1. 31 January 2012AnalystStuart Roberts 612 8224 2871Associate Analyst Mesoblast (MSB)Tanushree Jain 612 8224 2849Authorisation Headed to the sweet spot in diabetes careSteve Goldberg 612 8224 2809 Recommendation Diabetes represents strong new upside for Mesoblast Buy (unchanged) Mesoblast has initiated clinical work in Type II diabetes with the clearance of its IND by Price the FDA. This follows on from highly favourable data in non-human primates which was reported in November 2011 and January 2012. With diabetes so widespread and $6.45 growing, there is huge potential value for MPCs in this space. The current standard of Target (12 months) care for diabetes of insulin therapy and/or oral diabetes medication have together $16.00 (unchanged) created a global market worth ~US$34bn pa, serving 8% of the worlds adult Risk population. By contrast heart failure is probably only a US$6bn global market. We see Speculative success in diabetes as boosting confidence in other intravenous applications of MPCs on which Mesoblast is now working on, such as anti-inflammatory disorders. We have previously assumed no value from Mesoblasts diabetes programme. We now apply aExpected Return conservative 5% probability of clinical trial success for diabetes under our base caseCapital growth 148% valuation and a 10% probability of success under our optimistic case valuation, whichDividend yield 0 equates to A$1.95 per share base case and A$4.84 optimistic case.Total expected return 148%Company Data & Ratios Investment view strong news flow matches a strongEnterprise value A$1,580.3 pipeline m In view of the substantial opportunity of MSBs cardiovascular and Bone MarrowMarket cap A$1,820.8 Transplant franchises and other pipeline opportunities in diabetes, eye diseases & m orthopedic becoming more substantial, we re-iterate our positive outlook on MSB. WeIssued capital 280.3m value Mesoblast at A$10.91 base case and A$21.60 optimistic case. Our target priceFree float 100% of A$16.00 sits at the mid-point of our DCF range. We expect significant news flowAvg. daily vol. (52wk) 0.74m over the next twelve months as assisting in the stock being re-rated to our target price12 month price range $5.05-$10.04 including a) initiation of the Phase II diabetes trial; b) initiation of a pivotal trial in heartGICS sector Healthcare Equipment and Services failure; c) completion of the Phase II spinal fusion trials; d) interim data from the EU Phase II trial in Acute Myocardial Infarction; e) receipt of a Special ProtocolDisclosure: Bell Potter Securities acted as leadmanager in a May 2010 capital raising and a Assessment by the FDA for the BMT Phase III Trial; f) Interim data from Phase IIDecember 2010 selldown of stock and receivedfees for that service. lumbar disc repair trial and g) potential licensing announcement for the diabetes program.Price Performance (1m) (3m) (12m)Price (A$) 7.34 9.65 5.89Absolute PriceAbsolute (%) -14.85 -35.23 6.11 Earnings ForecastRel market (%) -18.10 -36.30 17.55 Year end 30 June 2011a 2012f 2013f 2014f 2015f $12.00 Sales (A$m) 15 27 27 27 337 $10.00 EBITDA (A$m) -12 -23 -44 -62 208 $8.00 NPAT (reported) (A$m) 91 -23 -38 -58 170 NPAT (adjusted) (A$m) -9 -16 -38 -58 170 $6.00 EPS (adjusted) (cps) -3.9 -5.5 -13.1 -20.1 58.8 $4.00 EPS growth (%) N/A N/A N/A N/A -392% $2.00 PER (x) N/A N/A N/A N/A 11.0 EV/EBITDA (x) -133.1 -67.4 -35.7 -25.3 7.6 $0.00 Feb 10 Aug 10 Feb 11 Aug 11 Dividend (ps) 0.0 0.0 0.0 0.0 0.0 Yield (%) 0.0% 0.0% 0.0% 0.0% 0.0% MSB S&P 300 Rebased Franking (%) N/A N/A N/A N/A N/A ROE (%) -1.7% -3.1% -7.9% -13.4% 27.5%SOURCE: IRESS SOURCE: BELL POTTER SECURITIES ESTIMATESBELL POTTER SECURITIES LIMITED DISCLAIMER AND DISCLOSURESACN 25 006 390 7721 THIS REPORT MUST BE READ WITH THE DISCLAIMER Page 1AFSL 243480 AND DISCLOSURES ON PAGE 29 THAT FORM PART OF IT.

