Mesoblast’s trials to reduce adverse cardiovascular events get hearty response, shares up 7% heading into the close

Shares in Mesoblast (ASX: MSB) were up 11% this morning after the mid-cap medical business released positive results from a US clinical study related to its cell therapy product rexlemestrocel-L (Revascor) which may lead to its broader application for heart failure patients.

Rexlemstrocel-L is being studied to assess its impact on the high degree of inflammation in the heart present across patients at risk of heart failure with reduced ejection fraction (HFrEF).

In layman’s terms, HFrEF is a condition related to the left side of the heart not being able to pump blood out to the body as it should.

Early improvement

Currently part of investigational therapy trials, Mesoblast's drug aims to reduce the high rate of cardiac events and complications.

Today the Melbourne-based biotech company notes improvement in left ventricular ejection fraction (LVEF) at 12 months was shown after a single intervention with rexlemestrocel-L in the 565-patient trial.

"Increased LVEF preceded long-term reduction in major adverse cardiovascular events and associated recurrent hospitalisations for non-fatal heart attack or stroke," the biotech noted.

Reducing adverse outcomes

Management believes the latest results, together with other outcomes from other HFrEF trials, support what they refer to as ‘common mechanism of action’.

Simply put, the biotech believes rexlemestrocel-L can help reduce adverse outcomes across the spectrum of these patients.

Meantime, Mesoblast plans to meet with the US FDA in an attempt to extend the biotech’s regenerative medicine advanced therapy designation for treatment.

This relates to chronic heart failure with left ventricular systolic dysfunction in patients with an LVAD across a broader HFrEF spectrum of patients.

Third quarter update

Revenues in the quarter increased by 5% on the comparative quarter to US$2.0m and by 46% for the nine-month period ended March 31, 2022, to US$8.0m.

As at March 31 the biotech reported a net debt position of $US32.9m, with borrowings of $US94.2m, versus cash on hand of $US76.7m.

It’s understood the biotech has experienced serious cash burn since inception having been through US$717.5m.

Unsurprisingly, given Mesoblast’s balance sheet issues, within its latest regulatory filing in the US, the biotech warned of:

“substantial doubt” over its ability to continue as a going concern and concedes “additional inflows will be required to meet our forecast expenditure over the next 12 months."

Recent history

Mesoblast debuted on the ASX in 2004 and reached a peak valuation of $2.5bn in 2011, by comparison the biotech’s market cap is now around $595m.

The biotech's share price is down -51.46% over 1 year, in line with losses experienced by the wider technology sector.

Consensus on Mesoblast is Strong buy, but brokers tend not to cover this stock.

Based on Morningstar’s fair value of $1.75 the stock appears to be significantly undervalued.

Overhang

What’s clearly still weighing on Mesoblast’s valuation is the class action filed at the US Federal Court 3 June.

The class action alleges the biotech misled investors by failing to disclose material information over the deficiencies of clinical trials into treatments for COVID-19, and graft versus host disease in children.

A month earlier, another class action from Australian law firm William Roberts was also flagged.

Mesoblast share price over 12 months.