Mesoblast Limited
Annual Report 2009
Contents
Message from the Chairman
Executive Director’s Report
Directors’ Report
Auditors’ Independence Declaration
Corporate Governance
Financial Statements
Directors’ Declaration
Independent Audit Report
Shareholder Information
Page
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Message from the Chairman
On behalf of Mesoblast Limited’s Board of Directors,
I am pleased to present this Annual Report for the
year ended 30 June 2009.
Mesoblast is poised to capitalise on well-defined
clinical and commercial value drivers. Throughout
the year, the continuous stream of excellent results
released by your Company has underscored our
confidence in the potential of our proprietary adult
stem cell technology to make a considerable impact
on the quality of life for many people worldwide.
Mesoblast continues to make substantial progress
towards commercialisation of a range of
orthopaedic products for major indications with
unmet clinical needs.
The path to commercialisation for our products
is clear:
• Completion of ongoing and new Phase 2
programs;
• Progression towards Phase 3 registration trials;
• Establishing a firm foothold in new jurisdictions;
and
• Concluding commercial and strategic partnerships
that will enhance our execution capability, provide
a first-tier distribution network, and maximise
long-term product revenues.
Our United States-associated company, Angioblast
Systems Inc., continues to drive value through
clinical, corporate, and technical achievements.
Angioblast is simultaneously advancing the platform
stem cell technology towards commercialisation of
novel treatments for non-orthopaedic indications,
including cardiovascular diseases.
Over the past year, Angioblast has attained very
positive results in its cardiovascular and bone
marrow regeneration clinical trials. Consequently,
we view our 38.4 percent equity stake in Angioblast
as a major asset whose intrinsic value continues
to increase.
Both Mesoblast and Angioblast completed
successful capital raisings during the year to
facilitate and accelerate clinical programs towards
Pivotal/Phase 3 registration trials. These clinical
milestones are major value inflexion points for
clinical stage, maturing biotechnology companies
as they approach revenue generation.
Both Companies maintain quality share registers
and we are pleased that leading institutional
and sophisticated investors continue to show their
support for our ongoing value creation.
The Directors would like to record their appreciation
for the excellent work of Mesoblast staff and
consultants. We acknowledge their tireless efforts
and their strong commitment to delivering value.
We thank you, our shareholders, for your ongoing
strong support and loyalty and we look forward to
delivering on the extraordinary promise of our
proprietary stem cell technology to create a new
treatment paradigm for major diseases and
disorders that affect millions of people worldwide.
Mr Brian Jamieson
“Mesoblast is poised to capitalise on well-defined
clinical and commercial value drivers”
1
Executive Director’s Report
The Year in Review
Highlights
I am pleased to report on another outstanding year for
your Company which saw Mesoblast continuing to
progress multiple orthopaedic products towards
commercialisation and global leadership positions.
We have been successful at establishing a broad-based
spinal franchise with a suite of products for both cartilage
and bone regeneration products, and are developing a
range of cartilage repair products for treating the
spectrum from early to advanced stages of knee
osteoarthritis.
Together with results obtained by our associate company
Angioblast Systems, Inc. (Angioblast) based in the United
States, our unique stem cell technology platform has
demonstrably shown itself capable of addressing a
breadth of clinical needs, including orthopaedic
conditions, cardiovascular disorders, bone marrow
transplantation, and degenerative diseases of the eye.
Our clinical trials have underscored the excellent safety
profile of the platform stem cell technology, and the initial
efficacy results, which have paralleled the outstanding
preclinical trial data, have served to validate the unique
business model associated with our allogeneic, or
“off-the-shelf”, products. Indeed the low-cost, high margin
business model associated with our unique technology is
one that is familiar to pharmaceutical companies and
which should facilitate strategic alliances with global
pharmaceutical leaders.
Whilst the 2009 financial year has been a difficult one due
to the global financial crisis, I am pleased to inform you
that during this period both Mesoblast and Angioblast
were strongly supported by shareholders and investors,
and are well capitalised to continue advancing multiple
products towards registration and revenues.
Mesoblast’s major accomplishments during the 2009
financial year included:
• Strengthened financial position after a capital raising of
$10.8 million in April, with cash reserves of $16.5 million
at 30 June 2009.
• Positive results from preclinical trials of a new product
for intervertebral disc repair and regeneration, a major
new commercial opportunity which greatly expands our
spinal products franchise.
• Significant progress in clinical programs for cervical and
lumbar spinal fusion, including clearance from the
United States Food and Drug Administration (FDA) to
commence a Phase 2 trial of NeoFuse™, our “off-the-
shelf” stem cell product, for minimally invasive interbody
lumbar fusion surgery.
• Significant progress in a Phase 2 trial for knee
osteoarthritis, an important first step towards
development of Mesoblast’s allogeneic stem cell
product, RepliCart™, for treatment of both isolated
cartilage defects in young, active people, and for
reversing generalised, established osteoarthritis in older
people.
• Initiation of a formal process aimed at obtaining
licenses from the Australian Therapeutic Goods
Administration (TGA) to commercially manufacture our
orthopaedic products. This could result in earlier
revenues than originally forecast, as well as provide a
template for broader geographical jurisdictions.
• Being named the 2009 Frost & Sullivan Emerging
Company in the United States Soft Tissue Repair
market. The Award citation stated that Mesoblast has
immense potential to be a significant contributor and
promoter of the orthopaedic soft tissue and cartilage
repair space, and to establish a strong presence in the
United States orthopaedic market.
2
Development of a Global Spinal Franchise
discs over six months of follow-up.
Intervertebral Spinal Disc Cartilage Repair and
Regeneration
Mesoblast is developing an allogeneic, or “off-the-shelf’,
adult stem cell product which can be injected by a
minimally invasive approach into degenerating discs of
unrelated recipients in order to repair and regenerate disc
cartilage.
Degenerative intervertebral disc disease is the principal
cause of low back pain, affects as many as 4 million
people in the United States alone, and can result in severe
disability and incapacitation. For these patients, the only
option is major back surgery involving either artificial disc
replacement or spinal fusion.
A simple, non-invasive injection to reverse the
degenerative process, and regenerate the disc back to its
healthy state, would represent a major product
breakthrough into an unmet market segment where we
conservatively estimate potential revenue generation to be
in excess of $US2 billion per year.
The results of a placebo-controlled, randomised trial of
Mesoblast’s cells for the treatment of degenerative disc
disease in 36 sheep was presented and highlighted at the
World Congress on Osteoarthritis, OsteoArthritis
Research Society International (OARSI), held in Montreal,
Canada in September 2009.
A single low-dose injection of Mesoblast’s allogeneic
adult stem cells into severely damaged intervertebral
discs resulted in dramatic reversal of the degenerative
process, regrowth of disc cartilage, and sustained
normalisation of disc pathology, anatomy and function.
Six months after a single direct intra-discal injection of
Mesoblast’s cells, discs that were initially severely
damaged and degenerated were found to have become
indistinguishable from healthy non-degenerated discs in
their histopathology, cartilage content, height, and
structure. In contrast, severely degenerated discs which
served as controls and were either not injected or were
injected with hyaluronic acid only, continued to
demonstrate significantly reduced disc height, disordered
disc structure, disrupted histopathology, and reduced
cartilage content compared with healthy non-degenerated
As a result of the outstanding results of this preclinical
study, Mesoblast is prioritising its efforts on this major
new commercial opportunity. An Investigational New Drug
(IND) application is currently being prepared by the
Company for submission to the US FDA, and we
anticipate commencing a Phase 2 clinical trial in the first
half of 2010.
The relatively short primary endpoint associated with the
planned Phase 2 and Pivotal trials for this disc repair
product opens the possibility of earlier registration and
revenue generation than for other indications.
Following our successful capital raising in April of this
year, the Company has sufficient funds earmarked to
complete the proposed Phase 2 trial for intervertebral disc
repair and regeneration.
Intervertebral Lumbar and Cervical Spinal Bony
Fusion - NeoFuse™
In addition to the disc regenerative product, Mesoblast is
developing an allogeneic product called NeoFuse™ to
generate bony spinal fusion of the intervertebral space in
patients with end-stage vertebral disc disease.
Over 500,000 patients undergo spinal fusion of the
lumbar and cervical spine in the United States alone
annually. Mesoblast’s product aims to eliminate the need
for an additional autograft surgical procedure (using
patient’s own hipbone), which is the current standard of
care in these patients, but is not effective in certain patient
groups and is often complicated by pain and infection.
Over the past 12 months, Mesoblast has completed
successful preclinical studies using NeoFuse™ by a
minimally-invasive approach in lumbar and cervical
fusion. These minimally invasive procedures are the
preferred approaches taken by the majority of spinal
surgeons worldwide. Mesoblast’s preclinical trials showed
that NeoFuse™ implanted by a minimally-invasive route
resulted in significantly earlier bony fusion over 3-6
months than autograft, without any safety issues.
In August 2009, the US FDA cleared a Phase 2 clinical
trial of NeoFuse™ for use in minimally invasive interbody
lumbar spinal fusion surgery. The 24-patient trial, based at
US sites in California, Texas, North Carolina, Colorado
3
Bone Marrow Aspirate
and Wisconsin, is comparing the effectiveness and safety
of two low doses of NeoFuse™ with autograft in minimally
invasive surgery for fusion of the lumbar spine.
This trial will build on the safety and efficacy results
generated to date in Mesoblast’s first spinal fusion trial at
New York’s Hospital for Special Surgery, which employed
a more invasive surgical approach. In that trial, unilateral
use of Mesoblast’s NeoFuse™ has generated safe and
robust fusion.
Complementing the lumbar interbody program, Mesoblast
initiated in Melbourne a Phase 2 clinical trial of NeoFuse™
in 24 patients needing bony fusion of the cervical spine at
multiple intervertebral levels.
The Company expects to have interim results from these
two trials during 2010. Strategic decisions around Pivotal/
Phase 3 clinical trial designs and commercial directions
for the interbody fusion program will be made on the
basis of these results and in conjunction with corporate
discussions.
Development of Products for Treatment of Knee
Osteoarthritis
Osteoarthritis of the knee can occur as a spectrum from
small, isolated cartilage defects that occur after trauma in
young, active individuals, to a more generalised loss of
cartilage in older people after many years of wear and
tear. Mesoblast is developing “off-the-shelf”, or allogeneic,
adult stem cell products to meet the needs of patients at
either end of this spectrum of arthritic disease.
Cartilage Repair for Acute Knee Trauma - RepliCart™
Post-traumatic osteoarthritis represents potentially the
most rapid entry point for our products into the knee
arthritis markets. This is because technologies that are
more precise have been validated by global regulatory
authorities for demonstrating efficacy of new therapies in
early stage disease, rather than in late stage disease
where conventional x-rays remain the standard.
Consequently, the size and duration of Pivotal/Phase 3
trials are likely to be smaller and shorter when an effective
new therapy is tested for early stage disease.
Mesoblast will move towards obtaining regulatory
approval for its “off-the-shelf” knee cartilage repair and
regeneration product, RepliCart™, in patients with either
post-traumatic localised cartilage loss lesions (termed
osteochondral defects) or in those patients with an acute
knee injury who are known to have a high risk of
progressing to established generalised osteoarthritis.
To maximize the likelihood of optimal outcome using
RepliCart™ to repair localised cartilage defects, the
Company is currently executing preclinical trials
evaluating a variety of materials in combination with our
cells. The best performing material will be used in
advancing our stem cell product into human clinical trials.
To demonstrate that RepliCart™ can prevent onset of
generalised cartilage loss after an acute knee injury, a
Phase 2 trial is currently underway in Melbourne where 24
patients who have undergone reconstruction of a ruptured
Anterior Cruciate Ligament will receive an injection of
either the Company’s allogeneic stem cells or control. The
Company anticipates interim results from this trial being
available in 2010.
Cartilage Repair for Established Knee Osteoarthritis -
RepliCart™
As many as 15 million people in the United States have
severe established generalised knee cartilage loss, and
there are currently no approved therapies that repair or
regenerate knee cartilage. Our preclinical results indicate
that RepliCart™ is highly effective for reversing and
repairing generalised knee cartilage loss.
Mesoblast is in discussions with both key opinion leaders
and potential government funding bodies with regard
to initiating Phase 2 clinical trials for this major indication.
Moreover, the Company will seek input into clinical trial
design from potential global pharmaceutical partners
since this commercial opportunity is likely to require larger
Pivotal/Phase 3 clinical trials and earlier strategic
corporate collaborations.
4
Identification of MPC
mAb Binding of MPC
Development of a Product for Treatment of Long
Bone Fractures
Non-healing long bone fractures affect millions of people
worldwide, are usually a complication of road accident
trauma, are very debilitating, and in some cases result in
limb amputation. In Australia alone, treatment of non-
union fractures represents a potential multi-million dollar
annual revenue opportunity for Mesoblast.
In our pilot clinical trial at The Royal Melbourne Hospital,
we demonstrated that Mesoblast’s proprietary adult stem
cells were highly effective at repairing recalcitrant
fractures of the long bones in the lower extremities,
enabling patients to resume their normal quality of life.
In order to make our bone repair product available for
these patients who have limited alternatives and a
uniformly poor quality of life, Mesoblast has sought to
obtain an Australian TGA license for its manufacturing
process. This will enable us to make available our stem
cell technology under the Special Access Scheme (SAS)
to Australian patients, their physicians, surgeons and
hospital centres.
Angioblast Systems
Mesoblast has maintained a highly productive relationship
with our United States associate company, Angioblast
Systems, Inc., as it advances the shared platform stem
cell technology platform simultaneously in a number of
clinical indications, notably cardiac, vascular, bone
marrow and eye conditions.
Significant progress across a breadth of clinical
applications facilitates potential broad-based strategic
collaborations with pharmaceutical partners who may be
intent on developing a pipeline of products based on a
single robust platform technology.
The economic benefits of the two companies sharing
development and staffing costs are enormous, as well as
the implicit geographically strategic advantages of having
headquarters in the United States and Australia.
Angioblast’s most significant highlights for the financial
year were:
• Successful completion of a $10 million equity-based
capital raising in August 2009 from institutional and
sophisticated investors. Mesoblast has a 38.4% equity
stake in Angioblast, and may choose to maintain or
increase its ownership when Angioblast completes its
next financing event.
• Continued rapid enrolment in Angioblast’s 60-patient
Phase 2 clinical trial of its lead allogeneic cardiac
product, Revascor™, for patients with congestive heart
failure. To date, the first two dose cohorts of 40 patients
have completed enrolment. No cell-related adverse
events have been seen in any treated patients to date.
Enrolment of the final 20-patient cohort is expected to
be complete by end Q1 2010. The extent of clinical
success in this trial will dictate the earliest timelines for
progression to a Pivotal/Phase 3 trial.
• Positive interim efficacy results were reported from the
first 20-patient cohort of patients suffering moderate to
severe congestive heart failure being treated with the
lowest dose of Revascor™. Over a three month period,
heart function significantly recovered in cell-treated
patients but worsened in controls. The greatest
improvement was seen in patients with the most severe
heart failure. In those with baseline ejection fraction
<30%, cardiac function improved by a mean of 50%.
• Commencing a second FDA-cleared Phase 2 clinical
trial for congestive heart failure, in patients with class IV
(most severe) congestive heart failure. The rationale
for this trial was founded on the positive interim results
obtained from patients with moderate-severe heart
failure in the first congestive heart failure trial. This latter
trial is being funded by the United States National
Institutes of Health (NIH) and will evaluate the
effectiveness of RevascorT in patients with class IV heart
failure who are being kept alive by a Left Ventricular
Assist Device while awaiting heart transplantation.
