its launch timeline estimates for Mesoblast's chronic heart failure and back pain therapies, which are in late-stage studies, by one to three years in the U.S. and by three to four years in regions outside the U.S., Young said in a Thursday note.

The extended timelines could temper spending in the near term, the analyst said. Credit Suisse raised its 2018 and 2019 earnings per share estimates for the company by 50 percent and 25 percent, respectively.

After the separation from Teva, Young said she's cautious on Mesoblast's ability to find a partnership to fund future development programs.

Apart from $47 million in cash and an additional $75-million non-dilutive credit facility, Mesoblast will likely need additional capital to finance its late-stage development, the analyst said.

Credit Suisse said it is cautious on the upcoming 12-month study data for a left ventricular assist device in advanced heart failure. The data is due in the third quarter of 2018.

"We believe regulators and physicians will want primary endpoint success and key 12-month secondary endpoints, which could be a high bar."

Going into the upcoming LVAD study, Credit Suisse said the risk-reward is balanced and the particular market is "small," with a $120-million opportunity for the LVAD and a peak Class III opportuity of $1.9 billion.