2. Mesoblast (MSB) 31 January 2012Mesoblast Headed for the sweet spot indiabetes care Mesoblast is initiating a Phase II Trial in Type II Diabetes. Mesoblast has announcedMesoblasts diabetestrial will report that it has received FDA approval to run a Phase II trial in Type II diabetics evaluating theresults later this year effect of a single injection of MSBs MPC. The trial is essentially a dose finding safety study 1 with the potential for an efficacy readout , randomising 60 patients with poorly controlled Type II diabetes (ie HbA1c over 7% and patients on metformin but not yet insulin dependent) to either placebo (15 patients) or any of the three escalating doses (0.3, 1, or 2 million cells - 45 patients). The trial subjects will be evaluated at the 12-week mark. Type II diabetes would be the first indication moving into human clinical trials from MSBs intravenous (IV) product franchise. We expect data late in 2012. Why MSBs diabetes application is poised for success. In our view MSBs MPC technology has a strong potential to upstage the current standard of care for Type II diabetes and also be effective in treating associated co-morbidities. Our belief stems from work done in non-human primates that generated strong efficacy signals (see the next section for details) and demonstrated the cardioprotective nature of MPCs. We expect that in later stage clinical work Mesoblast will focus on late-stage patients with renal failure where current treatment options are limited and the principal competition in a healthcare economics sense is costly renal dialysis therapy (typical cost US$70,000 pa). Diabetes represents strong new upside for Mesoblast. The current standard of care for diabetes are insulin therapy and oral diabetes medication, which together have created a global market worth ~US$34bn pa, serving 8% of the worlds adult population. We apply a conservative 5% probability of clinical trial success for diabetes under our base case valuation and a 10% probability of success under our optimistic case valuation. We value diabetes opportunity for MSB at A$1.95 under our base case and A$4.84 under our optimistic case. We also see success in diabetes as boosting confidence in other intravenous applications of MPCs on which Mesoblast is now working on, such as anti- inflammatory disorders. Big and Specialty Pharma companies are facing a huge patent cliff over the next 6 years with key diabetes drugs including Amylins Byetta, Mercks Januvia and Novo Nordisks Victoza losing patent exclusivity. Consequently, we expect to see licensing interest from the pharma companies as MSB moves with its diabetes offering into Phase II trials and given the high costs involved in a Phase III diabetes trial, a strong likelihood of MSB establishing a partnership prior to Phase III. We Re-iterate our Buy Recommendation and $16 Price Target (Risk Speculative). In view of the substantial opportunity of MSBs cardiovascular and Bone Marrow Transplant franchises and other pipeline opportunities in diabetes, eye diseases and orthopaedic becoming more substantial, we re-iterate are positive outlook on MSB. We value Mesoblast at A$10.91 base case and A$21.60 optimistic case. Our target price of A$16.00 sits at the mid-point of our DCF range. We expect significant news flow over the next twelve months assisting in the stock being re-rated to our target price including a) Initiation of the Phase II diabetes trial; b) Initiation of a pivotal trial in heart failure; c) completion of the Phase II spinal fusion trials; d) interim data from the EU Phase II trial in Acute Myocardial Infarction; e) receipt of a Special Protocol Assessment by the FDA for the BMT Phase III Trial; f) Interim data from Phase II lumbar disc repair trial and g) potential licensing announcement for the diabetes program.1 That is, the primary endpoints will be those associated with safety and tolerability, although secondary endpoints like fasting blood glucose and C-reactive peptide will also be measured.Note that the trial will evaluate a single injection of MPCs, which reflects conservatism on Mesoblasts part. As MSB noted in presenting its heart failure data in mid-November, MSBs cellsgenerate a weak immune response in some recipients. In the heart failure trial there was a donor specific antibody response in 6 of the treated patients, or 13% of that group, but four losttheir antibodies in less than one month. There was no effect on therapeutic outcomes from the antibodies, and no clinical-signs or symptoms related to such antibodies. We understand that inrepeat dosing work in non-human primates there had been no immune response issues observed in terms of its impact on therapeutic effectiveness. We conclude from all this that immuneresponse is not an issue with MPCs. Page 2

3. Mesoblast (MSB) 31 January 2012Animal data points to solid clinicalprospects in Type II diabetes Todays announcement follows on from favourable animal data in Type II diabetes which Mesoblast announced on 10 November, and follow-up data announced on 12 January: The companys investigators took 17 non-human primates with dietary-induced Type II diabetes, gave them a single dose of MPCs (0.1, 0.3, 1 or 2 million cells), and then 2 measured the effect on glucose metabolism over a twelve week period . Three of the 17 monkeys were used as controls; The change from baseline in fasting blood glucose for the treated subjects versus placebo for each dose level was statistically significant at two, four, six and eight weeks (p 1 year) at high 58 doses which had been established by a five-year company-sponsored study . France and Germany banned Actos because of the cancer risk in June 2011; The decision by an FDA advisory committee in August 2011 against approval of dapagliflozin, from Bristol-Myers Squibb and AstraZeneca, and the FDAs subsequent51 See Cleve Clin J Med. 2009 Dec;76 Suppl 5:S12-9. Insulin is often associated with weight gain in diabetes - see Diabetes Obes Metab. 