Mesoblast starts new financial year with share surge after good trial news

Mesoblast, the ASX200’s worst performer in 2015-16, surged 12pc after good news on funding and a heart drug trial.

Mesoblast’s Silviu Itescu.

Mesoblast, the worst performer on the ASX200 in 2015-16, has seen its shares surge over 12 per cent on the first trading day of the new financial year after it said it would receive an earlier update on its crucial phase 3 heart failure drug trial.

The group (MSB) also said its cash burn rate projections had been “materially reduced” while details of its funding plans were revealed to show a local backer potentially tipping in as much as $120 million.

The dual-listed biotech group saw its shares tumble over 70 per cent in the year to June 30, largely due to news that partner Teva had walked away from the phase 3 trial three weeks’ ago.

Investors fretted about the decision from Teva, as it was seen as a vote of no confidence in the firm’s chronic heart failure technology and also brought up a potential funding issue.

The development wiped around a third of Mesoblast’s value and followed an impairment from Teva in May in relation to the partnership, as well as Mesoblast’s January decision to reduce the trial size.

There was good news today, however, as Mesoblast said the phase 3 trial would produce meaningful data as early as the first quarter of next year.

Last month the group had said the trial was expected to conclude in 18 months, with the prospect of significant figures within nine months not known.

“We believe we can obtain meaningful data by performing a blinded interim analysis to assess the heart failure trial’s primary endpoint in Q1 2017,” Mesoblast chief executive Silviu Itescu said.

“The results will inform our subsequent strategic decisions regarding the program.”

Mesoblast has also soothed fears over its funding through until the end of the trial, saying its cash burn rate would be sharply cut through cost reductions and the prioritisation of core assets.

Trial costs until the interim analysis early next year are expected to come in at $US13m ($17.5m), which compares to current cash reserves of $US80m.

The firm said its current cash holdings would provide “operational runway” for 12 to 15 months, with a discretionary equity facility agreed with Australian investment manager Kentgrove Capital.

That deal will allow Mesoblast to tap Kentgrove for up to $60m over the next 18 months and potentially a further $60m extension in the following 18 months. In return Kentgrove would receive Mesoblast shares at a 4.5 per cent discount to when the placement occurs.

Kentgrove will also accept 1.5 million incentive rights that come at an exercise price double that of Mesoblast’s current share price.

“To ensure financial flexibility, we have established an equity facility which may be used at our sole discretion over the next three years, as needed,” Mr Itescu said.

The group added it would continue discussions with potential strategic partners to deliver additional funding.

At 12.20pm (AEST), Mesoblast traded up 12.5 per cent at $1.21, against a modest 0.5 per cent gain in the broader market.