This note provides information about the Group's financial instruments, including:

Financial assets (in U.S. dollars, in thousands)	Notes	Assets at FVOCI⁽¹⁾		Assets at FVTPL⁽²⁾		Assets at amortized cost		Total
As of September 30, 2022
Cash & cash equivalents	5(a)		—		—		85,502		85,502
Trade & other receivables	5(b)		—		—		3,863		3,863
Financial assets at fair value through other comprehensive income			1,843		—		—		1,843
Other non-current assets			—		—		1,902		1,902
			1,843		—		91,267		93,110
As of June 30, 2022
Cash & cash equivalents	5(a)		—		—		60,447		60,447
Trade & other receivables	5(b)		—		—		4,403		4,403
Financial assets at fair value through other comprehensive income			1,758		—		—		1,758
Other non-current assets			—		—		1,930		1,930
			1,758		—		66,780		68,538

Financial liabilities (in U.S. dollars, in thousands)	Notes	Liabilities at FVOCI⁽¹⁾		Liabilities at FVTPL⁽²⁾		Liabilities at amortized cost		Total
As of September 30, 2022
Trade and other payables	5(c)		—		—		17,663		17,663
Borrowings	5(d)		—		—		99,675		99,675
Contingent consideration	5(e)(iii)		—		21,501		—		21,501
Warrant liability	5(e)(vi)		—		2,586		—		2,586
			—		24,087		117,338		141,425
As of June 30, 2022
Trade and other payables	5(c)		—		—		23,079		23,079
Borrowings	5(d)		—		—		96,634		96,634
Contingent consideration	5(e)(iii)		—		23,284		—		23,284
Warrant liability	5(e)(vi)		—		2,185		—		2,185
			—		25,469		119,713		145,182

The Group’s exposure to various risks associated with the financial instruments is discussed in Note 9. The maximum exposure to credit risk at the end of the reporting period is the carrying amount of each class of financial assets mentioned above.

Term deposits are presented as cash equivalents if they have a maturity of three months or less from the date of acquisition.

	As of September 30,		As of June 30,
(in U.S. dollars, in thousands)	2022		2022
Trade debtors		1,443		2,224
Foreign withholding tax recoverable		471		471
U.S. Tax credits		1,473		1,473
Other recoverable taxes (Goods and services tax and value-added tax)		476		235
Trade and other receivables		3,863		4,403

	As of September 30,		As of June 30,
(in U.S. dollars, in thousands)	2022		2022
Clinical trial research and development expenditure		1,283		1,313
Prepaid insurance and subscriptions		1,051		2,420
Other		1,261		1,254
Prepayments		3,595		4,987

Trade receivables and other receivables represent the principal amounts due at balance date less, where applicable, any provision for expected credit losses. The Group uses the simplified approach to measuring expected credit losses, which uses a lifetime expected credit loss allowance. Debts which are known to be uncollectible are written off in the consolidated income statement. All trade receivables and other receivables are recognized at the value of the amounts receivable, as they are due for settlement within 60 days and therefore do not require remeasurement.

Due to the short-term nature of the current receivables, their carrying amount is assumed to be the same as their fair value.

Information about the impairment of trade and other receivables, their credit quality and the Group’s exposure to credit risk, foreign currency risk and interest rate risk can be found in Note 9.

The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their short-term nature.

	As of September 30,			As of June 30,
(in U.S. dollars, in thousands)	2022			2022
Borrowings
Secured liabilities:
Borrowing arrangements		81,919			81,919
Less: transaction costs		(8,280	)		(8,247	)
Amortization of carrying amount, net of payments made		26,036			22,962
		99,675			96,634

	As of September 30,			As of June 30,
(in U.S. dollars, in thousands)	2022			2022
Borrowings
Current
Borrowings - NovaQuest		816			372
Borrowings - Oaktree		4,673			4,645
		5,489			5,017
Non-current
Borrowings - NovaQuest		49,511			47,898
Borrowings - Oaktree		44,675			43,719
		94,186			91,617
		99,675			96,634

In November 2021, the Group’s senior debt facility with Hercules was refinanced with a new $90.0 million five-year facility provided by funds associated with Oaktree. The Group drew the first tranche of $60.0 million on closing, with $55.5 million of proceeds being used to discharge our obligations under the Hercules loan. The Group is in discussions to extend its option to draw on an additional $30.0 million beyond December 31, 2022, subject to the Group achieving certain milestones. The facility has a three-year interest only period, at a fixed rate of 9.75% per annum, after which time 40% of the principal amortizes over two years and a final payment is due no later than November 2026. The facility also allows the Group to make quarterly payments of interest at a rate of 8.0% per annum for the first two years, and the unpaid interest portion (1.75% per annum) will be added to the outstanding loan balance and shall accrue further interest at a fixed rate of 9.75% per annum.