2007 Nov;9(6):799-812.52 That said, the medical device developer Intarcia Therapeutics (Hayward, Ca, privately held, www.intarcia.com) is currently moving to Phase III with ITCA 650, a matchstick-size,subcutaneous mini-pump that allows smooth continuous delivery of Byetta from a once-yearly placement.53 Bristol-Myers Squibb and AstraZeneca gained FDA approval in 2009 for a me-too DPP-IV antagonist called Onglyza, generic name saxaglitpin, but this has not been as successful asJanuvia, with only US$127m in global sales in 3Q11 for Onglyza and Kombiglyze (Onglyza plus Metformin) versus over a billion for Januvia/Janumet. Eli Lilly gained FDA approval in May2011 for Tradjenta, generic name linagliptin, with its alliance partner, Boehringer Ingelheim.54 A recent study found that diabetes pills were responsible for around 11% of all emergency hospitalisations for adverse drug events in older Americans. See N Engl J Med. 2011 Nov24;365(21):2002-12.55 Generic name rosiglitazone. See www.avandia.com.56 See JAMA. 2010 Jul 28;304(4):411-8. Epub 2010 Jun 28.57 See Gastroenterology. 2011 Jul;141(1):150-6. Epub 2011 Feb 18. There have also been concerns voiced over the risk of GLP-1 analogues and thyroid cancer risk but the Gastroenterologypaper found no elevated risk for that cancer.58 See Diabetes Care. 2011 Apr;34(4):916-22. Page 11

12. Mesoblast (MSB) 31 January 2012 concurrence in that view in January 2012. This drug, the first of a new class called the SGLT2 inhibitors, has raised concerns about the risk of breast and bladder cancers in 59 the class . The decision potentially impacts the prospects of three other SGLT2 inhibitors now in Phase III - following behind dapagliflozin in Phase III are canagliflozin 60 from J&J, tofogliflozin from Roche; and empagliflozin from Eli Lilly . Figure 20 Avandia was a US$3bn a year drug for GSK before Figure 21 Concerns over pancreatitis and pancreatic cancer have the cardiovascular concerns emerged in 2007 hindered Byettas growth since 2009 Eli Lilly / Amylin quarterly global sales $1,000 200 $900 Avandia quarterly global sales $800 150 of Byetta (USDm) $700 for GSK (USDm) $600 $500 100 $400 $300 $200 50 $100 $0 0 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Mar-06 Jun-06 Mar-07 Jun-07 Mar-08 Jun-08 Mar-09 Jun-09 Mar-10 Jun-10 Mar-11 Jun-11 Dec-07 Dec-08 Dec-09 Dec-10 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11SOURCE: GSK SOURCE: ELI LILLY The high cost of diabetes drugs creates an opportunity for more cost-effective therapies. Between 2001 and 2007, diabetes drug costs in the US increased from US$6.7bn to US$12.5bn, driven in part by average diabetes drug prescription costs up Diabetes is proving 61 from $56 to $76 as patients shifted to newer but costlier drugs . By 2007 the typical costly to Western diabetic cost the US healthcare system around US$700 pa in drug costs alone (ie healthcare systems US$12.5bn divided by 17.9 million diagnosed patients), while drugs like Byetta cost more 62 than US$2,100 pa . With diabetes so prevalent there are concerns that healthcare systems will not be able to afford costly diabetes drugs or costlier insulins in the medium 63 term . This presents an opportunity for companies to compete with more cost effective offerings. Figure 22 - The new diabetes drugs are much more costly Figure 23 - US diabetes drug costs are rising fast $300 Retail sales per US script in 2010 (USD) $70 $250 Diabetes drug costs Per Member Per $65 $200 $60 Year for US health insurers $150 $55 $50 $100 $45 $50 $40 $0 $35 $30 $25 $20 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010SOURCE: DRUG TOPICS, JUNE 2011 ISSUE SOURCE: EXPRESS SCRIPTS DRUG TREND REPORT, BELL POTTER SECURITIES59 The SGLT2 inhibitors lower blood glucose levels by inducing renal glucosuria, that is, the pushing of glucose into the urine. SGLT2 inhibitors achieve this by targeting sodium-glucosetransporter-2 (SGLT2), a protein responsible for glucose reabsorption in the kidneys. The attraction of this class is that it does not work by affecting the supply or use of insulin, making iteasier to combine with other drugs. Also, the drug causes a small weight loss in treated patients.60 Pfizer is in Phase II with PF-04971729.61 See Arch Intern Med. 2008;168(19):2088-2094.62 See Ray of hope for diabetics by Alex Berenson, The New York Times, 2/3/2006.63 Consider, for example, Holden et. al. (BMJ Open. 2011 Jan 1;1(2):e000258), which looks at the 625m in extra costs over the 2000-2009 period of insulin analogues versus normal insulinfor the UKs National Health Service. That paper concluded that adherence to prescribing guidelines recommending the preferential use of human insulin would have resulted in considerablefinancial savings over the period. Page 12

13. Mesoblast (MSB) 31 January 2012Valuation and Financials Since our previous note we have revisited our financial models and valuation of Mesoblast in order to be able to show the companys near-term earnings profile as well as to better value some of the emerging programmes within the Meosblast portfolio. What follows is a description of our new approach. Valuation and Price Target BasisWe value MSB at Our DCF valuation model is based on a WACC of 16% using the capital asset pricingA$10.91 per share model (CAPM). We assume a terminal growth rate of 1% to arrive at our base casebase case and valuation of A$10.91 and our optimistic case valuation of A$21.60. Our price target ofA$21.60 per share A$16.00 sits at the mid-point of our DCF range.optimistic case The DCF scenario for our base case is laid out below:Table 1 Base Case DCF Analysis 2011A 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E TerminalEBIT -12.05 -23.68 -44.61 -62.99 207.32 251.33 449.10 727.98 668.80 881.24 1118.10 1473.88 1908.59 2466.07 3198.85 2813.36 2325.68 2010.70 1707.68 1415.85Tax rate 0.0% 0.0% 0.0% 0.