5
The Year Ahead
Translating our powerful stem cell technology platform
into leading-edge products has been a major focus of
both Companies and has been led by a very talented and
committed group which has been carefully assembled.
In addition, we rely closely on the members of our
Scientific Advisory Board and expert consultants who
continue to provide excellent advice, and who have
capably highlighted Mesoblast’s positive clinical and
preclinical results at leading global medical and scientific
conferences.
We are in a very strong position to capitalise on our
growing product pipeline and to make an enormous
impact on clinical diseases for which there currently are
no adequate treatments.
We remain confident that as a strong and committed team
we will continue to execute on our broadening product
pipeline and timely delivery of our commercial and
business objectives. Consequently, we believe that the
2010 financial year will see significant unlocking of value.
• Continued evaluation of the safety and effectiveness of
Revascor™ for the treatment of new-onset heart failure
early in the acute heart attack setting. Separately, the
Company is developing a different allogeneic stem cell
product for use immediately at the time of a heart attack
in order to prevent heart failure from developing. Results
from preclinical studies for this new indication, together
with plans for a further clinical trial in patients with heart
attacks, will be released shortly.
• Positive interim results from the first five cancer patients
undergoing bone marrow transplantation using cord
blood expanded by Angioblast’s proprietary stem cells.
These patients had markedly faster bone marrow
engraftment and reconstitution than those who receive
standard of care. The ground-breaking trial in up to 30
patients is funded by the NIH, and is being conducted
under an FDA Orphan Drug Designation which could
result in accelerated product registration. Results from
this trial are expected in early 2010, with positive
efficacy outcomes expected to support advancing with
a Pivotal/Phase 3 trial.
• Preparing an IND submission to the FDA for initiating a
clinical trial of its allogeneic stem cell product in
patients with end-stage age-related macular
degeneration
• Awarded the 2008 Frost & Sullivan United States Stem
Cell Market Technology Innovation of the Year.
According to Frost and Sullivan, the proprietary stem
cell technology has several attractive attributes that set
it apart from other stem cell products, including very
accurate identification and isolation with up to 1000-fold
greater concentration of stem cells compared to other
conventional methods.
6
Pictured at the awards ceremony (l-r) are Dr Tony Goldschlager, Professor Silviu Itescu,
and Professor Graham Jenkin.
Collaboration with leading global stem cell scientists and clinicians
remains a priority for Mesoblast. The 2009 Monash University
Vice-Chancellor’s Awards for Excellence in Research for Innovation
and Collaboration in Research with Industry was awarded to
Professor Graham Jenkin, Deputy Director of Monash Immunology
and Stem Cell Laboratories, and neurosurgical registrar Dr Tony
Goldschlager, for collaborating with Mesoblast to pioneer a new
treatment for intervertebral disc disease.
7
Directors’ Report
The Board of Directors of Mesoblast Limited has resolved to submit the
following annual financial report of the company for the financial year
ended 30 June 2009. In order to comply with the provisions of the
Corporations Act 2001, the directors report the following information:
Directors
Principal Activities & Strategy
Directors of the Company in office at any time during
or since the end of the year (unless specified) were:
Name
Position
Brian Jamieson
Non-executive Chairman
Byron McAllister
Non-executive Director
Donal O’Dwyer
Non-executive Director
Michael Spooner
Non-executive Director
Silviu Itescu
Executive Director
Details of directors qualifications, experience and special
responsibilities, together with meetings attended, can be
found on pages 14 to 15 of this report.
Overview
Mesoblast Limited is an Australian biotechnology
company committed to the development of innovative
adult stem cell products targeting a range of bone,
cartilage and musculoskeletal conditions.
Mesoblast Limited has the worldwide exclusive rights for
orthopedic indications relating to a series of patents and
technologies that have been developed over more than
10 years and which relate to the identification, extraction
and culture of adult Mesenchymal Precursor Cells (MPCs).
The Company holds a 38.4% interest in Angioblast
Systems, Inc. (Angioblast), an American company
developing the same platform technology for the
treatment of cardiovascular diseases, including repair and
regeneration of blood vessels and heart muscle.
Business Model
From the outset we have outlined a business model that is
based on low cost of goods and high margins, similar to
pharmaceutical drug development. To achieve this, the
focus has been on allogeneic or ‘off-the-shelf’ products
which are generated by large-scale expansion of a small
amount of donor starting material. Additional advantages
of allogeneic products are that they can be batched, with
each batch being highly reproducible and consistent to
ensure product safety and effectiveness. Equally as
important is that “off-the-shelf” products will be available
for immediate use at hospitals when the acute trauma or
injury needs rapid treatment.
8
Key Achievements
Development of a global spinal franchise
Intervertebral Spinal Fusion
Spinal fusion for end-stage vertebral disc disease is a
major global market opportunity for Mesoblast, with over
500,000 patients expected to undergo this procedure in
the United States alone in the next year.
Mesoblast is developing an allogeneic or “off-the-shelf”
cell product, called NeoFuse™, to generate bony spinal
fusion. It aims to eliminate the need for an additional
autograft surgical procedure (using patient’s own
hipbone), which is the current standard of care in these
patients, but is not effective in certain patient groups and
is often complicated by pain and infection.
(a) Lumbar Fusion
The preferred procedure by surgeons which is currently
used in approximately 80 per cent of lumbar spinal
fusions is a minimally invasive posterior or lateral
interbody approach. Competitor biologic technologies
have not been able to gain FDA approval for use in this
preferred type of minimally invasive lumbar fusion surgery
due to significant safety issues. Consequently, Mesoblast
has identified this type of surgery as a major commercial
focus for its NeoFuse™ product.
Over the past twelve months, Mesoblast has completed
preclinical studies in minimally invasive lumbar fusion
surgery showing that a lower dose of NeoFuse™ used in
this approach compared with other studies in the lumbar
spine resulted in significantly earlier bony fusion over
3-6 months than autograft, without any safety issues.
In August 2009, the US FDA cleared a Phase 2 clinical
trial of our allogeneic adult stem cells for use in minimally
invasive lumbar spinal fusion surgery. The 24-patient trial,
based at multiple US sites, is comparing the effectiveness
and safety of two low doses, NeoFuse™ with autograft in
minimally invasive surgery for fusion of the lumbar spine.
This trial will build on the safety and efficacy results
generated to date in Mesoblast’s first spinal fusion trial
that employed a more invasive surgical approach. In that
trial, unilateral use of Mesoblast’s NeoFuse™ generated
safe and robust fusion over a 12-month period.
If Mesoblast is successful in its new clinical and
commercial strategy, this could result in a lower-dose
product than currently being used in our existing trial.
Potential advantages of this new product are reduced
cost-of-goods, higher margins, and greater surgeon
uptake due to its use in minimally invasive surgery.
(b) Cervical Fusion
Approximately 50% of cervical fusion procedures involve
more than one vertebral level. For these patients, standard
therapies do not work very well. In addition, the FDA has
notified surgeons of life-threatening complications following
use of recombinant human Bone Morphogenic Proteins
(BMP), the main class of competitor biologic technologies,
in patients undergoing cervical fusion. Consequently, the
limited options available for these patients presents a
major commercial opportunity for Mesoblast.
Over the past twelve months, Mesoblast has completed
preclinical studies in cervical fusion surgery showing that
low-dose NeoFuse™ resulted in significantly earlier bony
fusion over 3-6 months than autograft, without any safety
issues.
On the basis of these studies, Mesoblast has commenced
a Phase 2 clinical trial of NeoFuse™ in 24 patients needing
bony fusion of the cervical spine at multiple intervertebral
levels. Initiated in Melbourne, this trial seeks to confirm the
effectiveness and safety of Mesoblast’s allogeneic cell
product for cervical fusion.
Intervertebral Disc Repair and Regeneration
For patients with earlier stage intervertebral disc disease,
Mesoblast is developing an allogeneic adult stem cell
product which can be injected by a minimally invasive
approach into degenerating discs of unrelated recipients
in order to repair and regenerate disc cartilage. This is
likely to be a significantly larger market than spinal fusion.
Results of preclinical trials and plans for clinical
development are expected to be made very shortly.
Development of a product for treatment of knee
osteoarthritis
Osteoarthritis is a major degenerative disease of cartilage
in joints, with the knee being the most commonly affected.
Knee osteoarthritis affects as many as 15 million people in
the United States alone, and no approved therapies
currently have any effect on cartilage repair or regeneration.
Osteoarthritis of the knee can initially occur as small,
isolated cartilage defects in young, active individuals,
or can affect the knee joint in a more generalised way in
older people after many years of wear and tear.
Additionally, knee injuries in healthy active people
significantly accelerate progression to generalised
cartilage loss, which may be seen after several years in
as many as 50% of people with knee injuries.
To demonstrate that Mesoblast’s cartilage product,
RepliCart™, can prevent this progression to generalised
cartilage loss after knee injury, a Phase 2 trial is underway
in Melbourne where 24 patients who have undergone
reconstruction of a ruptured Anterior Cruciate Ligament
will receive an injection of either the company’s “off-the-
shelf” allogeneic stem cells or control.
This trial is an important first step towards commercial
development of an allogeneic stem cell product for
treatment of both isolated cartilage defects in young,
active individuals and generalised osteoarthritis in older
people. Together, these markets represent massive global
commercial opportunities for Mesoblast.
Seeking regulatory approvals for bone and cartilage repair
products in Australia
Mesoblast has commenced a formal process aimed at
obtaining licenses from the Therapeutic Goods
Administration (TGA) to commercially manufacture its
bone and cartilage repair products. This would result in
earlier revenues once this product is made available to
hospitals and clinicians throughout Australia.
9
In the first instance, Mesoblast aims to make its bone
repair product available for those patients who have
poorly healing fractures of their long bones and for whom
no satisfactory alternatives are available. This follows the
company’s successful Australian clinical trial of its
proprietary stem cell therapy for the repair of non-healing
long bone fractures of the legs.
Non-healing long bone fractures affect millions of people
worldwide, are usually a complication of road accident
trauma, are very debilitating, and in some cases result in
limb amputation. Significantly, Australian regulatory
approval will enable Mesoblast to formulate a template
that could be duplicated in other jurisdictions on a
country-by-country basis.
Mesoblast’s Investment in Angioblast Systems, Inc.
Continues to Appreciate.
Mesoblast maintains a highly productive relationship with
its United States-based associate company, Angioblast
Systems Inc.
Angioblast is simultaneously advancing the platform stem
cell technology towards commercialisation of novel
treatments for cardiac, vascular, bone marrow, and eye
conditions. To date, Angioblast has attained strong
clinical and preclinical results in these indications,
supporting Mesoblast’s significant equity investment and
the inherent value associated with these indications.
The value of Mesoblast’s 38.4% equity stake in Angioblast
was again underscored after Angioblast successfully
completed a $10 million financing in August 2009 by new
and existing institutional and sophisticated investors. This
equity-based investment emphasises the intrinsic value
associated with Angioblast’s rapid lead product
development and underlying pipeline.
Mesoblast will retain its 38.4% equity in Angioblast until
Angioblast’s next financing event, defined as an Initial
Public Offering, a Merger and Acquisition, or a private
equity round of at least $10 million. At that time, Mesoblast
may seek to maintain or increase its shareholding.
We will continue to work closely with the management and
Board of Directors of Angioblast to protect and enhance
our significant investment in this company.
Congestive Heart Failure
Angioblast is making strong progress with its proprietary
allogeneic, or “off-the-shelf”, adult stem cell product
Revascor™, aimed at redefining the treatment paradigm
for patients with chronic heart failure.
This condition affects an estimated 5 million people in the
United States alone, with 550,000 new cases each year.
Progresive loss of heart muscle function in these patients
is the number one cause of recurrent hospitalisations in
the Western world, and a major cause of mortality.
In May 2009, Angioblast announced positive three-month
interim efficacy results from the first 20 patients enrolled in
its Phase 2 trial for patients suffering from moderate to
severe congestive heart failure (New York Heart
Association Class II and III).
Heart function was significantly greater at three months in
patients receiving Revascor™ compared with randomised
controls receiving placebo, with the greatest improvement
seen in patients with the most severe heart failure.
Importantly, these patients received the lowest dose of
10
Angioblast’s cells that are being trialled, and results from
40 additional patients set to receive two higher doses
remain to be reported. In preclinical trials, the higher doses
were found to be more effective than the lowest dose.
These initial results now form the basis for a Phase 2
clinical trial testing the effectiveness of Revascor™ in class
IV heart failure patients with the worst decline in heart
muscle function. A clinical trial in this population has
commenced and will be fully funded by the US National
Institutes of Health (NIH).
Heart Attacks
Angioblast’s technology is also being trialled in patients
with heart attacks to prevent the onset of congestive heart
failure. The advantage of Angioblast’s “off-the-shelf”
therapy is that it can be delivered to patients immediately
after a heart attack by injection into the coronary arteries
in conjunction with the standard of care angioplasty and
stent procedures.
An alternative way to deliver the cells is by direct injection
into damaged heart muscle using novel catheter
techologies within a short timeframe after the heart attack.
The initial results obtained to date indicate that Revascor™
is safe in the acute heart attack setting.
Bone Marrow Transplantation
A groundbreaking Phase I/II trial in up to 30 patients is
being conducted by Angioblast at the University of Texas
M. D. Anderson Cancer Center, Department of Stem Cell
Transplantation and Cellular Therapy on patients
undergoing bone marrow transplants. The trial is being
funded through a grant awarded by the US National
Institutes of Health (NIH). Angioblast’s proprietary
allogeneic adult stem cells are being used to expand
haematopoietic stem and progenitor cells from cord
blood, for use in repair/regeneration of bone marrow of
cancer patients after high-dose chemotherapy.
Successful bone marrow reconstitution and engraftment
was achieved in the first five patients with haematologic
malignancies who received the cord blood expanded by
Angioblast’s cells. There have been no cell-related
adverse events. Significantly, the median time to
engraftment was 15 days, approximately two weeks faster
than expected without MPC expansion.
By significantly reducing the time to engraftment and
increasing the overall success rate of an allogeneic bone
marrow transplant, this technology has the potential to
lower the risk of infections, bleeding, and death in critically
ill patients with haematologic malignancies.
Angioblast’s product used in this trial is being developed
under a US FDA Orphan Drug Designation for an important
disease of unmet need. This means that if the results
continue to be positive, the company will have an
accelerated clinical timetable through Phase 3 trials and
early product commercialization.
Intellectual Property
Mesoblast continues to exploit and expand its patent and
intellectual property portfolio. Key patents have been
granted in the United States, the world’s largest market for
commercialisation of our products. The expanding patent
portfolio will continue to deliver major commercial
advantages, ensuring exclusive commercialisation of our
stem cell platform globally.
Funding
In April this year, Mesoblast Limited successfully
completed a capital raising of $10.8 million from Australian
institutional and sophisticated investors. The capital is
being used for ongoing clinical trial activities, expansion
of preclinical opportunities, and general administrative
operations. At 30 June 2009, Mesoblast had cash
reserves of $16.5 million.
Financial Summary
Operating results
The net loss for the year was $12,285,459 (2008:
$10,062,379) and is in line with expectations. The result
reflects full year operations for the Company and the
continued development of our platform technology.
