Mesoblast well funded for next 2-3 years

Mesoblast (ASX:MSB) ended the first half of FY14 with cash balances of $250.3 million - enough to fund its growth investments for the next 2-3 years, according to Bell Potter Securities.

The company reported an 11% higher net loss for the period of $30.8 million, due to increased clinical development costs.

Total expenses increased by $9.1 million to $51.6 million as the company footed the bill for costs including the production of clinical-grade mesenchymal precursor cells (MPCs) for a phase III trial in congestive heart failure.

But the loss was narrower than Bell Potter’s estimate of $34 million, thanks to increased R&D tax incentive income. The added income helped revenue grow by $6 million to $20.8 million.

In a research note, Bell Potter said it expects that Mesoblast could start receiving royalties from sales of its most advanced drug candidate, Prochymal or JR-031, from 1H15.

The company has licensed JR-031 for the treatment of steroid-refractory acute graft versus host disease (GvHD) in Japan to JCR Pharmaceuticals and is expected to start negotiating an accelerated regulatory pathway for Prochymal in the US and EU over the next few months. The product is also being developed as a treatment for Crohn’s disease.

But Bell Potter reduced its 12-month price target for Mesoblast shares by 0.8% to $9.43, because of an expected increase in cash burn over the next two years. The firm maintained its ‘buy’ rating.

“The next 12 months promise to be action packed with MSB keeping busy running multiple phase III and phase II trials, having active engagement with regulators on potentially accelerating Prochymal’s regulatory path as well as integrating MSC and MPC platforms and manufacturing scale in preparation of commercial launch,” the note states.

It adds that if Mesoblast enters a partnership deal for its spinal fusion product NeoFuse, which entered phase III trials last year, it will have a positive impact on the projected valuation.

Mesoblast (ASX:MSB) shares were trading 1.05% higher at $5.76 as of around 12.30 pm on Tuesday.