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%Less: Taxes 0.00 0.00 0.00 0.00 41.46 50.27 89.82 145.60 133.76 176.25 223.62 294.78 381.72 493.21 639.77 562.67 465.14 402.14 341.54 283.17EBIAT -12.05 -23.68 -44.61 -62.99 165.86 201.07 359.28 582.38 535.04 704.99 894.48 1179.11 1526.87 1972.86 2559.08 2250.69 1860.54 1608.56 1366.14 1132.68Adjustments:Depreciation and amortization 0.18 0.25 0.39 0.60 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81Capital expenditures -0.46 -0.46 -1.00 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50Changes in working capital 117.04 -30.31 -27.13 -27.13 -26.75 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00Unlevered Free Cash Flows 104.71 -54.21 -72.35 -91.03 138.41 161.37 319.59 542.69 495.35 665.30 854.78 1139.41 1487.18 1933.16 2519.39 2211.00 1820.85 1568.86 1326.45 1092.98 7,359.4Discount factor 0.86 0.74 0.64 0.55 0.48 0.41 0.35 0.31 0.26 0.23 0.20 0.17 0.15 0.13 0.11 0.09 0.08 0.07 0.06 0.05Years of discounting 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Discounted Free Cash Flow (46.7) (53.8) (58.3) 76.4 76.8 131.2 192.0 151.1 174.9 193.8 222.7 250.5 280.7 315.4 238.6 169.4 125.8 91.7 65.1 378.2SOURCE: BELL POTTER SECURITIES Table 2 Base Case Valuation Valuation Amount % Mix PV of FCF 2012-2015 -82 -2.8% PV of FCF 2016-2020 726 24.4% PV of FCF 2021-2025 1,263 42.4% PV of FCF 2026-2030 691 23.2% PV of Terminal Value 378 12.7% Total PV 2,976 100.0% Enterprise Value 2,976 Less: Debt 0 Add: Forecasted Cash at EOY 2012E 233 Equity Value 3,209 Fully Diluted Shares Outstanding 294 DCF Value/Share $10.91 Upside over last close 69.2% Assumptions Terminal Growth Rate (2031E onwards) 1.0% WACC 16.0% SOURCE: BELL POTTER SECURITIES Page 13

14. Mesoblast (MSB) 31 January 2012 The DCF scenario for our optimistic case is laid out below:Table 3 - Optimistic Case DCF Analysis 2011A 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E TerminalEBIT -12.05 -23.68 -44.61 -62.99 242.16 401.81 789.48 1312.08 1433.23 1867.31 2369.54 3047.60 3775.01 4842.15 6280.28 5531.38 4634.11 4013.87 3420.10 2851.20Tax rate 0.0% 0.0% 0.0% 0.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%Less: Taxes 0.00 0.00 0.00 0.00 48.43 80.36 157.90 262.42 286.65 373.46 473.91 609.52 755.00 968.43 1256.06 1106.28 926.82 802.77 684.02 570.24EBIAT -12.05 -23.68 -44.61 -62.99 193.73 321.45 631.59 1049.66 1146.59 1493.85 1895.63 2438.08 3020.01 3873.72 5024.23 4425.10 3707.29 3211.09 2736.08 2280.96Adjustments:Depreciation and amortization 0.18 0.25 0.39 0.60 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81 0.81Capital expenditures -0.46 -0.46 -1.00 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50 -1.50Changes in working capital 117.04 -30.31 -27.13 -27.13 -33.48 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00 -39.00Unlevered Free Cash Flows 104.71 -54.21 -72.35 -91.03 159.55 281.75 591.89 1009.97 1106.89 1454.16 1855.94 2398.38 2980.31 3834.02 4984.53 4385.41 3667.59 3171.40 2696.38 2241.26 15,091.2Discount factor 0.86 0.74 0.64 0.55 0.48 0.41 0.35 0.31 0.26 0.23 0.20 0.17 0.15 0.13 0.11 0.09 0.08 0.07 0.06 0.05Years of discounting 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Discounted Free Cash Flow (46.7) (53.8) (58.3) 88.1 134.1 242.9 357.4 337.6 382.4 420.7 468.7 502.1 556.8 624.0 473.3 341.2 254.4 186.4 133.6 775.5SOURCE: BELL POTTER SECURITIES Table 4 - Optimistic Case Valuation Valuation Amount % Mix PV of FCF 2012-2015 -71 -1.2% PV of FCF 2016-2020 1,454 23.8% PV of FCF 2021-2025 2,572 42.0% PV of FCF 2026-2030 1,389 22.7% PV of Terminal Value 775 12.7% Total PV 6,120 100.0% Enterprise Value 6,120 Less: Debt 0 Add: Forecasted Cash at EOY 2012E 233 Equity Value 6,354 Fully Diluted Shares Outstanding 294 DCF Value/Share $21.60 Upside over last close 235.0% Assumptions Terminal Growth Rate (2031E onwards) 1.0% WACC 16.0% SOURCE: BELL POTTER SECURITIES Key Assumptions WACC: Our high WACC assumption of 16% factors in the high level of risk associated with the biotech sector in general and MSB in particular as relates to stock specific risks including the stem cell technology and also the fact that MSB is a pipeline company with currently no revenue generating inline products on the market. Terminal Growth Rate: Our terminal growth rate assumption of 1% after 2030 conservatively reflects the revenue and market share cannibalization from launch of competitive biogenerics after the patent life runs out in 2026. Our end of patent exclusivity assumption of 2026 does not take into account the likelihood of patent life extensions and other product lifecycle management strategies that MSB may come up with, which if successful would extend patent life of its products and represent an upside to our estimates. Sensitivity Analysis of DCF Page 14

15. Mesoblast (MSB) 31 January 2012 WACC & TERMINAL GROWTH RATE We performed a sensitivity analysis of our WACC and terminal growth rate assumptions. Table 5 - Base Case Valuation Sensitivity Analysis to WACC and Terminal Growth RateAt a WACC of 16%, for every WACC0.5% change in terminal $10.91 15.0% 15.5% 16.0% 16.5% 17.0%growth rate, our base case -0.5% $12.08 $11.40 $10.78 $10.20 $9.66 Terminal Growthvaluation changes by A$0.04- 0.0% $12.14 $11.45 $10.82 $10.23 $9.69A$0.06. We also established 0.5% $12.20 $11.50 $10.86 $10.27 $9.72that at a terminal growth rate 1.0% $12.26 $11.56 $10.91 $10.31 $9.76of 1%, every 0.5% change in 1.5% $12.33 $11.62 $10.96 $10.36 $9.79WACC, caused an A$0.56-A$0.70 change in our base 2.0% $12.41 $11.68 $11.02 $10.40 $9.83case valuation. 