Income
Revenue earned during the year was $890,708
(2008: $909,807) and is made up of:
30 June
2009
$
30 June
2008
$
Revenue from continuing operations
Commercial Ready
government grant
186,295
-
Interest revenue
704,413
909,807
890,708
909,807
Expenditure
In line with the Company’s policy and to comply with
accounting standards, all costs associated with research
and development are fully expensed in the period in which
they are incurred as the directors do not consider the
Company can yet demonstrate all the factors required in
order to capitalise development expenditure.
Total operating expenses for the year were $13,176,167
(2008: $10,972,186) and consist of:
30 June
2009
$
30 June
2008
$
Research and development
7,145,623
6,207,372
During the year under review the Company issued a
further 15,018,069 shares at $0.72 (2008: 10,500,000
shares at $1.28) to sophisticated investors, providing
approximately $10.3m (net of costs) in cash which the
company intends to use to fund and support phase 2
clinical trials for lumbar interbody fusion and lumbar
intervertebral disc repair.
Balance sheet
At 30 June 2009 the Company’s cash position was
$16,526,278 (2008: $14,094,219). On 19 August 2009
Mesoblast announced its associate, Angioblast Systems,
Inc., had successfully raised AU$10m. This will ensure the
platform technology can be significantly advanced with
these levels of cash holdings between the two entities.
The Company’s policy is to hold its cash and cash
equivalent deposits in “A” rated or better deposits.
The Company’s strategy is to outsource manufacturing,
continuing research, and clinical trials to specialist, best
of breed partner organisations. As a consequence the
Company has not incurred any major capital expenditure
for the period and does not intend to incur substantial
commitments for capital expenditure in the
immediate future.
Mesoblast has now completed its investment in
Angioblast under the Series B agreement and as a result
owns 38.4% of Angioblast as at 30 June 2009. This
investment is made up of the following:
30 June
2009
$
30 June
2008
$
Investment in Angioblast Systems, Inc.
Cash invested
(AUD denominated)
Mesoblast share of
Angioblast net losses after
tax (USD denominated,
converted at applicable FX
rates throughout the year)
18,282,792 18,082,792
(8,956,364)
(5,321,545)
Net Book Value
9,326,468
12,761,247
Earnings per share
Management and
administration
Share of losses of equity
accounted associates
3,174,079
2,642,016
Basic losses per share
Diluted losses per share
2,856,465
2,122,798
13,176,167
10,972,186
2009
Cents
9.89
9.89
2008
Cents
8.81
8.81
Cash flow statement
Net cash outflow from operations increased to $9,237,576
in 2009 (2008: $6,202,589) largely due to the following
reasons:
• Fall in USD FX rate has impacted US based clinical
trial costs and employee costs;
• Preclinical cashflow was approximately $1.1m
higher in 2009 as trials were completed and final
payments made;
Dividends
No dividends were paid or declared during the course
of the financial year and no dividends are recommended
in respect to the financial year ended 30 June 2009
(2008: nil).
11
Investment In Angioblast Systems, Inc.
Mesoblast has now completed its investment in
Angioblast under the Series B agreement and as a
result now owns 38.4% of Angioblast (refer above).
Angioblast Systems, Inc. is a non-listed biotechnology
company based in New York. The company was
incorporated on 27 April 2001 in Delaware, United
States of America.
Angioblast’s principal focus is to commercialise
cardiovascular and other non-orthopaedic applications
of our adult stem cell technology which was acquired
from the Hanson Institute/Institute of Medical and
Veterinary Science in South Australia.
Share Options
Magnetic Bead Binding of MPC
Shares under option
Unissued ordinary shares of Mesoblast Limited under option at the date of this directors’ report are as follows:
Option
Series Issued
1
1
4(a)
4(b)
4(b)
5
6(d)
6(d)
7
8
9
Issue Date
29 September 2004
29 September 2004
23 February 2006
23 February 2006
23 February 2006
23 November 2006
1 January 2007
1 January 2007
27 July 2007
7 July 2008
19 January 2009
Number of shares
under option
Exercise price
of options
Expiry date
of options
1,960,000
1,960,000
66,000
200,000
350,000
150,000
15,000
15,000
2,330,000
2,586,000
240,000
9,872,000
$0.55
$0.55
$0.65
$1.20
$1.20
$0.65
$1.96
$1.96
$2.13
$1.00
$0.96
29 September 2009
16 December 2009
1 May 2010
30 June 2010
30 June 2011
23 November 2009
1 January 2010
1 January 2011
30 June 2012
30 June 2013
18 January 2014
No option holder has any right under the options to participate in any other share issue of the Company. Further details
of the options series can be found in Note 18 to the financial statements.
Shares issued on exercise of options
Detail of shares or interests issued as a result of the exercise of options during or since the end of the financial year are:
Option Series
Grant Date
Number of
shares issued
Amount paid
per share
Amount unpaid
per share
29 September 2004
16 December 2004
16 December 2004
16 December 2004
25 August 2005
23 February 2006
23 February 2006
23 February 2006
200,000
550,000
150,000
80,000
700,000
34,000
166,667
20,000
1,900,667
$0.55
$0.60
$0.60
$0.60
$0.65
$0.65
$0.65
$0.65
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
1
2(a)
2(b)
2(c)
3
4(a)
4(b)
4(c)
12
Significant Changes in the State of Affairs
Indemnification of Officers
During the financial year, the Company paid premiums in
respect of a contract insuring the directors and company
secretary of the Company, and all executive officers of the
Company. The liabilities insured are to the extent permitted
by the Corporations Act 2001. Further disclosure required
under section 300(9) of the Corporations Act 2001 is
prohibited under the terms of the insurance contract.
Proceedings on Behalf of the Company
The Corporations Act 2001 allows specified persons to
bring, or intervene in, proceedings on behalf of the
Company. No proceedings have been brought or
intervened in on behalf of the company with leave of the
Court under section 237 of the Corporation Act 2001.
Non-Audit Services
The Company may decide to employ the auditor on
assignments additional to their statutory audit duties
where the auditor’s expertise and experience are relevant
and considered to be important.
The board of directors has considered the position and is
satisfied that the provision of the non-audit services is
compatible with the general standard of independence
for auditors imposed by the Corporations Act 2001. The
directors are satisfied that the provision of the non-audit
services as set out below, did not compromise the auditor
independence requirements of the Corporations Act 2001
because the services are not deemed to undermine the
general principles relating to auditor independence as set
out in APES 110 Code of Ethics for Professional
Accountants.
During the year the following fees were paid or payable for
non-audit services provided by the auditor of the parent
entity, its related practices and non-related audit firms:
30 June
2009
$
30 June
2008
$
Taxation services
Corporate tax compliance
10,000
Employment tax and
withholding advice
Total taxation services
2,000
12,000
-
-
-
Auditor’s Independence Declaration
A copy of the auditor’s declaration under Section 307C
in relation to the audit for the year ended 30 June 2009 is
included on page 25 of the annual report.
No significant changes occurred in the state of affairs of
the Company during the financial year other than those
disclosed in the review of operations.
Matters Subsequent to the End of the
Financial Year
On 25 August 2009 Mesoblast announced that Angioblast
Systems, Inc., (a US based associate of Mesoblast), had
successfully raised $10m from new and existing institutional
and sophisticated investors. Mesoblast will retain its 38.4%
equity in Angioblast until Angioblast’s next financing event,
defined as an Initial Public Offering, a Merger and
Acquisition, or a private equity round of at least $10 million.
At that time, Mesoblast may seek to maintain or increase
its shareholding.
No other matters or circumstances have arisen since
30 June 2009, other than those described above, up to
the date of this report that the directors believe have
significantly affected or may significantly affect:
• the Company’s operations in future financial years; or
• the results of those operations in future financial
years; or
• the Company’s state of affairs in future financial years.
Business Strategy Prospects for Future Years
Mesoblast is committed to the rapid commercialisation
of its adult stem cell platform technology. Our ongoing
strategy is to maximise shareholder wealth through rapid
completion of existing clinical trial programs and to
significantly extend our market opportunities by initiating
new programs that build logically on extensive work that
has been completed. Mesoblast will continue to actively
engage commercial partner organisations as a key part
of our ongoing strategy.
At the date of this report, Mesoblast’s business strategy
is to:
• focus on patient enrollment and trial completion
associated with our phase II clinical trial programs for
lumbar and cervical spinal fusion (US and Aus) and
knee osteoarthritis (Aus);
• consider the filing of a new indication with the
United States Food and Drug Administration for the
commencement of clinical trials associated with
intervertebral disc repair.
Mesoblast has a strong and ongoing relationship with
its associate company Angioblast Systems, Inc. in the
United States. We will continue to work closely with the
management and board of directors of Angioblast to
protect and enhance our significant investment in
that company.
Environmental Regulations
Mesoblasts operations are not subject to any significant
environmental regulation under either Commonwealth or
State legislation. The Board, however, considers that
adequate systems are in place to manage the Company’s
obligations and is not aware of any breach of environmental
requirements as they relate to the Company.
13
Information on Directors
Brian Jamieson, Non-executive Chairman – FCA
Shares held:
Options held:
235,000
-
Mr Jamieson has over 30 years experience in providing
advice and audit services to a diverse range of public and
large private companies. He was chief executive of Minter
Ellison, Melbourne, from 2002-2005. Prior to that he was
chief executive officer of KPMG Australia from 1998-2000,
managing partner of KPMG Melbourne and Southern
Regions from 1993-1998, and chairman of KPMG
Melbourne from 2001-2002. He was also a KPMG board
member in Australia and a member of the USA
management committee.
Mr Jamieson is currently a non-executive director of Tatts
Group Limited (since May 2005), Sigma Pharmaceuticals
Limited (since December 2005) and Oz Minerals Limited
(since August 2004), all ASX listed companies. He is also
a non-executive director of the Bank of Western Australia
Ltd, a subsidiary of Commonwealth Bank of Australia Ltd,
a director and treasurer of the Bionic Ear Institute, and
a director of The Sir Robert Menzies Foundation. He is also
Chairman of the George Adams Tattersalls Foundation.
Silviu Itescu, Executive Director – MBBS (Hons),
FRACP, FACP, FACR
Shares held:
Options held:
37,125,000
-
A medically trained physician scientist, Professor Itescu
has established an outstanding international reputation
in the fields of stem cell biology, autoimmune diseases,
organ transplantation, and heart failure. He has been a
faculty member of Columbia University in New York and
of the University of Melbourne. His pioneering work in the
use of adult stem cells for heart disease has laid the
groundwork for a potential paradigm shift in the treatment
of cardiovascular disorders. Professor Itescu has
consulted for various international pharmaceutical
companies, has been an adviser to biotechnology and
health care investor groups, and has served on the
Board of Directors of several publicly-listed Australian life
sciences companies. In addition, he is the founder and
a member of the Board of Directors of Angioblast
Systems Inc.
Donal O’Dwyer, Non-executive Director – BE, MBA
Shares held:
150,000
Options held: 150,000
Mr O’Dwyer has over 20 years experience as a senior
executive in the global cardiovascular and medical devices
industries. From 1996 to 2003, Mr O’Dwyer worked for
Cordis Cardiology, the cardiology division of Johnson
& Johnson’s Cordis Corporation, initially as its president
(Europe) and from 2000 as its worldwide president. Cordis
is the world’s largest manufacturer of innovative products
for interventional medicine, minimally invasive computer-
based imaging, and electrophysiology. In his role, Mr
O’Dwyer led Cordis through the launch of the revolutionary
Cypher drug eluting coronary stent technology, and saw
the company take over number one market share of
coronary stents worldwide. He directly supervised an
increase in sales from $US500 million in 2000 to
$US2 billion in 2003. Prior to joining Cordis, Mr O’Dwyer
worked for 12 years with Baxter Healthcare, rising from
plant manager in Ireland to president of the Cardiovascular
Group, Europe , now Edwards Lifesciences. Mr O’Dwyer is
a qualified civil engineer, has an MBA and is on the board
of a number of companies including Cochlear Limited,
Atcor Medical Holdings Ltd and Sunshine Heart Inc.
Mr O’Dwyer is currently Mesoblast’s representative on the
Board of Directors for Angioblast Systems, Inc.
14
Byron McAllister, Non-executive Director – BS M.Agr
Shares held:
Options held:
41,315
-
Mr McAllister has extensive expertise in product
development, production, quality control and assurance,
and obtaining U.S. FDA and other county product
regulatory approvals within the healthcare industry.
Mr McAllister has been an independent management
consultant to industry for the past 25 years, providing
interim management solutions and management advice
in product, registration, and licensing matters. Most
recently, Mr McAllister served as Vice President,
Worldwide Quality Assurance, for the Ares-Serono Group
(now Merck Serono) based in Geneva and Boston,
overseeing operations in over a dozen countries.
Mr McAllister has held senior management positions in
manufacturing and quality assurance with Abbott
Laboratories’ Ross Laboratories and Diagnostics
Divisions, Amersham Corporation, and Coulter
Electronics Corporation. He is a member of the PDA
(Parenteral Drug Association), American Society for
Quality (ASQ), and the Regulatory Affairs Professionals
Society (RAPS).
Michael Spooner, Non-executive Director –
Bcom, ACA, MAICD
Shares held:
Options held:
1,100,000
-
Mr Spooner is a well known and respected business
leader. He has an extensive network of relationships with
investment firms and business communities across the
globe, having spent the majority of the past 25 years living
and working internationally. Mr Spooner is a non-
executive director of Peplin Inc, a dermatology focused
skin cancer company. He is also a non-executive director
of Hawaii Biotech Inc a specialty developer of vaccines.
Most recently, Mr Spooner was Executive Chairman of
Hunter Immunology Limited a respiratory medicine
company. Previously, Mr Spooner was the Chairman
of Mesoblast Limited and Managing Director & CEO of
Ventracor Limited where he led the transformation of a
small Australian listed life sciences company into the
second highest performing stock on the S&P/ASX 200
index. He was a Principal Partner and Director of
Consulting Services with PricewaterhouseCoopers
(Coopers & Lybrand) in Hong Kong for several years.
Kevin Hollingsworth, Company Secretary – FCPA, FCMA
Shares held:
Options held: 200,000
-
Mr Hollingsworth is a Fellow of CPA Australia, and a past
chairman of both the National and Victorian Industry and
Commerce Accountants Committees. He is also a Fellow
of the Chartered Management Accountants and a Past
National President of CIMA Australia. Mr Hollingsworth
has most recently been non-executive director and
company secretary for Alpha Technologies Corporation
Ltd, a global company with operations in the US, Mexico,
Europe and China, designing and manufacturing
temperature sensors for disposable medical devices, as
well as precision thermometry and instrumentation for the
biotechnical and life science industry.
15
Meetings of Directors
The number of meetings of the Company’s directors (including committee meetings of directors) held during the year
ended 30 June 2009 and the numbers of meetings attended by each director were:
Director
Brian Jamieson
Silviu Itescu
Byron McAllistair
Donal O’Dwyer
Michael Spooner
Board of directors
Audit & Risk
committee
Nomination &
remuneration
committee
Held
Attended
Held
Attended
Held
Attended
10
10
10
10
10
10
10
9
10
10
2
2
2
2
2
2
2
2
2
2
1
1
1
1
1
1
1
1
1
1
Positive Selection of MPC
16
Remuneration Report
The directors of the Company present the following
remuneration report, which forms part of the directors’
report and has been prepared in accordance with s300A
of the Corporations Act 2001. The remuneration report
has been audited as required by s308(3C) of the
Corporations Act 2001.
