Troubled Mesoblast secures crucial cash buffer from surprise US backer

Troubled drug developer Mesoblast has been given a financial lifeline analysts expect will give it an 18-month cash buffer after securing a $138 million investment from a surprise US backer.

The ASX-listed $1.45 billion stem cell treatments maker unveiled an unexpected new partner on Tuesday, confirming it had sealed a $US110 million ($138 million) deal with a US investor group led by surgery clinics business, SurgCenter Development.

Mesoblast had been in a trading halt since Friday, when its half-year report showed it was running at a $US48.9 million half-year loss. Its auditor PwC said a private placement and future partnership payments were key to the company continuing as a going concern.

Mesoblast chief executive and major shareholder Silviu Itescu is back in front of potential investors. Credit:Josh Robenstone

The deal will involve a private placement of 60 million shares at $2.30 each, which is a 6.5 per cent discount to the price at the close of trade on Friday. The agreement also involves the issuing of warrants to acquire an additional 15 million shares at $2.88 each.

The SurgCenter deal will push Mesoblast’s cash balance from $US77.5 million to $US187.5 million and Bell Potter analyst Tanushree Jain said the raising was a “net benefit” because it would give Mesoblast about 18 months of cash runway.

“Mesoblast will now need to focus on key regulatory and commercial deliverables across its three lead products over the next 12 months,” Ms Jain said.

However, Mesoblast shares had plunged 5.7 per cent to $2.32 by late afternoon trading. Shares are 57 per cent lower than their highs of $5.50 in September.

SurgCenter partners with surgeons across the US to build day surgery medical centres focused on orthopaedic procedures and joint replacements. The company was started in 1993 and has a vast network of partnerships with surgeons across the country.

According to corporate filings, a portfolio of up to 45 SurgCenter’s surgery sites were sold to NYSE-listed Tenet Health in December 2020 for $US1.1 billion.

Over the past 12 months Mesoblast’s focus has been on respiratory healthcare and its treatment for children experiencing rejection of bone marrow transplants, though it is also working on a treatment for chronic back pain that it hopes will reduce opioid use across the United States.

Mesoblast chief executive Silviu Itescu said the investment from SurgCenter could would help the company bring that treatment to market.

“The network and infrastructure of surgeons and ambulatory centres operated by SurgCenter may provide unique synergies to facilitate development and market access for [drug candidate] rexlemestrocel, if approved, in patients with chronic lower back pain,” he said.

Mesoblast raised another $138 million in a placement to institutional investors at $3.20 per share less than a year ago. Those funds were to be used to scale up manufacturing capabilities for Mesoblast’s flagship product, Remestemcel-L, in the hope it could be commercialised as a COVID-19 treatment.

However, the company is still crunching the data after cutting the phase 3 trial short last year after being advised it was unlikely to meet its primary goal.

Mesoblast also announced a partnership with Novartis to develop the treatment, worth an initial $50 million upfront investment, though the firm said in its half-year report that deal was yet to close.

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