2.5% $12.49 $11.75 $11.08 $10.45 $9.88 SOURCE: BELL POTTER SECURITIES Table 6 - Optimistic Case Valuation Sensitivity Analysis to WACC and Terminal Growth RateAt a WACC of 16%, for every WACC0.5% change in terminal growth $21.60 15.0% 15.5% 16.0% 16.5% 17.0%rate, our optimistic case -0.5% $23.98 $22.60 $21.33 $20.15 $19.05 Terminal Growthvaluation changes by A$0.09- 0.0% $24.10 $22.70 $21.42 $20.22 $19.11A$0.12. We also established 0.5% $24.22 $22.81 $21.51 $20.30 $19.18that at a terminal growth rate of 1.0% $24.35 $22.92 $21.60 $20.39 $19.261%, every 0.5% change in 1.5% $24.49 $23.04 $21.71 $20.48 $19.33WACC, caused an A$1.13- 2.0% $24.65 $23.17 $21.82 $20.57 $19.42A$1.43 change in our optimisticcase valuation. 2.5% $24.81 $23.32 $21.94 $20.67 $19.51 SOURCE: BELL POTTER SECURITIES Sum-of parts Valuation Our DCF valuation model is a sum of DCF models of individual assets based on the different indications targeted by Mesoblasts MPCs. Each of the DCF models use risk- adjusted revenue numbers based on the probability of success in the clinical trials for each indication. The probability of success we attribute to each indication varies according to the development phase for each indication with the base case assumptions being more conservative than the optimistic case. Our sum-of-parts valuation is based on a WACC of 16% and a terminal growth rate of 1% to arrive at our base case valuation of A$10.91 and our optimistic case valuation of A$21.60. Our price target of A$16.00 sits at the mid-point of our DCF range. A summary of our sum-of-parts valuation for our base case is laid out below: Page 15

16. Mesoblast (MSB) 31 January 2012Table 7 - Base Case Sum-of-parts Valuation by AssetAsset Value Per %Mix Probability of Current Phase Share success /Risk adjustmentRevascor CHF $3.57 32.7% 50.0% Phase III IND to be filedRevascor AMI $0.63 5.7% 25.0% Phase IIRevascor CRA $0.62 5.7% 15.0% Phase II IND to be filedBMT $0.53 4.9% 65.0% Phase IIINeoFuse -Spinal Fusion $0.04 0.3% 33.0% Phase II interim data released. Final results due in 2012Invertebral Disc Repair $0.47 4.4% 25.0% Phase IIRepliCart - Knee Osteoarthritis $3.42 31.4% 25.0% Phase IILong Bone Fracture Repair $0.02 0.2% 5.0% Preclinical. IND for Human trials to be filed in 2012Age-related Macular Degeneration (AMD) $0.83 7.6% 25.0% Phase IIType 2 Diabetes $1.95 17.8% 5.0% Preclinical. Phase II to initiateOther Pipeline/Non-allocated -$1.96 -17.9% NA NACash $0.79 7.3% NA NATotal $10.91 100.0%SOURCE: BELL POTTER SECURITIES ESTIMATES A summary of our sum-of-parts valuation for our optimistic case is laid out below:Table 8 - Optimistic Case Sum-of-parts Valuation by AssetAsset Value Per %Mix Probability of Current Phase Share success /Risk adjustmentRevascor CHF $6.84 31.7% 60.0% Phase III IND to be filedRevascor AMI $0.98 4.5% 35.0% Phase IIRevascor CRA $1.08 5.0% 25.0% Phase II IND to be filedBMT $0.59 2.8% 75.0% Phase IIINeoFuse -Spinal Fusion $0.22 1.0% 43.0% Phase II interim data released. Final results due in 2012Invertebral Disc Repair $0.96 4.4% 35.0% Phase IIRepliCart - Knee Osteoarthritis $5.70 26.4% 35.0% Phase IILong Bone Fracture Repair $0.24 1.1% 10.0% Preclinical. IND for Human trials to be filed in 2012Age-related Macular Degeneration (AMD) $1.49 6.9% 35.0% Phase IIType 2 Diabetes $4.84 22.4% 10.0% Preclinical. Phase II to initiateOther Pipeline/Non-allocated -$2.13 -9.9% NA NACash $0.79 3.7% NA NATotal $21.60 100.0%SOURCE: BELL POTTER SECURITIES ESTIMATES Financials Gross Margin: As part of its partnering agreement with Teva/Cephalon, MSB will retain manufacturing rights for its MPCs and will manufacture products under its alliance with Lonza, selling them to Teva/Cephalon for a set transfer price. We expect gross margins to expand as volumes grow and as Lonza uses its technical knowhow and capabilities to reduce COGS. The transfer pricing arrangements of the Teva/Cephalon deal have not been disclosed; however we assume an initial transfer pricing arrangement of 35% of product sales. Under the Base Case scenario, we expect COGS to be 25% of revenues in 2015E reducing to 15% of revenues by 2020E and gross margins to expand from 75% in 2015E to 85% in 2020E. Under the Optimistic Case scenario, we expect COGS to be 15% of revenues in 2015E reducing to 5% of revenues by 2020E and gross margins to expand from 85% in 2015E to 95% in 2020E. Page 16

17. Mesoblast (MSB) 31 January 2012 R&D Costs : Under the Teva/Cephalon partnering deal, future development costs of the partnered indications are shared between MSB and Teva/Cephalon, with MSB being responsible for costs of preclinical development and Phase IIa trials and Teva to fund Phase IIb/Phase III trials. Thus, we expect Mesoblasts R&D costs to grow gradually in the coming years from ~A$30mn in 2012E to ~A$68mn in 2015E. Under both the Base Case & Optimistic Case scenarios, we estimate R&D expenses to be split between orthopaedic and non-orthopaedic indications with orthopaedic indications accounting for 65% of total R&D expense till 2016E, reducing gradually thereafter to be 5% of total R&D expense by 2019E, assuming all the different orthopaedic products have been launched in the market by 2019E. Our R&D estimates include the milestone payments as well as royalties of 2.5% of net sales payable to Medvet by MSB/Angioblast.Assumption on R&D Spending: Mesoblast plans to partner at least some of its other un-partnered indications after gatheringproof of concept data, and if the partnering deal is on similar lines as the Teva/Cephalon deal, it is likely to involve sharing offuture development costs. Our current model assumes that for all currently un-partnered indications Mesoblast will takethe product to the market itself i.e. none of them will be partnered. Thus, any future partnering deal is likely to reduceMesoblasts R&D spend below our current estimates and offsetting any resulting change in our modelled revenues from such adeal, is a