The remuneration report is set out under the following
main headings:
A. Remuneration principles and policies
B. Remuneration of key management personnel
C. Service agreements
D. Share-based compensation
A. Remuneration Principles and Policies
Board policy for determining remuneration
The Company’s goal is to engage and promote
excellence at Board level, in staff members and in partner
organisations. The Company looks to engage the
services of individuals and organisations with the
experience necessary to assist the Company in meeting
its strategic objectives.
The Board ensures that executive reward complies with
good reward governance practices:
• Competitiveness and reasonableness
• Acceptability to shareholders
• Performance linkage
• Transparency
• Capital management
The Company has structured an executive remuneration
framework that is market competitive and complimentary
to the reward strategy of the organisation.
The Company’s remuneration framework is aligned to
shareholders interests and in particular aligned to the
rapid commercialisation of the Company’s intellectual
property and in achieving its milestones in a highly ethical
and professional manner.
The executive remuneration framework provides a mix of
fixed and variable pay and performance incentive rewards.
The Board has established a remuneration committee
which provides advice on remuneration and incentive
policies and practices and specific recommendations on
remuneration packages and other terms of employment
for executive directors, non-executive directors and
executives of the Company.
Remuneration structure
(a) Non-executive directors fees
The current base fees were reviewed and approved
effective 1 July 2008;
Position
Chair
Non-executive directors
Company Secretary
Base Salary
$120,000
$60,000
$40,000
Components of the above remuneration package include
a cash element together with unquoted medium term
options in some cases.
(b) Executive pay
The executive pay and reward framework has three
components, which in combination comprises the
executives’ total remuneration:
• Base pay and benefits (i)
• Short term performance incentives (ii)
• Long term performance incentives (iii)
(i) Base pay and benefits
A total employment cost package may include a
combination of cash and prescribed non-financial
benefits at the executives’ discretion.
Executives are offered a competitive base pay that
comprises the fixed component of pay and rewards.
The base pay for executives is reviewed annually to
ensure the executives pay is competitive with the market.
An executive’s pay is also reviewed on promotion.
There is no guaranteed base pay increases included in
any executive contracts.
(ii) Short term performance incentives
Bonuses are payable to executives based upon the
attainment of agreed corporate and individual
milestones, which are reviewed annually and approved
by the Board of Directors.
(iii) Long term performance incentives
Performance conditions were previously attached to
options granted to key management personnel and
directors in previous financial years. There have not
been any long term performance incentives attached to
options granted in the current or previous financial
years, nor does any remuneration reported in this report
include remuneration as a result of long term
performance incentives being achieved.
17
Positive Selection of MPC
Relationship between remuneration policy and company performance
Closing share price
Price increase/(decrease) $
Price increase/(decrease) %
Total key management personnel
remuneration
Remuneration increase/
(decrease) %
30 June
2005
30 June
2006
30 June
2007
30 June
2008
30 June
2009
$0.43
$(0.07)
(14%)
$1.52
$1.09
255%
$2.02
$0.50
33%
$0.91
$(1.11)
(55%)
$0.83
$(0.08)
(8.8%)
503,703
1,368,039
1,189,907
1,802,804
1,971,389
172%
(13%)
52%
10%
The Company’s remuneration policies seek to reward staff members for their contribution to achieving significant clinical
and regulatory milestones. These milestones build sustainable and long term shareholder value. The increase in
remuneration from IPO (16 December 2004: share price $0.50) to 30 June 2009 reflects the expansion of the clinical
program of the Company.
The directors note the stock market fell significantly between 2007 and 2008 as a result of the global financial crisis. The
Company’s share price also fell significantly during this time despite the company continuing its clinical progress, hence
there is no corresponding fall in remuneration levels. The Company raised a further $10.8m (at $0.72) in this difficult
market, and is pleased to note that the share price has risen since 30 June 2009, closing at $1.17 on 14 August 2009.
Magnetic Column Isolation of MPCs
18
B.Remuneration of Key Management Personnel
Details of the remuneration of key management personnel are set out in this section of the remuneration report. Key
management personnel includes all directors (as disclosed on page 8), and certain executives of the company, who all
belong to the Senior Executive Management Group and they have authority and responsibility for planning, directing
and controlling the activities of the Company together with the Board of Directors.
In addition to the directors of the Company, key management personnel, as described above, also includes the
following people and positions held during the reporting periods:
Name
Kevin Hollingsworth
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
Jim Ryaby
(A) Appointed to this position
(R) Resigned from this position
Position
Chief Financial Officer
Company Secretary
Vice President of Regulatory Affairs
Vice President of Operations
Chief Financial Officer
Special Projects Consultant
Chief Operating Officer
Vice President of Research and Clinical Affairs
Effective date
21 November 07 (R)
Full Year
19 January 2009 (A)
18 March 08 (A)
21 November 07 (A)
12 May 08 (A)
11 May 08 (R)
3 March 08 (A)
Magnetic Bead Binding of MPC
MPC Culture Expansion
19
Details of the remuneration of each director of Mesoblast Limited and the other key management personnel
(including the five highest paid executives) of the Company are set out below:
Short term
employee benefits
Post-employment
benefits
Sharebased
payments
Other
Salary & fees
$
Cash Bonus
(i)
$
Non-monetary
benefits
$
Superannuation
$
Options
& rights
$
Termination
benefits
$
Performance
Remuneration
based
consisting of
remuneration
Total
$
options
%
(ii)
%
Name
Directors
2009
Executive directors
Silviu Itescu
Non-executive directors
Brian Jamieson
Byron McAllister
Donal O’Dwyer
Michael Spooner
2008
Executive directors
Silviu Itescu
Michael Spooner*
Non-executive directors
Brian Jamieson**
Byron McAllister
Donal O’Dwyer
Michael Spooner*
275,229
110,092
60,000
55,046
55,046
555,413
174,312
63,008
66,935
40,000
36,697
41,958
422,910
Other Key Management Personnel***
2009
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
Kevin Hollingsworth
2008
Suzanne Lipe
Jenni Pilcher
Paul Rennie****
James Ryaby
Donna Skerrett
Kevin Hollingsworth
Total 2009
Total 2008
20
140,336
190,000
150,000
160,000
211,339
40,000
891,675
47,256
130,000
122,552
56,520
65,472
112,600
534,400
1,447,088
957,310
-
-
-
-
-
-
-
137,615
-
-
-
-
137,615
-
-
-
29,583
-
-
29,583
-
21,918
76,697
-
20,252
-
118,867
29,583
256,482
-
-
-
-
-
-
-
-
-
-
-
-
-
19,417
-
-
-
22,271
-
41,688
-
-
-
-
-
-
-
41,688
-
14,231
9,908
-
4,954
4,954
34,047
15,688
14,990
6,024
-
3,303
3,777
43,782
-
17,100
13,500
4,750
-
-
35,350
4,253
13,682
27,912
-
-
-
45,847
69,397
89,629
-
-
-
-
-
-
-
-
-
-
-
5,983
5,983
33,571
33,571
29,333
52,360
90,337
94,882
69,813
40,925
377,650
60,335
168,032
125,152
90,330
443,849
383,633
477,420
289,460
120,000
60,000
65,983
60,000
595,443
190,000
215,613
72,959
40,000
73,571
45,735
637,878
189,086
259,460
253,837
289,215
303,423
80,925
1,375,946
51,509
225,935
417,156
56,520
210,876
202,930
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,963
21,963
1,164,926
1,971,389
21,963
1,802,804
5.3%
21.6%
-
-
-
-
-
-
-
-
-
-
-
9%
1%
45.6%
15.5%
20.2%
35.6%
32.8%
23.0%
50.6%
27.4%
26.7%
40.3%
59.3%
44.5%
38.1%
19.7%
26.5%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
63.8%
9.7%
18.4%
9.6%
10.2%
1.5%
14.2%
Details of the remuneration of each director of Mesoblast Limited and the other key management personnel
(including the five highest paid executives) of the Company are set out below:
Short term
employee benefits
Post-employment
benefits
Sharebased
payments
Other
Cash Bonus
Non-monetary
Salary & fees
$
(i)
$
benefits
Superannuation
$
$
Options
& rights
$
Termination
benefits
$
Remuneration
consisting of
options
%
Total
$
Performance
based
remuneration
(ii)
%
-
-
-
5,983
-
5,983
-
-
-
-
33,571
-
33,571
29,333
52,360
90,337
94,882
69,813
40,925
377,650
-
60,335
168,032
-
125,152
90,330
443,849
383,633
477,420
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
21,963
-
-
-
289,460
120,000
60,000
65,983
60,000
595,443
190,000
215,613
72,959
40,000
73,571
45,735
637,878
189,086
259,460
253,837
289,215
303,423
80,925
1,375,946
51,509
225,935
417,156
56,520
210,876
202,930
21,963
1,164,926
-
1,971,389
21,963
1,802,804
-
-
-
9%
-
1%
-
-
-
-
45.6%
-
5.3%
15.5%
20.2%
35.6%
32.8%
23.0%
50.6%
27.4%
-
26.7%
40.3%
-
59.3%
44.5%
38.1%
19.7%
26.5%
-
-
-
-
-
-
-
63.8%
-
-
-
-
21.6%
-
-
-
-
-
-
-
-
*
**
Michael Spooner was an
executive up until 8 August
2007, after that date became
a non-executive director.
Brian Jamieson was
appointed Chairman on
22 November 2007.
***
Refer to the table on page 19
for periods that remuneration
has been disclosed.
**** Termination benefits included
annual leave entitlements for
Paul Rennie upon the expiry of
his employment contract. His
new contract is as a consultant
with no leave entitlements.
9.7%
18.4%
-
9.6%
-
10.2%
1.5%
14.2%
(i)
All bonuses reported in the
above table are 100% of the
bonus entitlement for each
relevant executive. Bonuses
forfeited during the year as
a result of performance
targets not being met were
nil (2008: nil).
(ii)
Performance-based
remuneration includes all
bonuses paid.
21
Name
Directors
2009
Executive directors
Silviu Itescu
Non-executive directors
Brian Jamieson
Byron McAllister
Donal O’Dwyer
Michael Spooner
2008
Executive directors
Silviu Itescu
Michael Spooner*
Non-executive directors
Brian Jamieson**
Byron McAllister
Donal O’Dwyer
Michael Spooner*
2009
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
Kevin Hollingsworth
2008
Suzanne Lipe
Jenni Pilcher
Paul Rennie****
James Ryaby
Donna Skerrett
Kevin Hollingsworth
275,229
110,092
60,000
55,046
55,046
555,413
174,312
63,008
66,935
40,000
36,697
41,958
422,910
140,336
190,000
150,000
160,000
211,339
40,000
891,675
47,256
130,000
122,552
56,520
65,472
112,600
534,400
Other Key Management Personnel***
Total 2009
Total 2008
1,447,088
957,310
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
137,615
137,615
29,583
21,918
76,697
20,252
118,867
29,583
256,482
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,417
22,271
41,688
14,231
9,908
-
4,954
4,954
34,047
15,688
14,990
6,024
3,303
3,777
43,782
17,100
13,500
4,750
35,350
4,253
13,682
27,912
-
-
-
-
-
-
-
45,847
69,397
89,629
29,583
41,688
C. Service Agreements
The non-executive directors and the company secretary
are engaged through a letter of appointment. Non-
executive directors are appointed by shareholders on the
basis that one third of all non-executive directors retire
annually and are eligible for re-election at the Company’s
Annual General Meeting.
Remuneration and other terms of employment for the
Executive Director and other key management personnel
are formalised in service agreements. These agreements
may provide for the provision of performance related cash
bonuses and the award of options. Provisions of the
agreements relating to remuneration are set out below:
Suzanne Lipe, Vice President of Operations
• Term of agreement: commencing 18 March 2008;
• Salary: $190,000 per annum;
• Superannuation: 9% of $190,000 per annum;
• Termination: One month;
• Bonus: eligible to participate in the Company’s
bonus scheme.
Jenni Pilcher, Chief Financial Officer
• Term of agreement: commencing 22 November 2007;
• Salary: $150,000 per annum;
• Superannuation: 9% of $150,000 per annum;
• Termination: One month;
Silviu Itescu, Executive Director
• Term of agreement: commencing 1 March 2008;
• Bonus: eligible to participate in the Company’s
bonus scheme.
• Salary: $250,000 per annum
• Superannuation: $13,745 per annum;
• Termination: no terms have been agreed;
• Bonus: eligible to participate in the Company’s
bonus scheme.
Roger Brown, Vice President of Regulatory Affairs
• Term of agreement: commencing 19 January 2009;
• Salary: US$220,000 per annum;
• Other benefits: Dental and health fully covered;
• Termination: Three months;
• Bonus: eligible to participate in the Company’s
bonus scheme.
Paul Rennie, Special Projects Consultant
• Term of agreement: commencing 12 May 2008;
• Consulting fees: $1,000 per day, three days per week;
• Termination: 30 days
• Bonus: eligible to participate in the company’s
bonus scheme.
Jim Ryaby, Vice President of Research and Clinical Affairs
• Term of agreement: commencing 3 March 2008;
• Salary: US$156,000 per annum, 3 days per week;
• Other benefits: Dental and health fully covered;
• Termination: Without notice;
• Bonus: eligible to participate in the Company’s
bonus scheme.
MPC Freezing of Product Doses
22
D. Share-Based Compensation
Options to purchase fully paid shares of the Company were granted as remuneration during the year
as follows:
Grant
Date
Granted
No.
Vesting
date*
Expiry
Date
Exercise
price $
Fair value $
2009
Roger Brown
19/01/2009
240,000
01/07/2009
18/01/2014
Suzanne Lipe
07/07/2008
180,000
01/07/2009
30/06/2013
Jenni Pilcher
07/07/2008
240,000
01/07/2009
30/06/2013
Paul Rennie
Jim Ryaby
2008
07/07/2008
150,000
01/07/2009
30/06/2013
07/07/2008
240,000
01/07/2009
30/06/2013
Kevin Hollingsworth
27/07/2007
200,000
01/07/2008
30/06/2012
Jenni Pilcher
Paul Rennie
27/07/2007
100,000
01/07/2008
30/06/2012
27/07/2007
250,000
01/07/2008
30/06/2012
Donna Skerrett
27/07/2007
200,000
01/07/2008
30/06/2012
0.96
1.00
1.00
1.00
1.00
2.13
2.13
2.13
2.13
0.40
0.48
0.48
0.48
0.48
0.74
0.74
0.74
0.74
* Each grant of options is divided into three equal tranches. Tranche A has a vesting date which is shown in the above table. Tranches
B and C have vesting dates one and two years respectively after Tranche A. All tranches have the same expiry date, exercise price
and fair value which are as shown in the above table.
All share options issued to key management personnel were made in accordance with the provisions of the executive
share option plan. All options issued were issued for no consideration, therefore there are no amounts unpaid with
respect to these options. There are no performance criteria attached to any of the options granted during the year
(2008: nil).
Modifications to terms and conditions of options granted
There has been no modification to any terms and conditions of options during the current and previous financial years.
