Mesoblast slumps to $US29.15m loss after FDA false start

Mesoblast shares sank again after the star biotech warned it might not have enough cash to achieve its objectives after 12 months.

Mesoblast CEO Silviu Itescu. Picture: Aaron Francis

Stem cell-focused biotech, Mesoblast, has dived more than 87 per cent deeper in the red after a false start from the powerful US Food and Drug Administration over one of its marquee treatments.

The group’s loss plummeted to $US29.15m ($37.63m) in the three months to March 31, versus a loss of $US15.26m for the same period in 2020. Meanwhile, revenue dived 84 per cent to $US1.91m.

The company has now warned that it may not have enough cash reserves to “achieve its objectives” after 12 months.

Mesoblast shares, which have already taken a beating this year, sank even further, shedding 3.1 per cent to $1.86 on Thursday, compared to a 0.6 per cent gain across the broader share market.

In a statement to the ASX, chief executive Silviu Itescu cited as the main factor for the earnings slump the FDA denying approval for Mesoblast’s remestemcel-L drug to treat children with acute graft versus host disease (aGVHD).

This was despite the Oncologic Drugs Advisory Committee (ODAC), which advises the FDA, having earlier voted 9:1 in favour of the drug’s efficacy.

“Although the FDA considers the recommendation of the panel, the final decision regarding the approval of the product is made solely by the FDA, and the recommendations by the panel are non-binding,” Dr Itescu said.

“Despite the overwhelming ODAC vote, the FDA recommended that Mesoblast conduct at least one additional randomised, controlled study in adults and/or children to provide further evidence of the effectiveness of remestemcel-L for SR-aGVHD.”

Remestemcel-L created a buzz around Mesoblast, sending its shares to a high of $5.50 last September following the ODAC vote. This was not so much about the product’s use on aGVHD but its ability to also treat Covid-19.

Acute graft versus host disease has a similar immune response seen in patients with severe complications from coronavirus, and remestemcel-L had shown promise on treating Covid-19 patients suffering the potentially lethal acute respiratory distress syndrome.

“Based on its anti-inflammatory effects in aGVHD, we have positioned remestemcel-L to Covid-19,” Dr Itescu said last August.

But Mesoblast shares have since tumbled to $1.86, after the FDA requested an additional trial.

Dr Itescu said Mesoblast remained in “ongoing discussions” with the FDA “through a well-established FDA process on the potential for approval with a post-approval commitment to conduct an additional randomised controlled study in patients 12 years and older”.

In its quarterly accounts published on the ASX, Mesoblast said the group had “sufficient” reserves, which totalled $US158.3m as of March 31, to meet its short-term goals, commitments and ongoing operations over the next 12 months.

“Management and the directors believe that the cash runway will be extended beyond 12 months by restructuring existing loan agreements or via one or more strategic partnerships, and have prepared the financial report on a going concern basis,” the account note said.

“However, whether the group can achieve its objectives for extending the cash runway beyond the twelve month period creates material uncertainty which may cast significant doubt, or substantial doubt as contemplated by Public Company Accounting Oversight Board standards, on our ability to continue as a going concern and that the group may be unable to realise our assets and discharge our liabilities in the normal course of business.”