It has been a bruising ride for Mesoblast Ltd (ASX: MSB) shares in recent weeks, but if one leading broker is to be believed, the beaten-down biotech company could deliver some serious upside for investors.
That's the view of analysts at Bell Potter, which are feeling upbeat on the company's prospects now that its Ryoncil product has hit the market.
What is the broker say about Mesoblast shares?
According to the note, the main reason for the optimism is the launch of Mesoblast's lead product Ryoncil in the United States. The treatment, which targets steroid-refractory acute graft versus host disease (aGVHD) in children, is now commercially available, with the first patients treated in late March.
Bell Potter notes that key progress has been made on the reimbursement front. The product has now been included in the four major US drug pricing compendia, and the company has entered into a National Drug Rebate Agreement (NDRA) with Medicare. This opens the door to around 40% of the insured paediatric population in the US. It said:
Two recent announcements have progressed market access, these are: a) inclusion on the four major drug pricing compendia for the US – highly relevant for non-medicare patients; and b) the company has entered into the National Drug Rebate Agreement (NDRA) for Ryoncil, meaning that Medicare can now provide access to Ryoncil for the insured population i.e. ~40% of all children in the United States.
The NDRA should ensure that CMS pays the lowest rate in the market, hence our estimate for average revenue per patient of US$1.3m compared to the WAC price of US$1.55m.
Importantly, Mesoblast's commercial team will support each reimbursement claim on a payer-by-payer, state-by-state basis – not a small task but Bell Potter believes it will "minimise initial claim rejections by payers up to the point where the drug is recognised as mainstream."
No capital raise expected
Bell Potter believes that Mesoblast is well prepared financially for the launch. It highlights that the company has US$200 million in cash, which is "ample capital to support the launch." It also has around two years' worth of Ryoncil in storage, meaning production risk is low.
As a result, it feels that there is no need for Mesoblast to boost its cash balance further through a capital raise.
Big return potential
The note reveals that Bell Potter has retained its speculative buy rating on Mesoblast's shares with a reduced price target of $3.40.
Based on its current share price of $1.62, this implies potential upside of over 100% for investors over the next 12 months. Though, the broker concedes that it is a riskier option for investors and not suitable for everyone. It concludes:
In light of the modestly longer time to achieve patient access than previously contemplated, revenues in FY25 reduced by $11.6m. The key period is 1QCY26 – 9 months after launch by which time the majority of the US population should have reimbursement coverage. Valuation is reduced to $3.40 (from $4.10) following the rerating of global markets over recent days. Speculative stocks are limited to 100% upside from mkt price, hence the need to reduce the valuation.