Options held by key management personnel that vested and were exercised during the year:
Options exercised during the current year
Exercise Price
Exercise Date
Exercise #
Number of options
vested during the year
Donal O’Dwyer
Byron McAllister
Michael Spooner
Kevin Hollingsworth
Paul Rennie
Jenni Pilcher
Donna Skerrett*
* comparative purposes only
$0.60
$0.60
$0.55
$0.60
16/12/2008
16/12/2008
03/09/2008
03/09/2008
150,000
150,000
400,000
700,000
-
-
-
-
2009
50,000
-
-
67,000
163,000
33,000
-
1,400,000
313,000
2008
50,000
-
-
-
-
60,000
100,000
210,000
23
Value of options issued to directors and key management personnel
The following table summarises the value of options granted, exercised and lapsed during the annual reporting period
to the identified directors and executives. All values have been determined using the Black-Scholes model and in
accordance with Australian accounting standards:
Value of options
granted at
grant date (i)
$
Value of options
exercised at the
exercise date (ii)
$
Value of options
lapsed at the
date of lapse (iii)
$
Donal O’Dwyer
Byron McAllister
Michael Spooner
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
Jim Ryaby
-
-
-
96,000
86,400
115,200
72,000
115,200
30,000
30,000
658,000
-
-
-
13,600
-
-
-
-
-
-
-
-
-
(i) The value of options granted during the period is recognised as compensation over the vesting period of the grant,
in accordance with Australian accounting standards.
(ii) The value of options exercised as at exercise date with reference to market share price
(iii) The value of options lapsed because performance milestones were not met, valued on date of lapse with reference
to market share price.
Value of options yet to vest after the end of the current financial year
Vested
during
the year
%
Forfeited
during
the year
%
Subsequent
financial years
in which
options vest
Minimum
total value of
grant yet
to vest
$
Maximum
total value of
grant not yet
expensed
$
17
34
-
-
8
15
-
-
-
-
-
-
-
-
-
2010-11
2011-13
2011-12
2010-12
2010-12
2010-12
-
16,223
66,667
33,320
52,784
48,414
44,427
-
16,223
66,667
33,320
52,784
48,414
44,427
Donal O’Dwyer
Kevin Hollingsworth
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
Jim Ryaby
This report is made in accordance with a resolution of the directors.
Mr Brian Jamieson
Chairman
26 August 2009, Melbourne
24
PricewaterhouseCoopers
PricewaterhouseCoopers
ABN 52 780 433 757
ABN 52 780 433 757
Freshwater Place
Freshwater Place
2 Southbank Boulevard
2 Southbank Boulevard
SOUTHBANK VIC 3006
SOUTHBANK VIC 3006
GPO Box 1331L
GPO Box 1331L
MELBOURNE VIC 3001
MELBOURNE VIC 3001
DX 77
DX 77
Telephone 61 38603 1000
Telephone 61 38603 1000
Facsimile 61 3 8603 1999
Facsimile 61 3 8603 1999
Website:www.pwc.com/au
Website:www.pwc.com/au
Auditor’s Independence Declaration
Auditor’s Independence Declaration
Auditor’s Independence Declaration
As lead auditor for the audit of Mesoblast Limited for the year ended 30 June 2009, I declare that to the best of
my knowledge and belief, there have been:
As lead auditor for the audit of Mesoblast Limited for the year ended 30 June 2008, Idec lare that to
As lead auditor for the audit of Mesoblast Limited for the year ended 30 June 2008, Idec lare that to
a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the
the best of my knowledge and belief, there have been:
the best of my knowledge and belief, there have been:
audit; and
a)
a)
b) no contraventions of any applicable code of professional conduct in relation to the audit.
no contraventions of the auditor independence requirements of the Corporations Act 2001
no contraventions of the auditor independence requirements of the Corporations Act 2001
in relation to the audit; and
in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Mesoblast Limited during the period.
b)
b)
This declaration is in respect of Mesoblast Limited during the period.
This declaration is in respect of Mesoblast Limited during the period.
Anton Linschoten
Partner
PricewaterhouseCoopers
Anton Linschoten
Anton Linschoten
Partner
Partner
PricewaterhouseCoopers
PricewaterhouseCoopers
Melbourne
26 August 2009
Melbourne
Melbourne
28 August 2008
28 August 2008
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
25
Corporate Governance
• ratifying and approving the appointment and removal
of senior executives;
• approving and reviewing financial plans, financial results
and annual budgets;
• determining that satisfactory arrangements are in place
for auditing the Company’s financial affairs;
• reviewing and approving key management
recommendations (such as major capital expenditure,
acquisitions, divestments, restructuring and funding);
and
• ensuring appropriate resources are available to
senior management.
The Board delegates day-to-day management of the
Company’s operations and the implementation of the
corporate strategy and policy initiatives are delegated
to the Executive Director and senior executives.
A performance assessment for the Executive Director
was completed in August 2009. Performance
assessments for other members for Senior Management
are yet to have been completed, however the Board
has made a commitment to management these will be
undertaken in the near future. The process for these
assessments is currently being finalised and will be made
available on the Company’s website.
Principle 2. Structure the Board to add value
The Board operates in accordance with the broad
principles set out in its charter which is available from the
corporate governance information section of the Company
website at www.mesoblast.com. The charter sets out the
Board’s composition and responsibilities.
2.1 Independence of Directors
Board composition
During the 2009 year, the Board of Directors
comprised five Directors, being one executive and
four Non-executives (including the Chair).
Mesoblast Limited (the Company) and its Board of
Directors (the Board) are committed to implementing and
achieving the highest standards of corporate governance.
The Board will continue to ensure that the corporate
governance framework is relevant, efficient and cost
effective to the Company and its shareholders.
A description of the Company’s corporate governance
practices is set out below. All of these practices, unless
otherwise stated, were in practice for the entire year. They
comply with the August 2007 ASX Principles of Good
Corporate Governance and the Best Practice
Recommendations. The following report has been laid out
according to those recommendations.
Principle 1. Lay solid foundations for
management and oversight
The Board is responsible for, and has authority to
determine, all matters relating to the policies, practices,
management and operations of the Company.
Specifically the Board’s functions include:
• contributing to, and approving, corporate strategies,
objectives and plans for the Company to assist the
Company with the achievement of its goals;
• reporting to shareholders on the Company’s strategic
direction and performance including constructive
engagement in the development, execution and
modification of the Company’s strategies;
• ensuring risks to the business are identified, and
approving systems and controls to manage these risks
and monitor compliance;
• reviewing, ratifying and monitoring systems of risk
management and internal control, and legal compliance.
• approving the Company’s major human resources (HR)
policies, including the code of conduct, and overseeing
the development strategies for senior and high
performing executives;
• monitoring executive management and business
performance in the implementation and achievement
of strategic and business objectives;
26
The term in office held by each Director in office as
at 30 June 2009 is as follows:
• Donal O’Dwyer (Deputy Chairman of the Board
and Chairman of the Audit & Risk Committee)
Name
Term as
director
Position held
at 30 June 2009
Brian Jamieson
1 yr 7 mths
Independent Chairman
Silviu Itescu
5 yrs 1 mths Executive Director
Byron McAllister
4 yrs 9 mths
Independent Director
Donal O’Dwyer
4 yrs 9 mths
Independent Director
Michael Spooner 4 yrs 9 mths Director
Directors are appointed to the Board based on the
specific governance skills required by the Company and
on the independence of their decision making and
judgment. The skills, experience and expertise relevant to
the position of director held by each Director in office at
the date of the annual report is included in the Director’s
Report. Each member of the Board is committed to
spending sufficient time to enable them to carry out their
duties as a Director of the Company.
Board independence
The Board considers that an independent Director is
a Non-executive Director who:
• is not a substantial shareholder of the Company or
an officer of, or otherwise associated directly with,
a substantial shareholder of the Company
• within the last three years has not been employed in
an executive capacity by the Company, or been a
director after ceasing to hold any such employment
• is not a material supplier to the Company, or an officer
of or otherwise associated directly or indirectly with,
a material supplier
• has no material contractual relationship with the
Company other than as a director of the Company
• are independent of management and free from any
business or other relationship that could materially
interfere with, or could reasonably be perceived to
materially interfere with, the exercise of their unfettered
and independent judgement.
In the context of director independence, “materiality” is
considered from both the Company’s and an individual
director’s perspective. The determination of materiality
requires consideration of both quantitative and qualitative
elements. An item is presumed to be quantitatively
immaterial if it is equal or less than 2% of the Company’s
gross revenue or expenditure (whichever is the greater).
In accordance with the definition of independence above,
and the materiality thresholds set by the Board, the
following Directors of Mesoblast were considered to
be independent:
• Byron McAllister
Michael Spooner has held an executive role within the
last three years, and Silviu Itescu is currently an Executive
Director, consequently neither of these Director’s are
considered by the Board to be independent.
Independent professional advice
In order to facilitate director independence, there are
procedures in place to enable Directors, in furtherance of
their duties, to seek independent professional advice at
the Company’s expense (subject to Board approval).
2.2 Independent Chairman
The Chair is responsible for leading the Board, ensuring
Directors are properly briefed in all matters relevant to
their role and responsibilities, facilitating discussions and
managing the Board’s relationship with the Company’s
senior executives. In accepting the position, the Chair has
acknowledged that it will require a significant time
commitment and has confirmed that other positions will
not hinder his effective performance in the role of Chair.
The Chair is an independent Director.
2.3 Role of the CEO (or equivalent)
At the date of this annual report, the equivalent role to that
of CEO (Executive Director) for the Company is not held by
the Chairman, which is in accordance with the ASXCGC
recommendations. The Executive Director is responsible
for implementing Company strategies and policies.
2.4 Board Committees
The following Committees have been established to assist
the Board in the effective discharge of its duties:
• Nomination and Remuneration Committee
• Audit and Risk Committee
Each Committee is comprised of entirely Non-executive
Directors. The Committee structure and membership is
reviewed on an annual basis. All matters determined by
the Committees are submitted to the full Board as
recommendations for Board decisions.
Each Committee has its own written charter setting out its
role and responsibilities, composition, structure,
membership requirements and the manner in which the
Committee is to operate. All of these charters are
reviewed on an annual basis and are available on the
Company’s website.
Nomination and Remuneration Committee
The Board has established a Nomination and
Remuneration Committee comprising four directors
as follows:
Name
Position held during the year
Brian Jamieson
Independent Chairman
Byron McAllister
Independent member
• Brian Jamieson (Chairman of the Board and Chairman
Donal O’Dwyer
Independent member
of the Nomination and Remuneration Committee)
Michael Spooner
Member
27
Nerve root now
decompressed
Interbody cage
executives to ensure all relevant and material information
is explained thoroughly. The induction also includes an
explanation of the existing human resources structure of
the Company and roles and responsibilities of key senior
executives are explained.
Access to information
The Board is given papers, prepared by senior
management, for every Board meeting held. These
papers include, but are not limited to, an operational
update, financial reporting package, report of operations
from our associate Angioblast Systems, Inc., investor
relations update, market activity report, and other topical
strategic documents relevant to the Company’s
operations and performance.
Directors are entitled to request any additional information
from management where they consider such information
necessary to make informed decisions.
Performance evaluation
A description of the process for performance evaluation
for the Board and senior executives is currently being
finalised and will be made available on the Company’s
website in due course.
The Board has not completed a formal review of its
members this financial year, but is committed to
completing this review by the end of this calendar year.
2.6 Website disclosures
The following information relating to the Boards
structure can be found on the Company’s website at
www.mesoblast.com:
• a description of the procedure for the selection and
appointment of new Directors and the re-election of
incumbent Directors
• the Board’s policy for the nomination and appointment
of Directors
• the charter of the Nomination and Remuneration
Committee
Details of meetings attended are found in the
Directors’ Report.
The Nomination and Remuneration Committee provides
an efficient mechanism for examination of the selection,
appointment, and remuneration practices and policies
of the Company. The main responsibilities of the
Nomination and Remuneration Committee are to:
• conduct an annual review of the membership of the
Board having regard to present and future needs of
the Company and to make recommendations on
Board composition and appointments
• conduct an annual review of an conclude on the
independence of each Director
• propose candidates for Board vacancies
• oversee the annual performance assessment program
• assess and make recommendations annually on
remuneration levels for the Board and senior executives
• oversee the review of Board succession plans
• assess the effectiveness of the induction process
Commitments of Directors
The commitments of Non-executive Directors are
considered by the Nomination Committee prior to the
directors’ appointment to the Board of the Company
and are reviewed each year.
Prior to appointment or being submitted for re-election,
each Non-executive Director is required to specifically
acknowledge that they have and will continue to have
the time available to discharge their responsibilities to
the company.
2.5 Performance of the Directors
Board appointments
Directors receive a formal letter of appointment setting
out the key terms, conditions and expectations of their
appointment.
The induction provided to new Directors and senior
executives enables them to actively participate in Company
decision-making as soon as possible. The induction
includes being presented with key strategic, financial and
relevant operational documents, and the facilitation of
meetings with existing Directors and senior
28
MPCs added
Interbody cage
Mesoblast
Standard of Care
Principle 3. Promote ethical and responsible
decision-making
Principle 4. Safeguard integrity in financial
reporting
3.1 Code of Conduct
As part of its commitment to recognising the legitimate
interests of stakeholders, the Company has established
a Code of Conduct to guide all employees, particularly
Directors, the Chief Financial Officer and other senior
executives in respect of ethical behavior expected by
the Company.
The Code of Conduct covers conflicts of interest,
confidentiality, fair dealing, protection of assets,
compliance with laws and regulations, whistle blowing,
security trading and commitments to stakeholders. In
summary, the Code requires that at all times all Company
personnel act with the utmost integrity, objectivity and in
compliance with the letter and the spirit of the law and
Company policies.
3.2 Trading policy applied to Directors, officers
and employees
The Directors, employees and key consultants are
permitted to trade in the Company’s securities at any time
subject to the following approval procedures:
• a request to trade is submitted to the Chief Financial
Officer who circulates this request to the Chairman, any
executive Directors and the Company Secretary;
• the Board have 7 business days to respond and either
approve or deny the request; and
• at the end of this 7 day period, if there is no objection,
then that person has a trading window of 7 business
days from the deemed approval date, provided they do
not hold any price sensitive information.
The Company Secretary is committed to reviewing
regularly the contents of the share register, which is
currently maintained by Link Market Services Limited.
Any significant share trading by officers of the Board
is duly noted and shall be reported to the Company in
a timely manner.
3.3 Website disclosures
A copy of the Code of Conduct and the share trading
policy can be found on the Company’s website.
4.1 Audit and Risk Committee establishment
The Board has established an Audit and Risk Committee,
to which it has delegated the responsibility for ensuring
that an effective internal control framework exists within
the entity. This includes internal controls to deal with both
the effectiveness and efficiency of significant business
processes, the safeguarding of assets, the maintenance
of proper accounting records, and the reliability of
financial information as well as non-financial
considerations such as the benchmarking of operational
key performance indicators.
4.2 Audit and Risk Committee structure
The Board has established an Audit and Risk Committee
comprising four directors, the majority of whom are
independent, and are as follows:
Name
Position held during the year
Donal O’Dwyer
Independent Chairman
Brian Jamieson
Independent member
Byron McAllister
Independent member
Michael Spooner
Member
The Chairperson of the Committee is not the Chairperson
of the Board. All of the Directors are financially literate and
two of the members, Brian Jamieson and Michael
Spooner, have accounting qualifications and have worked
in the top four chartered accounting firms. Both the Chair
of the Committee, Donal O’Dwyer, and two Committee
members, Michael Spooner and Byron McAllister, have
valuable industry experience having served in the industry
in senior positions for a number of years. Further details
on the members of the Audit and Risk Committee and
their qualifications, together with meetings attended, can
be found in the Directors’ Report.
4.3 Formal charter
The Audit and Risk Committee operates under a formal
charter approved by the Board.