potential upside to our estimates. General & Administration (G&A): Under both the Base Case & Optimistic Case scenarios, we have assumed that Mesoblast will allocate its G&A expenses only to those asset segments for which it records direct product sales, i.e. currently un-partnered indications. As such, our G&A expenses is split between the orthopaedic products and the IV products with orthopaedic indications accounting for 70% of total G&A expense till 2016E, reducing thereafter to ~66% of total G&A expense. Our allocation is based on the assumption that the later stage orthopaedic products will bear more of the G&A costs than the comparatively early stage IV products and then starting 2017E when the IV products are launched in the market, all the G&A expenses will be divided equally between the 6 indications (i.e. 4 orthopaedic products for Spinal Fusion, Disc Repair, Knee Osteoarthritis and Long Bone Fracture Repair and the 2 IV products for AMD & Type 2 Diabetes), bringing the 4 orthopaedic products G&A share to ~66%. Furthermore within the 4 orthopaedic indications we have further split the expense as 50% relating to spinal fusion and disc repair indications, 40% relating to knee osteoarthritis the largest market among the four and being a relatively small market 10% relating to Disc Repair. Moving forward, we expect G&A expenses for MSB to be higher from historical levels. We estimate G&A costs to grow from ~A$21mn in 2012E to ~A$54mn in 2015E. Selling & Distribution (S&D): Under the Teva/Cephalon partnering deal, commercialization costs of the partnered indications are to be borne by Teva/Cephalon. Therefore, we have split our selling and distribution costs among the un-partnered orthopaedic and IV products with the assumption that Mesoblast will not partner these indications in future and will take the products to the market itself building its own sales & marketing force. We estimate MSBs annual S&D spend to be A$60mn in 2016E, reducing to A$31mn in 2019E and onwards. Our estimate is based on the assumption that the product launch expenses will be incurred for 2016E to 2018E and then starting 2019E, when all the products are on the market, MSB will only spend on sales & marketing and promotional efforts, thus accounting for our reduced S&D forecasts for 2019E onwards. Our key assumptions under both the Base Case & Optimistic Case scenarios are: Launch expense per indication borne by Mesoblast is A$20mn to be split between US & EU launches. We have not allocated launch expenses for any other market at this point. Annual Sales & Marketing expense (i.e. field force) will be ~A$14-15mn. Page 17

18. Mesoblast (MSB) 31 January 2012 Promotional Expense (i.e. advertising & low cost distribution arrangements etc.) will be A$16mn per year at a run rate of ~A$4mn per quarter. S&D expenses start from the first year of launch of product. All the currently un-partnered 4 orthopaedic products (i.e. Spinal Fusion, Disc Repair, Knee Osteoarthritis and Long Bone Fracture Repair) and the 2 IV products (i.e. AMD & Type 2 Diabetes) have been launched in the US & EU markets by 2019E.Assumption on S&D Spending: Mesoblast plans to partner at least some of its other un-partnered indications after gatheringproof of concept data, and if the partnering deal is on similar lines as the Teva/Cephalon deal, it is likely to involve the partnerbearing the commercialization costs entirely or in worst case scenario sharing a part of it. Our current model assumes thatfor all currently un-partnered indications Mesoblast will take the product to the market itself i.e. none of them will bepartnered. Thus, any future partnering deal is likely to reduce Mesoblasts S&D spend below our current estimates andoffsetting any resulting change in our modelled revenues from such a deal, is a potential upside to our estimates. Milestone Payments from Teva/Cephalon: Under the terms of the Teva/Cephalon partnering deal, MSB is to receive ~US$1.7bn as potential milestones. The milestone payments will get triggered on regulatory approval in the US & EU markets. We have split the milestone payments between Cardiovascular, Bone Marrow Transplant (BMT) and the pipeline CNS applications as laid out in Table 9. Table 9 - Milestone Receivable from Teva/Cephalon Partnered Indications Indication Milestone division Milestone per indication (US$mn) Congestive Heart Failure 15% 250 Acute Myocardial Infarction 15% 250 Chronic Angina 15% 250 Bone Marrow Transplant 15% 250 Other pipeline CNS applications 41% 700 100% 1700 SOURCE: BELL POTTER SECURITIES ESTIMATES Our key assumptions under both the Base Case & Optimistic Case scenarios are: The milestone payment receivable per indication is equally split between the US and EU regulatory approvals, for example US$250mn for CHF indication will be receivable US$125mn on US regulatory approval from the FDA and US$125mn will be receivable on EU regulatory approval from the European Medicines Agency (EMA). We have not modelled revenues for MSBs CNS opportunity and hence have not modelled in the US$700mn potential milestone payment from Teva/Cephalon at this time. The CNS opportunity becoming substantial in future would be a potential upside to our estimates. We have estimated the timing for the probable regulatory approval for each indication and its potential entry into the US & EU markets and based on that assumption we have modelled the milestone payments as Revenue under collaboration. We have used Bell Potters current long term assumption for the AUD/USD cross rate to convert the US$1.7bn milestones into AUD. We expect the first milestone payment to be triggered at the US FDA approval for the Bone Marrow Transplant indication in FY 1H15 (July 2014-December 2014). Any delays in the completion of Phase III trial or FDA submission and approval therein is likely to affect our estimates adversely. Page 18