On November 19, 2021, Oaktree were also granted warrants to purchase 1,769,669 American Depositary Shares (“ADSs”) at $7.26 per ADS, a 15% premium to the 30-day VWAP. The Group has determined that an obligation to issue the warrants has arisen from the time the debt facility was signed; consequently, a liability for the warrants has been recognized in November 2021. The warrants were legally issued on January 11, 2022 and may be exercised within 7 years of issuance. On the issuance date of the Oaktree facility and the warrants, the warrants were initially measured at fair value and the Oaktree borrowing liability measured as the difference between the $60.0 million received from the Oaktree facility and the fair value of the warrants. Refer to Note 5(e)(vi) for more details on warrants issued.

In the three months ended September 30, 2022, the Group recognized a minimal loss in the Income Statement as remeasurement of borrowing arrangements within finance costs in relation to the adjustment of the carrying amount of our financial liability to reflect the revised estimated future cash flows from our credit facility. No remeasurement of borrowing arrangements was recognized in the three months ended September 30, 2021.

In March 2018, the Group entered into a loan and security agreement with Hercules, for a $75.0 million non-dilutive, four year credit facility. The Group drew the first tranche of $35.0 million on closing and a further tranche of $15.0 million was drawn in January 2019.

In November 2021, this loan was refinanced with a new $90.0 million five-year facility provided by Oaktree. The Group drew the first tranche of $60.0 million on closing, with $55.5 million of proceeds being used to repay the outstanding balance with Hercules.

Prior to extinguishing this loan with Hercules, the Group amended the terms of the loan and security agreement to extend the interest-only period to January 2022 and therefore the Group had not commenced principal repayments.

Interest on the loan was payable monthly in arrears on the 1st day of the month. At closing date, the interest rate was 9.45%. On June 30, August 1, September 19 and October 31, 2019, in line with the changes in the U.S. prime rate, the interest rate on the loan was 10.45%, 10.20%, 9.95% and 9.70%, respectively, and remained at 9.70% in line with the terms of the loan agreement until extinguishing this loan with Hercules.

In the three months ended September 30, 2022, no remeasurement of borrowing arrangements was recognized as the loan with Hercules was repaid and extinguished in November 2021. In the three months ended September 30, 2021, the Group recognized a gain of $0.4 million in the Income Statement as remeasurement of borrowing arrangements within finance costs. This remeasurement relates to the adjustment of the carrying amount of our financial liability to reflect the revised estimated future cash flows from our credit facility.

On June 29, 2018, the Group entered into an eight-year, $40.0 million loan and security agreement with NovaQuest before drawing the first tranche of $30.0 million of the principal in July 2018. The loan term includes an interest only period of approximately four years through until July 8, 2022, then a four-year amortization period through until maturity on July 8, 2026. All interest and principal payments will be deferred until after the first commercial sale of remestemcel-L for the treatment in pediatric patients with SR-aGVHD. Principal is repayable in equal quarterly instalments over the amortization period of the loan and is subject to the payment cap described below. The loan has a fixed interest rate of 15% per annum. If there are no net sales of remestemcel-L for pediatric SR-aGVHD, the loan is only repayable at maturity. The Group can elect to prepay all outstanding amounts owing at any time prior to maturity, subject to a prepayment charge, and may decide to do so if net sales of remestemcel-L for pediatric SR-aGVHD are significantly higher than current forecasts.