29
Mesoblast
Standard of Care
Cage inserted
The main responsibilities of the Audit and Risk Committee
are to:
Principle 5. Make timely and balanced
disclosure
The Board has established a policy governing continuous
disclosure and has designated the Company Secretary
as the person responsible for overseeing and
coordinating disclosure of information to the Australian
Stock Exchange (ASX) as well as communicating with the
ASX. In accordance with the ASX Listing Rules, the
Company immediately notifies the ASX of information:
• concerning the Company that a reasonable person
would expect to have a material effect on the price or
value of the Company’s securities; and
• that would, or would be likely to, influence persons who
commonly invest in securities in deciding whether to
acquire or dispose of the Company’s securities.
Upon confirmation of receipt from the ASX, the Company
posts all information disclosed in accordance with this
policy on the Company’s website at www.mesoblast.com.
Principle 6. Respect the rights of shareholders
6.1 Communications strategy
The Company respects the rights of its shareholders
and to facilitate the effective exercise of those rights the
Company is committed to:
• communicating effectively with shareholders through
releases to the market via the ASX, the Company’s
website, information mailed and emailed to shareholders
and the general meetings of the Company;
• giving shareholders ready access to balanced and
understandable information about the Company and
corporate proposals;
• making it easy for shareholders to participate in general
meetings of the Company.
The Company also makes available a telephone number
and e-mail address (info@mesoblast.com) for
shareholders to make enquiries of the Company.
• review, assess and approve the annual full and concise
reports, the half-year financial report and all other
financial information published by the Company or
released to the market
• review, and report to the Board, on the effectiveness of
management processes supporting external reporting
• assist the Board in reviewing the effectiveness of
the organisation’s management internal control
environment covering:
– effectiveness and efficiency of operations
– reliability of financial reporting
– compliance with applicable laws and regulations
• determine whether an internal audit function is deemed
necessary, and if so, determine its scope, assess its
performance and independence, and ensure that its
resources are adequate and used effectively
• oversee the effective operation of the risk management
framework
• recommend to the Board the appointment, removal
and remuneration of the external auditors, and
implement and enforce procedures governing the
rotation of the external audit engagement partner
• review the terms of the external audit engagement, the
scope and quality of the audit and assess performance
• consider the independence and competence of the
external auditor on an ongoing basis
• review and approve the level of non-audit services
provided by the external auditors and ensure it does
not adversely impact on auditor independence
• review and monitor related party transactions and
assess their propriety
• report to the Board on all matters relevant to the
Committee’s role and responsibilities
4.4 Website disclosure
The charter of the Audit and Risk Committee can be found
on the Company’s website. Also disclosed is the process
for the appointment of the external auditor.
30
Cage inserted
Mesoblast
Standard of Care
Principle 7. Recognise and manage risk
Principle 8. Remunerate fairly and responsibly
7.1 Establish policies on risk oversight and
management and internal control
The Board, through its Audit and Risk Committee, is
responsible for reviewing the Company’s policies in
relation to risk oversight and management, compliance
and internal control systems. These policies are available
on the Company’s website.
7.2 Establish policies on risk oversight and
management
The operation of the Company’s risk management and
compliance system is managed by the risk management
group which consists of senior executives and is chaired
by the Chief Finiancial Officer. This group is newly
established and is committed to providing six monthly
reports, or more frequent if deemed necessary at the
time, regarding the status and management of relevant
material business risks to the Audit and Risk Committee
for review.
7.3 Corporate reporting
The Executive Director and the Chief Financial Officer
have made the following certifications to the Board:
• that the Company’s financial reports are complete
and present a true and fair view, in all material respects,
of the financial condition and operational results of the
Company and are in accordance with relevant
accounting standards
• that the above statement is founded on a sound system
of risk management and internal compliance and
control, which implement the policies adopted by the
Board, and the Company’s risk management and
internal compliance and control systems are operating
efficiently and effectively in all material respects in
relation to financial reporting risks.
8.1 Remuneration Committee
Composition and charter
The Board has established a Remuneration Committee.
Details of its structure and members can be found in
section 2.4 of this report. The Committee operates in
accordance with a charter which can be found on the
Company’s website.
Responsibilities
The responsibilities of the Remuneration Committee
include providing a review and recommendation to the
Board of:
• senior executive remuneration and incentive policies
• specifics for remuneration packages of senior executives
and Non-executive directors
• the Company’s recruitment, retention and termination
policies and procedures for senior executives
• superannuation arrangements
The Committee is also responsible for overseeing
management succession planning, including the
implementation of appropriate executive development
programmes and ensuring adequate arrangements are in
place, so that appropriate candidates are recruited for later
promotion to senior positions.
Remuneration policies
Details of the nature and amount of each element of
remuneration, including principles of remuneration, for
each director and the Company’s highest-paid executives
during the year can be found in the remuneration report
section of the Directors’ Report.
31
32
Financial Statements
for the year ended 30 June 2009
Contents
Income Statement
Statement of Changes in Equity
Balance Sheet
Cash Flow Statement
Notes to the Financial Statements
Directors’ Declaration
Independent Audit Report
Shareholder Information
Page
34
35
36
37
38
67
68
70
33
Income Statement
for the year ended 30 June 2009
Revenues from continuing operations
Expenses from continuing operations
Research and development
Management and administration
Share of losses of equity accounted associates
Total expenses from continuing operations
Loss before income tax expense
Income tax (expense)/benefit
Loss after related income tax expense from continuing operations
Loss attributable to members of the company
Loss per share – from continuing operations:
Basic – cents per share
Diluted – cents per share
Note
$
2(a)
30 June
2009
$
30 June
2008
890,708
909,807
(7,145,623)
(3,174,079)
(6,207,372)
(2,642,016)
(2,856,465)
(2,122,798)
(13,176,167)
(10,972,186)
(12,285,459)
(10,062,379)
-
-
(12,285,459)
(10,062,379)
(12,285,459)
(10,062,379)
cents
9.89
9.89
cents
8.81
8.81
4
6
6
The above income statement should be read in conjunction with the accompanying notes.
34
Statement of Changes in Equity
for the year ended 30 June 2009
Contributed
Equity
$
Accumulated
Losses
$
Notes
Share Based
Payment
Reserve
$
Foreign
Currency
Translation
Reserve
$
Total
$
As of 1 July 2007
37,422,183
(18,497,087)
1,614,243
-
20,539,339
Exchange gain on
translation of overseas
associate
Net income recognised
directly in equity
Loss for the year
Total recognised
income and expense
for the year
Contributions of equity
net of transaction costs
Share based payment
At 30 June 2008
-
-
-
-
-
-
(10,062,379)
(10,062,379)
13
13,596,900
-
-
-
-
-
-
-
-
1,345,774
796,498
796,498
796,498
796,498
(10,062,379)
796,498
(9,265,881)
-
-
13,596,900
1,345,774
51,019,083
(28,559,466)
2,960,017
796,498
26,216,132
As of 1 July 2008
51,019,083
(28,559,466)
2,960,017
796,498
26,216,132
Exchange loss
translation of overseas
associate
Net income recognised
directly in equity
Loss for the year
Total recognised
income and expense
for the year
Contributions of equity
net of transaction costs
Share based payment
-
-
-
-
-
-
(12,285,459)
(12,285,459)
13
11,441,153
-
-
-
-
-
-
-
-
1,196,490
(778,354)
(778,354)
(778,354)
(778,354)
-
(12,285,459)
(778,354)
(13,063,813)
-
-
11,441,153
1,196,490
At 30 June 2009
62,460,236
(40,844,925)
4,156,507
18,144
25,789,962
The above statement of changes in equity should be read in conjunction with the accompanying notes.
35
Balance Sheet
as at 30 June 2009
Current Assets
Cash and cash equivalents
Trade and other receivables
Prepayments
Total Current Assets
Non-Current Assets
Property, plant and equipment
Investments accounted for using the equity method
Intangible assets
Total Non-Current Assets
Total Assets
Current Liabilities
Trade and other payables
Total Current Liabilities
Total Liabilities
Net Assets
Equity
Issued capital
Reserves
Accumulated losses
Total Equity
Note
$
7
8
9
10
11
12
30 June
2009
$
30 June
2008
16,526,278
14,094,219
305,361
88,533
123,900
85,533
16,920,172
14,303,652
246,137
197,997
9,326,428
12,761,247
482,275
526,006
10,054,840
13,485,250
26,975,012
27,788,902
1,185,050
1,185,050
1,185,050
1,572,770
1,572,770
1,572,770
25,789,962
26,216,132
13
14
62,460,236
51,019,083
4,174,651
3,756,515
(40,844,925)
(28,559,466)
25,789,962
26,216,132
The above balance sheet should be read in conjunction with the accompanying notes.
36
Cash Flow Statement
for the year ended 30 June 2009
Cash Flows From Operating Activities
Payments to suppliers and employees
Government grants and other income received
Interest and other costs of financing paid
Note
$
30 June
2009
$
30 June
2008
(9,423,871)
(6,326,130)
186,295
123,541
-
-
Net cash used in operating activities
15 (b)
(9,237,576)
(6,202,589)
Cash Flows From Investing Activities
Interest received
Investment in fixed assets
Investment in patents & licenses
Investment in equity accounted associate
Loan repaid/(advanced) to associate company
Net cash used in investing activities
Cash Flows From Financing Activities
Proceeds from issue of shares
Payments for share issue costs
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
FX losses on the translation of foreign bank accounts
650,778
(170,020)
-
841,725
(100,956)
-
(200,000)
(6,419,452)
(13,871)
330,645
266,887
(5,348,038)
11,941,443
14,134,500
(548,290)
(537,600)
11,393,153
13,596,900
2,422,464
2,046,273
14,094,219
12,055,040
9,595
(7,094)
Cash and cash equivalents at end of year
15 (a)
16,526,278
14,094,219
The above cash flow statement should be read in conjunction with the accompanying notes.
37
Notes to the Financial Statements
for the year ended 30 June 2009
INTRODUCTION
The financial report covers Mesoblast Limited (“Mesoblast”), a company limited by shares whose shares are publicly traded on
the Australian stock exchange. Mesoblast is incorporated and domiciled in Australia and has its registered office and principal
place of business as follows:
Registered office
Level 2
517 Flinders Lane
Melbourne
Principal place of business
Level 39
55 Collins Street
Melbourne
The principal activity of the economic entity during the financial year was the commercialisation of unique intellectual property
associated with the isolation, culture and scale-up of adult stem cells referred to as Mesenchymal Precursor Cells (“MPC”).
1. SIGNIFICANT ACCOUNTING POLICIES
Statement of compliance
The financial report is a general purpose financial report which has been prepared in accordance with the Corporations Act
2001, Australian Accounting Standards and Urgent Issue Group Interpretations, and complies with other requirements of the
law. Accounting Standards include Australian equivalents to International Financial reporting Standards (“A-IFRS”). Compliance
with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International
Financial Reporting Standards (‘IFRS’).
The financial statements were authorised for issue by the Board of Directors of Mesoblast on the date shown on the Directors’
Declaration attached to the Financial Statements.
Basis of preparation
The financial report has been prepared on the basis of historical cost, except for the revaluation of certain non-current assets
and financial instruments. Cost is based on the fair values of the consideration given in exchange for assets. All amounts are
presented in Australian dollars unless otherwise noted.
The accounting policies have been consistently applied and, except where there is a change in accounting policy,
are consistent with those of the previous year.
38
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Going concern
For the year ended 30 June 2009, the company incurred an operating loss of $12,285,459 (2008 loss: $10,062,379) as
it continued to further its investment in research initiatives. As at year end, the company’s net assets stood at $25,789,962
(2008: $26,216,132), with available cash of $16,526,278 (2008: $14,094,219).
During the financial year ending 30 June 2009, the company will work to further advance both the development of its core
technologies, and if possible, the commercialisation of those technologies. Based on the forecast cash flows approved by the
Board of Directors for the period ending 31 August 2010, which excludes any cash that may be raised through further allotment
of capital or through collaboration arrangements with third parties, the Directors believe that sufficient cash will be available
to fund the company’s operations over the 12 month period subsequent to the date of signing the financial statements.
Accordingly the financial statements have been prepared on a going concern basis. The financial statements do not include
any adjustments to the carrying values or classification of assets or liabilities that would be necessary in the event that the
company, were unable to continue as a going concern.
Early adoption of standards
The company decided to adopt AASB 8 Operating Segments for both the current and previous reporting periods. AASB 8
replaces AASB 114 Segment Reporting. The new standard requires a “management approach”, which aligns the disclosure
to that used internally for management reporting.
Critical accounting judgements and key assumptions
In the application of the Company’s accounting policies, which are described below, management is required to make
judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from
other sources. The estimates and associated assumptions are based on historical experience and various other factors
that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgements.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision
and future periods if the revision affects both current and future periods.
There have been no significant judgements made in applying accounting policies that the Directors consider would have
a significant effect on the amounts recognised in the financial statements.
There have been no key assumptions made concerning the future, and there are no other key sources of estimation uncertainty
at the balance date, that the Directors consider have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year.
The following significant accounting policies have been adopted in the preparation and presentation of the financial report:
(a) Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term deposits with an insignificant risk
of change in value.
Bank overdrafts, if applicable, are shown within borrowing in current liabilities in the balance sheet. For the purposes of the
cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding
bank overdrafts (if any).
39
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(b) Contributed equity
Ordinary shares are classified as equity.
Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds
of the equity instruments to which the costs relate. Transaction costs are the costs that are incurred directly in connection
with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.
(c) Earnings per share
Basic earnings per share
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding
any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding
during the financial year, adjusted for bonus elements in ordinary shares issued during the year.
Diluted earnings per share
Diluted earning per share adjusts the figures used in the determination of basic earnings per share to take into account the
after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted
average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.
(d) Employee benefits
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave.
Liabilities recognised in respect of employee benefits which are expected to be settled within 12 months, are measured at their
nominal values using the remuneration rates expected to apply at the time of settlement.
Liabilities recognised in respect of employee benefits which are not expected to be settled within 12 months, are measured as the
present value of the estimated future cash outflows to be made by the Company in respect of services provided by employees up
to reporting date.
(e) Foreign currency
Foreign currency transactions are translated to Australian currency, which is the Company’s functional currency, at the rates
of exchange ruling at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions are recognised in the income statement, except when they are deferred in equity as qualifying cash flow hedges
and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.
Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at balance date.
Foreign exchange gains and losses resulting from the translation of monetary assets and liabilities at year end exchange rates
are recognised in the income statement.
Exchange differences arising from the translation of any investment in foreign entities are taken to the foreign currency translation
reserve in shareholders equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid,
a proportionate share of such exchange differences are recognised in the income statement, as part of the gain or loss on sale
where applicable.
(f) Goods and services tax (GST)
Revenues, expenses and assets are recognised net of the amount of GST except where the GST incurred on a purchase
of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost
of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to,
the taxation authority is included as part of receivables or payables in the Balance Sheet.
Cash flows are included in the cash flow statement on a gross basis. The GST component of cash flows arising from investing
and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows.
40
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(g) Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will
be received and the Company will comply with all attached conditions.
Government grants relating to costs are deferred and recognised in the income statement over the period necessary
to match them on a systematic basis with the costs that they are intended to compensate.
Government grants whose primary condition is for the Company to purchase property, plant and equipment are included in
non-current liabilities as deferred income and are credited to the income statement on a straight line basis over the expected
lives of the related assets.
(h) Impairment of assets
At each reporting date, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. Intangible assets with indefinite useful lives and
intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset
may be impaired.
An impairment loss would be recognised if the amount by which the assets carrying amount exceeds its recoverable amount.
