Mesoblast chief Silviu Itescu raises $US110m, but says no cash concerns

Mesoblast CEO Silviu Itescu says the high-risk biotech has no cash concerns after securing $US110m to meet critical milestones over the next 18-24 months.

Mesoblast CEO Dr Silviu Itescu. Picture: Stuart McEvoy.

Mesoblast’s $US110m ($138m) private placement deal with a US investor will help the high-risk biotech business meet critical milestones over the next 18-24 months, chief executive Dr Silviu Itescu said, dismissing market concerns about its cash position.

The placement, primarily to US group SurgCenter Development’s principals, involved the issue of 60m Mesoblast shares at $2.30 each, a 6.5 per cent discount to its February 25 closing price of $2.46, the $1.4bn ASX-listed business told investors.

The new funds take its cash balance to $US187.5m.

New investors can also buy a further 15m shares at $2.88 per share, tipping another $43.2m ($US34m) into Mesoblast’s kitty before March 15, 2028, subject to further share price conditions.

On Tuesday, Dr Itescu dismissed concerns about Mesoblast’s cash position – triggered by the ‘material uncertainty’ flagged by auditor PwC about the group’s ability to continue as a going concern in its half-year results report last week.

“This is normal course of business for a biotech,” Dr Itescu told The Australian.

“The auditors have had that (concern) in every report for the past two years.

“We have 18-24 months of cash now thanks to an investor who approached us, after a lot of due diligence, to make a corporate strategic investment.

“We expect the deep healthcare knowledge and expertise of this investor group will be of great benefit to the company.”

He denied the investment was a rushed, lifeline assistance, and said he had no direct links to physician-owned ambulatory surgical centres group SurgCenter’s founding principals Gregory George or Sean O’Neal or any of its other principals, who have bought into Mesoblast.

Mesoblast entered a trading halt on Friday, ahead of the private placement announcement.

On the same day, it also subsequently reported a loss of US$48.8m to the end of December and a cash balance of $US77.5m.

The results report, which showed Mesoblast had net cash outflows from operations of $60.1m for the six months, stated it would need to raise money to “meet our forecast expenditure and continue as a going concern”.

It also flagged a “purported” class action lawsuit in the US over alleged non-disclosures to investors, which Dr Itescu said he had still “heard nothing about”.

SurgCenter’s support will be used for working capital and to build the regulatory pathway for its 3 key stem cell therapy product candidates – remestemcel-L for GvHD (Graft versus Host Disease) and rexlemestrocel-L for chronic low back pain and chronic heart failure.

Dr Itescu, who is the second-largest shareholder in the business, said the group continued to be supported by “rock-solid” investors and majority shareholders M&G Investments and Alex Waislitz’s Thorney Holdings.

“The cash injection strengthens the company’s balance sheet and provides it with flexibility to undertake operational and regulatory initiatives as it prepares for its late stage meetings with the US FDA over the next 6-7 months,” institutional supporter Bell Potter’s analyst Tanushree Jain said.

“Having a stronger balance sheet post this placement, with more than 12 months of cash runway, also places MSB in a better negotiating position in partnering discussions,” she said.

“Should MSB fail to deliver on those key milestones within the next 12 months, the balance sheet will likely come under pressure again.

“Our recommendation and valuation on MSB is under review. We currently have a buy (spec) and valuation of $5.10/sh on MSB.”

Shares in MSB were trading nearly six per cent lower at $2.32 just before market close.