19. Mesoblast (MSB) 31 January 2012 Debt/interest expense: Mesoblast does not have any debt on its books currently. In view of its cash position after the Teva/Cephalon deal, we think MSB has sufficient funds to meet future development costs of its un-partnered indications and its working capital requirements. Even in the event that it falls short of funds, it is likely to go for a capital raising rather than the debt way to fund the shortfall. Thus, we assume no debt and no related interest costs in our model under both the Base Case and Optimistic Case Scenarios. Tax Rate: Mesoblast under its manufacturing alliance with Lonza will manufacture and sell its MPC products from Singapore. Singapore has a low corporate tax rate of 17% and MSB is hopeful to negotiate with the Singapore Government to get further concessions. The Australian corporate tax rate is 30%. Depending on how Mesoblast will structure its operations and account for its Singapore transactions there is a probability for Mesoblast to take full advantage of the low Singapore tax rate of 17% or even lower it further depending on its negotiations with the Singapore Government. However, until we get clarity on how Mesoblast plans to structure the transactions we are conservatively estimating a higher tax rate of 20% (in between the Singapore and Australian tax rates). Also since MSB has been incurring net operating losses (NOL) and is carrying deferred tax assets and liabilities on its balance sheet, it can choose to offset its future taxes against the NOL carry forwards. At this point we have conservatively not accounted for tax offsets in our estimates. Any tax offsets received by MSB in future is a potential upside to our estimates. Capex: We expect MSBs Capex requirements to be minimal since its manufacturing is outsourced to Lonza and the current Capex recorded on the balance sheet relates to mostly office equipment. We estimate MSBs Capex spend to be ~A$4.5mn between 2012E-2015E. Net Change in Working capital: Under both the Base Case & Optimistic Case scenarios, we estimate net change in working capital to be negative A$39mn per year between 2016E and 2030E under the assumption that Mesoblast being a growing company will invest heavily in its Current Assets in the form of inventory and its Accounts Receivable is also likely to increase once it starts generating revenue from product sales, partially offset by a likely increase in its Current Liabilities in terms of Accounts Payables. Revenue: Under the Base Case scenario, we estimate Mesoblasts Revenues to be A$27.3mn in FY 2012E rising to A$333.6mn in FY 2015E with the commercial sales of its first approved MPC product for the Bone Marrow Transplant Indication. Under the Optimistic Case scenario, we estimate Mesoblasts Revenues to be A$27.3mn in FY 2012E rising to A$374.6mn in FY 2015E with the commercial sales of its first approved MPC product for the Bone Marrow Transplant Indication. Our estimate is based on the assumption that between 2012E to 2015E Mesoblast will recognize a portion of the remaining US$130mn upfront payment (i.e. ~A$27mn per annum) received from Teva/Cephalon as revenue in the Income statement each year and in 2015E with the launch of its Bone Marrow Transplant product, its revenue line will also include milestones & manufacturing revenues. Mesoblast recognized A$14.6mn of the upfront payment from Teva in FY2011 and recorded the balance net of Fx losses as deferred revenue in the Balance sheet. We have broken down Mesoblasts Revenues into the following categories: Product Sales: This comprises of worldwide revenues earned from all the un- partnered indications i.e. orthopaedic and IV products franchise with the assumption that Mesoblast will not partner these indications in future and will take the products to the market itself. Manufacturing Revenues: As part of its partnering agreement with Teva/Cephalon, MSB will retain manufacturing rights for its MPCs and will manufacture products under its alliance with Lonza, selling them to Teva/Cephalon for a set transfer price. The Page 19

20. Mesoblast (MSB) 31 January 2012 transfer price offset by an MSB cost of manufacture, translates to an effective royalty on sales or net manufacturing revenues from the Teva/Cephalon alliance for MSB. We currently model revenues from Revascor and the BMT indication and have not modelled revenues for MSBs CNS opportunity under the alliance at this point. The CNS opportunity becoming substantial in future would be a potential upside to our estimates. Revenue under Collaboration: This includes the ~US$1.7bn potential milestones receivable by MSB under the terms of the Teva/Cephalon partnering deal. Also included in this category is the A$130mn upfront payment received by MSB. R&D Revenue: This consists of any Government or other Grant revenue received by MSB assisting in the development of its pipeline. Our Revenue Forecast Methodology and Assumptions We have used patient-driven market models to estimate the revenue trajectory of each indication. We have estimated revenues for the US market and the RoW to arrive at Worldwide Revenues for each indication. The revenue numbers in each of the market models are then risk-adjusted based on the probability of success in the clinical trials for each indication. The probability of success we attribute to each indication varies according to the development phase for each indication with the base case assumptions being more conservative than the optimistic case. Our key assumptions under both the Base Case & Optimistic Case scenarios are: We have used Bell Potters current long term assumption for the AUD/USD cross rate to convert the USD revenue numbers to AUD in each of the market models. We have assumed market share cannibalization