If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment
loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates the
recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset
(or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating
unit) is reduced to its recoverable amount. An impairment of goodwill is not subsequently reversed.
(i) Intangible assets
Patents and Licences
Patents and licences have a finite useful life and are carried at cost less accumulated amortisation and impairment.
Amortisation is calculated using the straight-line method to allocate the cost of the asset over its remaining useful life,
which equates to the remaining life of the underlying patent.
(j) Income taxes
Income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the
applicable income tax rate for Australia, adjusted by changes in deferred tax assets and liabilities attributable to temporary
differences and to unused tax losses.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases
of assets and liabilities and their carrying amount in the financial statements. Deferred income tax is not provided if it arises
from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time affects neither
accounting, nor taxable, profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted
by the reporting date and are expected to apply when the related deferred income tax assets is realised or the deferred liability
is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probably that
future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax balances
attributable to amounts recognised directly in equity are also recognised directly in equity.
41
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(k) Investments accounted for using the equity method
Associates are all entities over which the Company has significant influence but not control, generally accompanying
a shareholding of between 20% and 50% of the voting rights. The financial statements of the associate are used by the
Company to apply the equity method. The reporting dates of the associate and the Company are identical and both
use consistent accounting policies.
The investment in the associate is carried in the balance sheet at cost plus post-acquisition changes in the Company’s
share of net assets of the associate, less any impairment in value. The income statement reflects the Company’s share
of the results of operations of the associate.
Where there has been a change recognised directly in the associate’s equity, the Company recognised its share of any
change and disclosed this, when applicable, in the statement of changes in equity.
The carrying amount of an investment accounted for using the equity method is assessed annually to determine whether
there is any indication that the asset may be impaired. Where an indicator of impairment exists, the Company makes
a formal estimate of the recoverable amount. Where the carrying amount of the asset exceeds its recoverable amount,
the asset is considered impaired and is written down to its recoverable amount.
(l) Property, plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that
is directly attributable to the acquisition of the item.
Property, plant and equipment, other than freehold land, are depreciated over their estimated useful lives using the straight
line method. The expected useful lives are between two and nine years, with the majority being depreciated over four years.
Gains and losses on disposal of plant and equipment are taken into account in determining the profit for the year.
(m) Provisions
Provisions are recognised when the Company has a present obligation (legal and constructive) as a result of a past event,
it is probable that the Company will be required to settle the obligation, and a reliable estimate can be made of the amount
of the obligation.
(n) Research and development costs
Research and development expenditure is expensed as incurred except to the extent that its future recoverability can
reasonably be regarded as assured, in which case it is deferred and amortised on a straight line basis over the period
in which the related benefits are expected to be realised.
The carrying value of development cost is reviewed for impairment annually when the asset is not yet in use or when
an indicator of impairment arises during the reporting year indicating that the carrying value may not be recoverable.
(o) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. The Company recognises revenue when
the amount of revenue can be reliably measured, it is probably that future economic benefits will flow to the entity, and specific
criteria have been met for each of the Company’s activities.
Interest revenue
Interest revenue is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable,
which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that
asset’s net carrying amount.
42
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(p) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the Senior Management
Executive Group and the Board of Directors, both of which make strategic decisions for the Company.
(q) Share-based payments
Equity-settled share-based payments with employees and others providing similar services are measured at the fair value
of the equity instrument at the grant date. Fair value is measured by use of the Black-Scholes model. The expected life used in
the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions,
and behavioural considerations. Further details on how the fair value of equity-settled share-based transactions has been
determined can be found in note 18.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis
over the vesting period, based on the Company’s estimate of shares that will eventually vest.
The above policy is applied to all equity-settled share-based payments that were granted since the date of incorporation
and that vested after 1 January 2005. No amount has been recognised in the financial statements in respect of the other
equity-settled share-based payments.
(r) Trade and other receivables
Trade receivables and other receivables represent the principal amounts due at balance date less, where applicable,
any provision for doubtful debts. An estimate for doubtful debts is made when collection of the full amount is no longer
probable and there is objective evidence of impairment. Debts which are known to be uncollectible are written off in the
income statement. All trade receivables and other receivables are recognised at the value of the amounts receivable,
as they are due for settlement within 60 days and therefore do not require re-measurement.
(s) Trade and other payables
Payables represent the principal amounts outstanding at balance date plus, where applicable, any accrued interest.
Liabilities for payables and other amounts are carried at cost which approximates fair value of the consideration to be
paid in the future for goods and services received, whether or not billed. The amounts are unsecured and are usually
paid within 30 days of recognition.
(t) Changes in accounting policies
There have been no significant changes in accounting policy during the reporting period.
(u) Comparative figures
Comparatives have been reclassified where necessary so as to be consistent with the figures presented in the current year.
43
(v) New and revised accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2009 reporting
periods. The Company’s assessment of the impact of these new standards and interpretations is set out below:
(i) AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards arising from AASB 8
AASB 8 is effective for annual reporting periods commencing on or after 1 January 2009. This standard allows for a
“management” style of disclosure of operating segments. The Company decided to adopt this standard for both the
current and previous reporting periods on the basis that it more accurately discloses the financial information pertaining
to the segments of the Company.
(ii) Revised AASB 123 Borrowing Costs and AASB 2007-6 Amendments to Australian Accounting Standards
arising from AASB 123
Revised AASB 123 is effective for annual reporting periods commencing on or after 1 January 2009. The Company
has not adopted this standard for the current reporting period as it has no borrowing costs.
(iii) Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting
Standards arising from AASB 101
Revised AASB 101 is effective for annual reporting periods commencing on or after 1 January 2009. It requires the
presentation of a statement of comprehensive income and makes changes to the statement of equity. The Company
has decided not to adopt this standard on the basis that the changes are of a disclosure nature only and do not impact
what is recognised in the financial statements.
(iv) AASB 2008-1 Amendments to Australian Accounting Standard - Share-based Payments: Vesting Conditions
and Cancellations
AASB 2008-1 was issued in February 2008 and will become applicable for annual reporting periods beginning on
or after 1 January 2009. The revised standard clarifies that vesting conditions are service conditions and performance
conditions only and that other features of a share-based payment are not vesting conditions. It also specifies that all
cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Company
will apply the revised standard from 1 July 2009.
44
2. REVENUE AND EXPENSES FROM CONTINUING OPERATIONS
(a) Revenue from continuing operations
Commercial Ready government grant*
Interest revenue
*Further details of the grant are contained in note 17(a) to the financial statements.
(b) Expenses
Employee benefits
Salaries and employee benefits
Defined contribution superannuation expenses
Share based payments – employees & directors
Depreciation and amortisation of non-current assets
Plant and equipment depreciation
Intellectual property amortisation
Other
Research & development – external
Intellectual property costs (excluding amortisation as shown above)
Share based payments – consultants
Finance costs
Foreign exchange losses
Write-off of intangible assets
Loss on disposal of plant and equipment
30 June
2009
$
$
30 June
2008
186,295
704,413
890,708
-
909,807
909,807
2,414,426
1,530,719
100,907
573,308
110,662
425,435
3,088,641
2,066,816
76,098
43,731
119,829
62,721
94,038
156,759
2,777,798
3,075,548
267,328
623,182
-
111,312
-
45,783
396,762
920,339
-
10,032
198,182
-
45
3. SEGMENT INFORMATION
(a) Description of segments
Management has determined the operating segments presented here are those that are internally reported on a regular
basis to the board of directors, who are ultimately responsible for the allocation of resources to those segments and for
making strategic decisions for the Company.
Two reportable operating segments have been identified, the orthopaedic segment and the cardiovascular segment, both
having two distinct markets for which the MPC platform technology is currently being developed. The orthopaedic segment
operates in Australia, and the cardiovascular segment operates in the United States of America through our investment
in Angioblast systems, Inc.
(b) Segment information
2009
Revenue from external parties
Total segment revenue
Net loss after tax
Net loss after tax includes the following items:
Research and development
Equity accounted losses
Amortisation of intellectual property purchased
Total segment assets
Total segment assets include:
Orthopaedic
$
186,295
186,295
6,240,855
6,197,123
-
43,731
493,609
Cardiovascular
& non-orthopaedic
$
-
-
Total
$
186,295
186,295
2,856,465
8,911,025
-
6,197,123
2,856,465
2,856,465
-
43,731
9,326,428
9,820,037
Carrying value of investments accounted for using the equity method
-
9,326,428
9,326,428
Total segment liabilities
2008
Revenue from external parties
Total segment revenue
Net loss after tax
Net loss after tax includes the following items:
Research and development
Equity accounted losses
Amortisation of intellectual property purchased
Total segment assets
Total segment assets include:
575,510
-
-
-
-
-
575,510
-
-
5,287,033
2,122,798
7,409,831
5,192,995
-
94,038
-
5,192,995
2,122,798
2,122,798
-
94,038
549,519
12,761,247
13,310,766
Carrying value of investments accounted for using the equity method
-
12,761,247
-
Total segment liabilities
1,194,186
-
1,194,186
46
3. SEGMENT INFORMATION CONTINUED
(c) Segment reconciliations
The following table reconciles each of the segment totals to the totals reported for the Company in the income statement
and balance sheet. These reconciling items are not considered by the Company to be an operating segment as defined
in AASB 8 Operating Segments (which has been early adopted in this current financial year) and therefore are not disclosed
as such. They are administrative in nature and relate largely to the running of the Mesoblast head office.
Total segment revenue
Interest revenue
Total revenue from continuing operations
Total segment net loss after tax
Interest revenue
Administration expenses
Share-based payments
Total net loss after tax
Total segment assets
Property, plant and equipment
Interest receivable
Other receivables
GST receivable
Prepayments
Receivable from associate
Cash
Total assets
Total segment liabilities
Trade payables and accruals – administration
Employee entitlements – administration
Payable to Angioblast
Total liabilities
$
30 June
2009
$
186,295
704,413
890,708
30 June
2008
-
909,807
909,807
8,911,025
7,409,831
(704,413)
(909,807)
2,882,357
1,196,490
2,216,581
1,345,774
12,285,459
10,062,379
9,820,037
13,310,766
246,137
121,718
48,945
89,905
77,200
44,792
197,997
68,081
-
39,195
62,021
16,623
16,526,278
26,975,012
14,094,219
27,788,902
575,510
570,837
37,014
1,689
1,194,186
293,317
22,523
62,744
1,185,050
1,572,770
47
30 June
2009
$
$
30 June
2008
4. INCOME TAX EXPENSE
(a) Reconciliation of income tax to prima facie tax payable
Loss from continuing operations before income tax
Prima facie tax benefit on operating loss before income tax at 30%
Tax effect of amounts which are (not deductible)/taxable in calculating taxable income:
Share based payments expense
Equity accounting loss
R&D Tax Offset
FX unrealised gains/(losses)
Amortisation of intangibles
Capital raising expenses
Other sundry items
Tax benefit not recognised
Income tax expense attributable to loss before income tax
(b) Deferred tax asset not bought to account*
Temporary differences
Tax losses
12,285,459
10,062,379
3,685,638
3,018,713
(358,947)
(856,940)
250,000
2,879
(13,119)
164,487
(1,500)
(403,732)
(636,839)
258,150
(2,071)
(28,211)
299,600
(4,118)
(2,872,498)
(2,501,492)
-
-
390,336
8,742,479
9,132,815
267,296
5,993,021
6,260,317
* Tax losses carried forward and temporary differences has not been brought to account at 30 June 2009 because the Directors do not
consider it probable, at this stage of the Company’s program, that sufficient taxable amounts will become available which deductible
temporary differences and unused tax losses can be applied to. Realisation of the benefit of tax losses would also be subject to the
Company satisfying the conditions for deductibility imposed by tax legislation. The Company has made no assessment as to the
satisfaction of these conditions at 30 June 2009.
5. REMUNERATION OF AUDITORS
(a) PricewaterhouseCoopers – Australia
(i) Audit and assurance services
Audit and review of financial reports
(ii) Taxation services
Corporate tax compliance
Employment tax and withholding advice
Total taxation services
90,000
87,500
10,000
2,000
12,000
-
-
-
Total remuneration of PricewaterhouseCoopers
102,000
87,500
(b) PKF – Australia
(i) Audit and assurance services
Audit of Commercial Ready Grant reporting
Total remuneration of PKF
Total remuneration paid to audit firms
48
4,850
4,850
-
-
106,850
87,500
6. EARNINGS PER SHARE
Net loss used in calculating basic earnings per share
Net loss used in calculating diluted earnings per share
Weighted average number of ordinary shares used in calculating
basic earnings per share
Dilutive potential ordinary shares
Weighted average number of ordinary shares and potential
ordinary shares used in calculating diluted earnings per share
7. CASH AND CASH EQUIVALENTS
Cash at bank
Deposit at call
Term deposits
8. TRADE AND OTHER RECEIVABLES
Current
Interest receivable
Sundry Debtors
Goods and services tax recoverable
Loan to Angioblast Systems, Inc. (associate)
30 June
2009
$
$
30 June
2008
12,285,459
12,285,459
10,062,379
10,062,379
No.
No.
124,217,494
114,209,029
-
-
124,217,494
114,209,029
30 June
2009
$
$
30 June
2008
257,352
1,023,906
15,245,020
16,526,278
753,606
4,231,882
9,108,731
14,094,219
121,718
48,946
89,905
44,792
305,361
68,082
39,195
16,623
123,900
All trade and other receivable balances are within their due dates and none are considered to be impaired at both 30 June 2009
and 30 June 2008. See note 21 for the impact of credit risk on the Company.
9. PROPERTY, PLANT AND EQUIPMENT
Plant and equipment
Cost
Balance at the beginning of year
Additions
Disposals
Balance at the end of year
Accumulated depreciation
Balance at the beginning of year
Depreciation expense
Disposals
Balance at the end of year
Net book value at the end of the year
299,802
170,021
(47,560)
422,263
(101,805)
(76,098)
1,777
(176,126)
246,137
197,319
102,483
-
299,802
(39,084)
(62,721)
-
(101,805)
197,997
49
10. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD
Entity
Country of Incorporation
Principal Activity
Angioblast Systems, Inc.
USA
Adult stem cell research and development
for cardiovascular indications
Ownership Interest
30 June
2009
%
38.4
30 June
2008
%
39.1
(a) Carrying amount
Angioblast Systems, Inc.
(b) Movement in carrying amount
Carrying amount at the beginning of year
Additional investment
Share of losses
Exchange difference on translation
Carrying amount at the end of year
30 June
2009
$
30 June
2008
$
9,326,428
12,761,247
12,761,247
200,000
7,668,095
6,419,452
(2,856,465)
(2,122,798)
(778,354)
796,498
9,326,428
12,761,247
The following information has been extracted from the audited report of Angioblast Systems, Inc. and translated
at the exchange rate prevailing at year end, with the exception of the company’s share of net loss which has been
determined using exchange rates prevailing through-out the year:
Summaries financial information of associates:
Financial position
Total assets
Total liabilities
Net assets/(liabilities)
Company’s share of net assets/(liabilities)
Financial performance
Income
Expenses
Company’s share of associates’ loss
Share of associates’ loss before tax
Share of associates’ income tax expense
Share of associates’ loss
1,820,388
1,225,046
595,342
228,611
6,244,935
(6,089,556)
155,379
60,753
248,026
873,380
(6,992,987)
(6,153,802)
(2,856,465)
(2,122,798)
-
-
(2,856,465)
(2,122,798)
The Directors have followed the guidance of AASB136 in determining whether an investment is impaired. The Directors
have made an assessment of the value of this investment in the accounts, reviewing the results to date against the original
milestones and work plans and having considered current market conditions and are comfortable to continue to carry
it at equity accounted cost. The value of the investment is dependent on its research and development and subsequent
commercialisation. The Directors are of the view that the investment in Angioblast Systems, Inc. is not impaired at balance date.