Following approval and first commercial sales, repayments commence based on a percentage of net sales and are limited by a payment cap which is equal to the principal due for the next 12 months, plus accumulated unpaid principal and accrued unpaid interest. During the four-year period commencing July 8, 2022, principal amortizes in equal quarterly instalments payable only after approval and first commercial sales. If in any quarterly period, 25% of net sales of remestemcel-L for pediatric SR-aGVHD exceed the annual payment cap, the Group will pay the payment cap and an additional portion of excess sales which will be used towards the prepayment amount in the event there is an early prepayment of the loan. If in any quarterly period 25% of net sales of remestemcel-L for pediatric SR-aGVHD is less than the annual payment cap, then the payment is limited to 25% of net sales of remestemcel-L for pediatric SR-aGVHD. Any unpaid interest will be added to the principal amounts owing and shall accrue further interest. At maturity date, any unpaid loan balances are repaid.

Because of this relationship of net sales and repayments, changes in our estimated net sales may trigger an adjustment of the carrying amount of the financial liability to reflect the revised estimated cash flows. The carrying amount is recalculated by computing the present value of the revised estimated future cash flows at the financial instrument’s original effective interest rate. The adjustment is recognized in the Income Statement as remeasurement of borrowing arrangements within finance costs in the period the revision is made.

In the three months ended September 30, 2022 and 2021, the Group recognized a gain of $0.1 million and $0.1 million, respectively, in the Income Statement as remeasurement of borrowing arrangements within finance costs in relation to the adjustment of the carrying amount of our financial liability to reflect the revised estimated future cash flows as a net result of changes to the key assumptions in development timelines.

The Group recognizes a liability as current based on repayments linked to estimates of sales of remestemcel-L. However, if sales of remestemcel-L are higher than estimated, actual repayments will exceed this amount, subject to the annual payment cap described above.

The carrying amount of the loan and security agreement with NovaQuest is subordinated to the Group’s fixed rate loan with the senior creditor, Oaktree. The Group have pledged a portion of our assets relating to the SR-aGVHD product candidate as collateral under the loan facility with NovaQuest.

Our loan facilities with Oaktree and NovaQuest contain a number of covenants that impose operating restrictions on us, which may restrict our ability to respond to changes in our business or take specified actions. The Group has an operating objective to at all times maintain unrestricted cash reserves in excess of six months liquidity. The objective aligns with our loan and security agreement

with Oaktree where the Group is currently obliged to maintain a minimum unrestricted cash balance in the United States of $35.0 million.

The Group has complied with the financial and other restrictive covenants of its borrowing facilities during the three months ended September 30, 2022 and during the year ended June 30, 2022.

	As of September 30,			As of June 30,
(in U.S. dollars, in thousands)	2022			2022
Cash and cash equivalents		85,502			60,447
Borrowings		(99,675	)		(96,634	)
Lease liabilities		(9,957	)		(10,271	)
Warrant liability		(2,586	)		(2,185	)
Net Debt⁽¹⁾		(26,716	)		(48,643	)

Cash and cash equivalents		85,502			60,447
Gross debt - fixed interest rates		(109,632	)		(106,905	)
Warrant liability		(2,586	)		(2,185	)
Net Debt⁽¹⁾		(26,716	)		(48,643	)

	Liabilities from financing activities												Other assets
(in U.S. dollars, in thousands)	Borrowings			Leases			Warrant liability			Sub-total			Cash and cash equivalents			Total
Net Debt as at June 30, 2022		(96,634	)		(10,271	)		(2,185	)		(109,090	)		60,447			(48,643	)
Cash Flows⁽¹⁾		1,240			811			—			2,051			25,808			27,859
Remeasurement adjustments		54			—			(401	)		(347	)		—			(347	)
Other Changes⁽²⁾		(4,335	)		(633	)		—			(4,968	)		—			(4,968	)
Acquisition – leases		—			—			—			—			—			—
Foreign exchange adjustments		—			136			—			136			(753	)		(617	)
Net Debt as at September 30, 2022		(99,675	)		(9,957	)		(2,586	)		(112,218	)		85,502			(26,716	)

The carrying amount of the borrowings at amortized cost in accordance with our accounting policy is a reasonable approximation of fair value.

