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Mesoblast moves to tap private wealth funds
Regenerative medicine company Mesoblast has tapped into a fresh vein of capital, this time some of Melbourne's high net worth families who have agreed to invest up to $120 million from David Lamm's Kentgrove Capital, which handles funds of the Alter family along with other investors.
Mesoblast incurred investor wrath in mid-June when it lost the backing of Israeli drugs maker Teva, which has been backing a pivotal heart trial for the Australian company, which triggered a near halving of its share price. This trial, a phase 3 trial, is due to run until the end of 2017, costing as much as $US40 million.
The costs of concluding the trial without a partner triggered investor calls for Mesoblast to cut costs to avoid further share issues, which would continue to dilute the value of existing investors by pushing its share price lower.
On Friday, Mesoblast said it would assess interim results from the trial in the first quarter of 2017, with the trial to cost $US13 million to reach this point. Mesoblast anticipates that continued promising results may enhance any partnering talks that it may have underway at that time relating to this treatment.
At the same time it said it would cut costs by a further 25 per cent on top of the cuts of 25 per cent outlined just a few months ago.
The company refused to give details of where the axe will fall, apart from saying further details would be disclosed when it releases its full-year figures to the market in August. The latest round of cuts will ensure the company has sufficient funds in hand to continue for a further 12-15 months without needing to raise further capital.
The funding pipeline opened with Kentgrove provides for an initial $60 million, which is available over the next 18 months with the option to double that over a 36-month period. All shares placed will be at a 4.5 per cent discount to the market price. Additionally, Kentgrove has been granted "incentive rights" over 1.5 million shares in Mesoblast, which are exercised at twice the current price of Mesoblast shares.
The news sparked a quick 15 per cent share price rally to $1.22.5c..........................................................
BIOTECH DAILY
JULY 1 2016
Mesoblast says it has an up to $120 million equity facility with Kentgrove Capital, but only
needs $17.4 million to reach interim heart failure trial results in October.
In June, Mesoblast went into a 14-day trading halt, suspension and extended suspension
to announce that Israel’s Teva Pharmaceuticals had handed back its phase III cardiac
stem cell program (BD: Jun 14, 2016).
The company said at that time that it had an equity facility to continue the trial but in a
teleconference chief executive Prof Silviu Itescu declined to provide details of the
arrangement.
Today, Mesoblast said the agreement with Melbourne’s Kentgrove was for up to $60
million over 18 months, with the option to increase it to $120 million over 36 months.
Mesoblast said it would determine when the placement occurred, the placement period,
the maximum amount of the placement and the minimum share price.
The company said that for each placement, it would receive funds via the issue of shares
at a 4.5 percent discount to the volume weighted average price (VWAP), “which cannot be
less than the minimum issue price determined by Mesoblast”.
Mesoblast said that Kentgrove would be granted 1,500,000 incentive rights with a three
year exercise period at an exercise price equivalent to 200 percent of the 10-day VWAP to
the date of the facility.
The company said it could terminate the facility on 14 days’ notice, but Kentgrove could
only terminate the facility in specified circumstances, such as a material breach of the
facility by Mesoblast which was not remedied.
In 2015, Genetic Technologies agreed to a $24 million 24-month standby equity facility
with Kentgrove (BD: Jan 22, 2015).
In March Kentgrove acquired 19.9 percent of Alchemia and its founder and managingdirector
David Lamm was appointed a director of Alchemia (BD: Mar 4, 7, 2016).
Mesoblast said that it expected to conduct an interim analysis of its lead phase III heart
failure program by October 2017, with the expected costs to the analysis about $US13
million ($A17.4 million).
The company said that its annualized cash burn would be “materially reduced through
cost reductions and a strategic prioritization of core assets” and existing cash reserves of
about $US80 million would provide an operational runway for 12 to 15 months.
Mesoblast said that it had funds to maintain its priority programs for degenerative disc
disease, graft versus host disease and biologic-refractory rheumatoid arthritis.
Prof Itescu said the company could “obtain meaningful data by performing a blinded
interim analysis to assess the heart failure trial’s primary endpoint” by October 2017.
“The results will inform our subsequent strategic decisions regarding the program,” Prof
Itescu said. “Importantly, we are implementing a series of material cost-cutting measures
and have realigned existing company resources to focus on our key value drivers.”
Mesoblast said that 240 patients had been enrolled in the phase III heart failure trial to
date comparing its MPC-150-IM mesenchymal precursor cells treatment to a control group
with the primary endpoint a comparison of recurrent heart failure-related major adverse
cardiovascular events.
The company said that the results would be used to provide evidence-based support for
strategic decisions regarding the phase III program, on-going cardiovascular partnering
discussions and informed use of funds.
Mesoblast said that during the coming 12 to 18 months it expected “key data readouts
from each of its tier 1 programs” and it would continue discussions with potential strategic
partners to deliver non-dilutive funding.
Mesoblast climbed 16.5 cents or 15.3 percent to $1.24 with 4.1 million shares traded.
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