from launch of competitive generics after the patent life runs out in 2026 for each of the indications. Our end of patent exclusivity assumption of 2026 does not take into account the likelihood of patent life extensions and other product lifecycle management strategies that MSB may come up with, which if successful would extend patent life of its products and represent an upside to our estimates. We have estimated the timing for the probable regulatory approval for each indication and its potential entry into the US & EU markets (as laid out in Table 10 below) and based on that assumption we have modelled our revenues. Table 10 - Mesoblast -Timing of Product launches in the US & EU Indication Estimated Fiscal Year of Estimated Fiscal Year of Entry -US Entry -EU Congestive Heart Failure 2015 2016 Acute Myocardial Infarction 2018 2017 Chronic Angina 2017 2018 Bone Marrow Transplant 2015 2016 Spinal Fusion 2016 2017 Invertebral Disc Repair 2016 2017 Knee Osteoarthritis 2017 2016 Long Bone Fracture Repair 2017 2018 Wet Age-related Macular Degeneration (AMD) 2018 2017 Type 2 Diabetes 2017 2018 SOURCE: BELL POTTER SECURITIES ESTIMATES Each of our patient driven market models are based on our projected US population, breaking down into the age group targeted by each indication, to which we apply the indication-specific disease prevalence or incidence statistics (derived from research Page 20

21. Mesoblast (MSB) 31 January 2012 papers and Government bodies) as a percentage of the population, to arrive at Mesoblasts Target US market. Each of our market models estimates Mesoblasts Target US market for each indication, with the Target Worldwide market assumed to be 1) 2.5 times that of the US for the Cardiovascular, BMT, Spinal Fusion and Disc Repair indications; 2) 2 times that of the US for the Knee Osteoarthritis, Long Bone Fracture Repair and AMD indications and 3) 5 times that of the US for the Diabetes indication. For each of the indications, we have assumed Mesoblast gradually gains market share after launch with peak market share in both the US & RoW being 1) 10% for the Cardiovascular, BMT, Spinal Fusion and Disc Repair, AMD and Diabetes indications; 2) 5% for the large Knee Osteoarthritis market and 3) 20% for the smaller non-union Long Bone Fracture Repair market. Each of our market models assume that Mesoblast increases its product pricing each year by 1-2% till 2025 and then after patent expiry starting 2026 to compete against generics reduces the prices by 2-5% of its products. For each of the indications, we have used different pricing of Mesoblasts MPC product. Our price expectations factor in the current costs of treatment for the particular indication and are based on the assumption that Mesoblasts MPCs will be cost effective as against current standard of treatments in the market and it will get re- imbursement from medical agencies in the respective jurisdictions in which it launches its products. We have also assumed that Mesoblast will sell its product in RoW at a 30% discount to its US selling price. Each of our market models assumes a patient undergoing a single MPC treatment per year, with a single or double dosing regimen per treatment. At this point we have assumed a double dosing regimen only for Spinal Fusion, and our assumption is based on the fact that MSBs MPC product will directly compete with the current BMP treatment used in Spinal Fusion which requires 2 doses in the form of two vials, hence we assume MSB will also target a similar dosing. Also, at present we have only assumed single dosing for Type 2 Diabetes but we think there may be a potential for MSB to target Diabetes as a repeat dosing product as seen with existing drug therapies in the market, which if happens would be a potential upside to our estimates. The transfer pricing arrangements of the Teva/Cephalon deal have not been disclosed; however we assume an initial transfer pricing arrangement of 35% of product sales. Under the Base Case scenario, we expect COGS to be 25% of revenues in 2015E reducing to 15% of revenues by 2020E, translating to an effective royalty on sales or net manufacturing revenues of 10% in 2015E growing to 20% in 2020E. Under the Optimistic Case scenario, we expect COGS to be 15% of revenues in 2015E reducing to 5% of revenues by 2020E translating to an effective royalty on sales or net manufacturing revenues of 20% in 2015E growing to 30% in 2020E. For the Milestone payments receivable from Teva, we have used our assumptions as detailed earlier in this section. As explained earlier in this section, for the US$130mn upfront payment received from Teva, Mesoblast recognized A$14.6mn in FY2011 and recorded the balance net of Fx losses as deferred revenue in the Balance sheet. We have assumed that Mesoblast will recognize a portion of the deferred revenue in its income statement each year between 2012E to 2015E. Page 21

22. Mesoblast (MSB) 31 January 2012 Earnings Projections and Contribution from Each Asset FY 2012E 2015E We present a summary of our base case earnings projections for the company and our estimates of how each of the key assets will contribute to earnings from 2012 to 2015 in Table 11 below. Table 11 Base case Earnings Projections and Contribution from Each Asset FY 2012E 2015E Contribution to EPS 2012E 2013E 2014E 2015E Revascor CHF $0.02 $0.02 $0.02 $0.46 Revascor AMI $0.02 $0.02 $0.02 $0.02 Revascor CRA $0.02 $0.02 $0.02 $0.02 BMT $0.02 $0.02 $0.02 $0.41 NeoFuse - Spinal Fusion -$0.03 -$0.04 -$0.05 -$0.06 Invertebral Disc Repair -$0.03 -$0.04 -$0.05 -$0.06 RepliCart - Knee Osteoarthritis -$0.05 -$0.07 -$0.08 -$0.09 Long Bone Fracture Repair -$0.01 -$0.02 -$0.02 -$0.02 Age-related Macular Degeneration (AMD) -$0.02 -$0.03 -$0.04 -$0.04 Type 2 Diabetes -$0.03 -$0.04 -$0.05 -$0.05 Pipeline/ Non-Allocated $0.02 $0.01 $0