The following table presents the Group's financial assets and financial liabilities measured and recognized at fair value as of September 30, 2022 and June 30, 2022 on a recurring basis, categorized by level according to the significance of the inputs used in making the measurements:

As of September 30, 2022
(in U.S. dollars, in thousands)	Notes	Level 1		Level 2		Level 3		Total
Financial Assets
Financial assets at fair value through other comprehensive income:
Equity securities - biotech sector			—		—		1,843		1,843
Total Financial Assets			—		—		1,843		1,843

Financial Liabilities
Financial liabilities at fair value through profit or loss:
Contingent consideration	5(e)(iii)		—		—		21,501		21,501
Warrant liabilities	5(e)(vi)		—		—		2,586		2,586
Total Financial Liabilities			—		—		24,087		24,087

As of June 30, 2022
(in U.S. dollars, in thousands)	Notes	Level 1		Level 2		Level 3		Total
Financial Assets
Financial assets at fair value through other comprehensive income:
Equity securities - biotech sector			—		—		1,758		1,758
Total Financial Assets			—		—		1,758		1,758

Financial Liabilities
Financial liabilities at fair value through profit or loss:
Contingent consideration	5(e)(iii)		—		—		23,284		23,284
Warrant liabilities	5(e)(vi)		—		—		2,185		2,185
Total Financial Liabilities			—		—		25,469		25,469

There were no transfers between any of the levels for recurring fair value measurements during the period.

The Group’s policy is to recognize transfers into and transfers out of fair value hierarchy levels as at the end of the reporting period.

Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, trading and financial assets at fair value through other comprehensive income securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.

Level 2: The fair value of financial instruments that are not traded in an active market (for example, foreign exchange contracts) is determined using valuation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for provisions (contingent consideration), equity securities (unlisted) and warrant liabilities.

The Group did not hold any level 1 and level 2 financial instruments as at September 30, 2022 or June 30, 2022.

The Group’s level 3 assets consists of an investment in unlisted equity securities in the biotechnology sector. Level 3 assets were 100% of total assets measured at fair value as at September 30, 2022 and June 30, 2022. The Group’s level 3 liabilities consist of a contingent consideration provision related to the acquisition of Osiris’ MSC business and warrant liabilities related to the warrants granted to Oaktree as part of the debt facility. Level 3 liabilities were 100% of total liabilities measured at fair value as at September 30, 2022 and June 30, 2022. The Group used discounted cash flow analysis to determine the fair value measurements of Osiris’ MSC business and used the Black-Scholes valuation method to determine the fair value of warrant liabilities. Refer to Note 5(e)(vi) for the fair value measurement and movements in warrant liability for the period ended September 30, 2022 and June 30, 2022.

The following table presents the changes in level 3 instruments for the three months ended September 30, 2022 and the year ended June 30, 2022.

(in U.S. dollars, in thousands)	Contingent consideration provision
Opening balance - July 1, 2021		25,409
Amount used during the period		(1,212	)
Charged/(credited) to consolidated income statement:
Remeasurement⁽¹⁾		(913	)
Closing balance - June 30, 2022		23,284

Opening balance - July 1, 2022		23,284
Reclassification during the period		2,685
Charged/(credited) to consolidated income statement:
Remeasurement⁽²⁾		(4,468	)
Closing balance - September 30, 2022		21,501

The following table summarizes the quantitative information about the significant unobservable inputs used in level 3 fair value measurements:

Range of inputs

(weighted average)

(in U.S. dollars, in thousands,

except percent data)

Fair value

as of

September 30,

Fair value

as of

June 30,

Valuation

Unobservable

Year Ended

September 30,

Year Ended

June 30,

Relationship of

unobservable inputs to

Description

2022

technique

inputs⁽¹⁾

2022

fair value

Contingent consideration provision

21,501

23,284

Discounted cash flows

Risk adjusted

discount rate

11%-13%

(12.5%)

11%-13%

(12.5%)

Three months ended 30 September, 2022: A change in the discount rate by 0.5% would increase/decrease the fair value by 0.1%.

Year ended 30 June, 2022: A change in the discount rate by 0.5% would increase/decrease the fair value by 0.2%.

Expected unit

sales price

Various

Three months ended 30 September, 2022: A change in the price assumptions by 10% would increase/decrease the fair value by 1%.

Year ended 30 June, 2022: A change in the price assumptions by 10% would increase/decrease the fair value by 2%.

Expected sales

volumes

Various

Three months ended 30 September, 2022: A change in the volume assumptions by 10% would increase/decrease the fair value by 1%.

Year ended 30 June, 2022: A change in the volume assumptions by 10% would increase/decrease the fair value by 2%.

Probability of success and payment

Various

Three months ended 30 September, 2022: A change in the probability of success and payment assumptions by 10% and 20% would increase/decrease the fair value by 10.5% and 21.0%, respectively.

Year ended 30 June, 2022: A change in the probability of success and payment assumptions by 10% and 20% would increase/decrease the fair value by 8.6% and 17.2%, respectively.

In connection with the Osiris acquisition, on October 11, 2013 (the “acquisition date”), an independent valuation of the contingent consideration was carried out by an independent valuer.

For the three months ended September 30, 2022 and the year ended June 30, 2022, the Group has adopted a process to value contingent consideration internally. This valuation has been completed by the Group’s internal valuation team and reviewed by the Chief Financial Officer (the "CFO"). The valuation team is responsible for the valuation model. The valuation team also manages a process to continually refine the key assumptions within the model. This is done with input from the relevant business units. The key assumptions in the model have been clearly defined and the responsibility for refining those assumptions has been assigned to the most relevant business units. For each indication we determine the probability of success and payment based on the current development status within each jurisdiction and payment provisions within the agreement. Cash flows relevant to each jurisdiction are discounted appropriately based on the discount rate assumed. The remeasurement charged to the consolidated income statement in the three months ended September 30, 2022 was a net result of changing the key assumptions of the contingent consideration valuation such as development timelines, market growth and the increase in valuation as the time period shortens between the valuation date and the potential settlement dates of contingent consideration.

	As of September 30,		As of June 30,
The fair value of contingent consideration (in U.S. dollars, in thousands)	2022		2022
Fair value of cash or stock payable, dependent on achievement of future late-stage clinical or regulatory targets		17,650		17,827
Fair value of royalty payments from commercialization of the intellectual property acquired		3,851		5,457
		21,501		23,284

On November 19, 2021, in connection with the $60.0 million drawdown of the Oaktree debt, Oaktree were granted the right to warrants to purchase 1,769,669 ADSs at $7.26 per ADS, a 15% premium to the 30-day VWAP. Given that Oaktree received an

unconditional right to the warrants on November 19, 2021, this date has been determined as the measurement date. The warrants instruments were issued on January 11, 2022, following the required administrative process, and these warrants may be exercised within 7 years of issuance of the warrant instruments. The warrants do not confer any rights to dividends or a right to participate in a new issue without exercising the warrants.

The exercise price of the warrants will be received in US$, which is different to Mesoblast Limited’s functional currency of A$ which gives rise to variability in the cash flow. As a result, the warrants are classified as a financial liability in accordance with IAS32 Financial Instruments: Presentation. The financial liability is recorded in warrant liability at fair value at grant date and subsequently remeasured at each reporting period with changes being recorded in the Income Statement as remeasurement of warrant liability. The warrant liabilities are considered level 3 liabilities as the determination of fair value includes various assumptions about the share prices and historical volatility as inputs.

As at June 30, 2022 and September 30, 2022, the fair value of warrant liability was $2.2 million and $2.6 million, respectively. During the periods ended June 30, 2022 and September 30, 2022, a gain of $5.9 million and a loss of $0.4 million were recognized on the remeasurement of warrant liability, respectively.

The warrants granted are not traded in an active market and therefore the fair value has been estimated by using the Black-Scholes valuation method based on the following assumptions. Key terms of the warrants are included below. The following assumptions were based on observable market conditions that existed at the issue date and as of September 30, 2022.

	As of September 30,		As of June 30,
Assumption	2022		2022		Rationale
Share Price	$2.55		$2.22		Closing share price on valuation date from external market source
Exercise Price	$7.26		$7.26		As per subscription agreement
Expected Term	6 years 3 months		6 years 6 months		As per subscription agreement
Dividend Yield	0%		0%		Based on Company’s nil dividend history
Expected Volatility	83.19%		83.22%		Based on historical volatility data for the Company
Risk Free Interest Rate	3.99%		3.08%		Based on the closing U.S treasury issued bonds with tenors approximating the expected term of the warrants
Fair value per warrant	$1.4613		$1.2350		Determined using Black Scholes-valuation model with the inputs above
Fair value	$	2,586,046	$	2,185,476	Fair value of 1,769,669 warrants as at grant date and as of September 30, 2022