The contingent liabilities of the associate are disclosed in Note 17(c).
50
30 June
2009
$
$
30 June
2008
11. INTANGIBLE ASSETS
Patents and licences
Gross carrying amount
Balance at the beginning of year
Patent costs written off (i)
Carrying amount at the end of year
Accumulated amortisation
Balance at the beginning of year
Amortisation expense (i)
Patent costs written off (i)
Carrying amount at the end of year
Net book value
(i) Intellectual property expenses are included in research and development in the income statement.
12. TRADE AND OTHER PAYABLES
Current
Trade payables
Employee benefits
Payable to Angioblast Systems, Inc.*
*associate and related party of the company
690,000
-
690,000
(163,994)
(43,731)
-
(207,725)
482,275
904,226
(214,226)
690,000
(86,000)
(94,038)
16,044
(163,994)
526,006
1,042,335
1,428,780
61,023
81,692
81,216
62,774
1,185,050
1,572,770
51
13. ISSUED CAPITAL
Ordinary shares participate in dividends and the proceeds on winding up of the company in equal proportion to the number
of shares held.
At shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has
one vote on a show of hands.
30 June 2009
No.
30 June 2009
$
30 June 2008
No.
30 June 2008
$
(a) Movements in issued capital during the year
Fully paid ordinary shares
Balance at beginning of financial year
119,256,133
51,019,083
107,716,133
37,422,183
Shares issued at $1.28 14 December 2007
-
-
10,500,000
13,440,000
Shares issued at $0.72 01 April 2009
15,018,069
10,813,009
Transaction costs arising on issue of shares
-
(548,290)
-
-
-
(537,600)
Issue of shares under employee share
option plan (note 18)
1,900,667
1,176,434
1,040,000
694,500
Balance at end of financial year
136,174,869
62,460,236
119,256,133
51,019,083
(b) Options over ordinary shares
Balance at end of financial year
Amounts unvested at end of financial year
9,872,000
4,396,000
9,316,667
2,680,000
Share options granted under the employee share option plan carry no rights to dividends and no voting rights. Further details of
the employee share option plan are contained in note 18 to the financial statements.
52
14. RESERVES
(a) Reconciliation of reserves
Share based payments reserve
Foreign currency translation reserve
(b) Nature and purpose of reserves
Share based payment reserve
The share based payments reserve is used to recognise the fair value
of options issued and vested but not exercised.
Foreign currency translation reserve
Exchange differences arising on translation of the equity accounted
investment are taken to the foreign currency translation reserve.
15. CASH FLOW INFORMATION
(a) Reconciliation of cash and cash equivalents
Cash at bank
Deposit at call
Term deposits
(b) Reconciliation of net cash flows used in operations with loss after income tax
Loss from ordinary activities
Add/(deduct) profit and loss items as follows:
Depreciation and amortisation
Loss on sale of plant and equipment
Intellectual property disposal costs
Interest received (investing activity)
Foreign exchange losses on bank translation
Equity settled share based payment
Equity accounted losses (Angioblast)
Change in operating assets & liabilities:
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade creditors and accruals
Cash flows used in operations
30 June
2009
$
$
30 June
2008
4,156,507
18,144
4,174,651
2,960,017
796,498
3,756,515
257,352
1,023,906
15,245,020
16,526,278
753,606
4,231,882
9,108,731
14,094,219
(12,285,459)
(10,062,379)
119,829
45,783
-
(704,413)
(9,595)
1,196,490
2,856,465
156,759
-
198,182
(909,807)
7,094
1,345,774
2,122,798
(54,657)
(402,019)
53,766
885,224
(9,237,576)
(6,202,589)
53
16. COMMITMENTS FOR EXPENDITURE
(a) Capital commitments
Not longer than 1 year
(b) Further investment in associate*
Not longer than 1 year
Longer than 1 year and not longer than 5 years
30 June
2009
$
$
30 June
2008
-
-
-
-
-
200,000
-
200,000
* As at 30 June 2009 the company has completed all of its investment into Angioblast per the Series B investment that was
approved by shareholders of Mesoblast in November 2006. As at 30 June 2008 the company had a final $200,000 instalment
still to be made under this agreement. This investment was made during the current financial year. The preference shares
awarded to Mesoblast are in the process of being converted to common stock.
(c) Company’s share of associates expenditure commitments
Angioblast have report no expenditure commitments for the year ended 30 June 2009 (2008: nil).
17. CONTINGENT ASSETS AND LIABILITIES
(a) Contingent assets
The company does not consider it has any contingent assets outstanding as at 30 June 2009. As at 30 June 2008, the
company had a government grant payment due on completion of certain milestones. This payment was received during
the current financial year. There are no unfulfilled conditions or other contingencies attached to the portions of government
grants recognised in the year. The Company did not benefit from any other form of government assistance.
(b) Contingent liabilities
Mesoblast will be required to make a milestone payment to Medvet of US$250,000 on completion of Phase III (human)
clinical trials and US$350,000 on FDA marketing approval. Mesoblast will pay Medvet a commercial arm’s length royalty
based on net sales by Mesoblast of licensed products each quarter.
The company has no pending litigation as at the end of the financial year.
(c) Contingent liabilities of Angioblast in relation to Medvet
The contingent liabilities described below represent 100 per cent of the contingent obligations of Angioblast. By way
of its equity interest, Mesoblast currently has a 38.4% interest in these contingent liabilities. Mesoblast is not liable for
these contingent liabilities.
Angioblast has agreed to pay consideration for certain intellectual property assets assigned to it by Medvet on the basis
of future milestones being reached. These milestones will not be reached as part of the current development program which
envisages funding through to IND approvals. They represent payments on successful completion of subsequent clinical
milestones. If all milestones were to be reached these payments total US$1,500,000. In addition royalties at 2.5% of net sales
with stipulated minimum annual royalties scaling up from US$100,000 to US$500,000 over 5 years exist.
54
18. SHARE-BASED PAYMENTS
The Company has adopted an Employee Share Option Plan to foster an ownership culture within the Company and to motivate
directors, senior management and consultants to achieve performance targets of the Company and/or their respective
business units. Selected directors, employees and consultants of the Company may be eligible to participate in the Plan at the
absolute discretion of the Company’s board of directors. Except as outlined in the remuneration report no options or shares will
be issued under this Plan to any directors without the prior approval of the Mesoblast shareholders.
The aggregate number of options which may be issued pursuant to the Plan and all other share purchase plans shall not at any
time exceed 5% of the total number of issued shares of the Company. All grants of options are subject to the following general
terms and conditions:
• option grants require approval from the board of directors;
• options are granted under the plan for no consideration;
• each share option converts into one ordinary share of Mesoblast Limited;
• options carry neither rights to dividends nor voting rights.
Per the Company’s current policy, options are issued in three equal tranches, each tranche having an expiry date of five years
following grant date. The first tranche typically vests 12 months after grant date, the second tranche 24 months after grant date,
and the third tranche 36 months after grant date.
The exercise price is the greater of $0.20 and:
•
•
in relation to an option on or before the date of the official quotation of the Company’s shares, an amount per share
that is 20% higher than the offer price of $0.50; and
in relation to an option granted after the official quotation of the company’s shares, the volume weighted market price
of a share sold on the ASX on the 5 trading days immediately before the grant date plus a premium determined by the
Board; and
• any other amount that is specified by the Board.
55
18. SHARE-BASED PAYMENTS CONTINUED
(a) Existing share-based payment arrangements
The share options outstanding at the end of the financial year have a weighted average remaining contractual life of 772 days
(2008: 714 days) and a range of exercises prices from 55c to $2.13.
(i) The following share-based payment arrangements were in existence during the current and comparative
reporting periods:
Series
1(a)(i)
1(a)(ii)
1(b)
2(a)
2(b)
2(b)
2(c)
2(c)
2(c)
3
3
4(a)
4(a)
4(b)
4(b)
4(b)
4(b)
4(b)
4(b)
4(c)
5
5
5
6(a)
6(a)
6(b)
6(b)
6(c)
6(c)
6(d)
6(d)
6(d)
6(d)
6(d)
6(d)
7
8
9
Grant date Granted
No.
Exercised
No.
Lapsed /
cancelled
No.
Balance
No. 2009
Balance
No. 2008
Earliest
Vesting
date
Expiry
date
Exercise
price
$
Fair
value
$
29/09/04 2,160,000 (200,000)
- 1,960,000 1,960,000
29/09/05
29/09/09
29/09/04 2,160,000 (200,000)
- 1,960,000 2,160,000
16/12/05
16/12/09
26/10/04
400,000 (400,000)
16/12/04
550,000 (550,000)
16/12/04
16/12/04
16/12/04
16/12/04
16/12/04
75,000
75,000
80,000
80,000
80,000
(75,000)
(75,000)
(80,000)
(80,000)
(80,000)
25/08/05
350,000 (350,000)
25/08/05
350,000 (350,000)
23/02/06
150,000
(150,000)
23/02/06
150,000
(84,000)
23/02/06
150,000
(150,000)
23/02/06
150,000
(150,000)
23/02/06
150,000
-
23/02/06
200,000 (200,000)
23/02/06
200,000
23/02/06
200,000
-
-
23/02/06
90,000
(90,000)
23/11/06
23/11/06
23/11/06
17/03/06
17/03/06
17/05/06
17/05/06
06/06/06
06/06/06
01/01/07
01/01/07
01/01/07
01/01/07
01/01/07
01/01/07
50,000
50,000
50,000
50,000
50,000
10,000
10,000
10,000
10,000
15,000
45,000
30,000
40,000
30,000
30,000
27/07/07 2,480,000
07/07/08 2,736,000
19/01/09
240,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(50,000)
(50,000)
(10,000)
(10,000)
(10,000)
(10,000)
(15,000)
(45,000)
(15,000)
(25,000)
(30,000)
(30,000)
-
-
-
-
-
-
-
-
-
-
-
16/12/04
30/12/07
550,000
16/12/05
16/12/08
75,000
16/12/06
16/12/08
75,000
01/05/07
16/12/08
-
-
06/09/06
06/09/07
16/12/06
16/12/07
80,000
04/07/08
04/07/09
350,000
31/12/05
31/12/08
350,000
30/06/06
30/06/09
34,000
31/03/06
31/03/09
66,000
66,000
01/05/07
01/05/10
-
-
-
-
30/06/06
30/06/09
30/06/07
30/06/10
150,000
150,000
30/06/08
30/06/11
-
166,667
30/06/06
30/06/09
200,000
200,000
30/06/07
30/06/10
200,000
200,000
30/06/08
30/06/11
-
20,000
23/02/06
23/02/09
50,000
50,000
50,000
50,000
23/11/06
23/11/09
50,000
23/11/07
23/11/09
50,000
23/11/08
23/11/09
-
-
-
-
-
-
-
-
-
17/03/07
17/03/08
50,000
17/03/08
17/03/09
-
17/05/07
17/05/08
10,000
17/05/08
17/05/09
-
-
06/12/06
06/12/07
06/06/07
06/06/08
15,000
01/07/07
01/07/08
45,000
01/01/08
01/01/09
15,000
15,000
30,000
01/01/09
01/01/10
40,000
01/01/10
01/01/11
-
-
30,000
01/08/07
01/08/08
30,000
01/02/08
01/02/09
(150,000) 2,330,000 2,480,000 01/07/08*
30/06/12
(150,000) 2,586,000
- 01/07/09*
30/06/13
-
240,000
- 19/01/10*
18/01/14
0.55
0.55
0.55
0.60
0.60
0.60
0.60
0.60
0.60
0.65
0.65
0.65
0.65
0.65
1.20
1.20
0.65
1.20
1.20
0.65
0.65
0.65
0.65
2.02
2.02
1.52
1.52
1.75
1.75
1.96
1.96
1.96
1.96
1.96
1.96
2.13
1.00
0.96
0.29
0.29
0.29
0.29
0.29
0.29
0.171
0.229
0.251
0.19
0.21
0.96
0.96
0.89
0.65
0.75
0.89
0.65
0.75
0.92
0.589
0.678
0.718
0.554
0.702
0.404
0.521
0.303
0.380
0.512
0.601
0.749
0.873
0.512
0.601
0.74
0.48
0.40
Balance at
30 June 2009
Balance at
30 June 2008
13,736,000
(3,264,000)
(600,000)
9,872,000
10,760,000
(1,363,333)
(80,000)
9,316,667
*Refer Note 18 (a) (ii) for vesting details.
56
18. SHARE-BASED PAYMENTS CONTINUED
(a) Existing share-based payment arrangements (continued)
(ii) General terms and conditions attached to each series are as follows:
1. At the time of the IPO the Company provided initial seed investors and the underwriter with share options as follows:
(a) Seed investors, who subscribed for 4,320,000 fully paid preference shares, were provided with 4,320,000 options
to acquire ordinary shares at an exercise price of $0.55. These options expire on the fourth anniversary of the expiry
of two relevant imposed escrow periods being:
(i) 50% of each holder’s options are subject to an escrow period expiring on 29 September 2005, therefore these
options expire on 29 September 2009
(ii) 50% of each holder’s options are subject to an escrow period which expired on 16 December 2005, therefore
these options expire on 16 December 2009.
(b) Lodge Partners Pty Limited (or nominee), as underwriter to the Offer received in aggregate 400,000 options to acquire
400,000 ordinary shares on the terms set out in 9.5(a) of the prospectus. These options have since been transferred
to Thorney Holdings Pty Ltd and were exercised during the current financial year.
2. These options were granted as follows:
(a) Two equal tranches, the first tranche vesting 12 months after listing date, the second 24 months after listing.
Both tranches expire on the fourth anniversary of the listing date.
(b) Two equal tranches, each expiring on the third anniversary of the Company being listed on the ASX. Vesting
occurs upon reaching the following milestones:
• The Company obtaining IND approval from the US Food and Drug Administration (FDA) for initiating multi-centre
orthopaedic clinical trials within a period of two years after the options were granted, which was the date of listing
on the ASX (16 December 2004). This milestone was reached on 16 December 2006, consequently the options
vested on this date.
• Angioblast Systems, Inc. (associate) must achieve IND approval from the US FDA for initiating multi-centre
cardiovascular clinical trials within a period of three years after the options were granted. This milestone was
reached on 1 May 2007 consequently the options vested on this date.
(c) Three equal tranches, each expiring 12 months after vesting. Vesting occurs upon reaching the following milestones:
• On achieving Standard Operating Procedure (SOP) for the manufacture of cells. This milestone was reached
on 6 September 2006, consequently the options vested on this date.
• On approval of Mesoblast’s FDA Investigative New Drug (IND) approval. Approval was obtained on 16 December
2006, therefore the options vested on this date.
• On completing human pre-regulatory trials for a Mesoblast Orthopaedic Application of the licensed technology.
The last patient for this trial had their final follow up visit on 4 July 2008, so the options will vest on this date.
3. Options granted were approved by shareholders at the Annual General Meeting held 15 November 2005.
The options were issued in two equal tranches, each having a three year life. There are no performance conditions
attached to these options.
57
18. SHARE-BASED PAYMENTS CONTINUED
(a) Existing share-based payment arrangements (continued)
4. Options granted are subject to the following conditions:
(a) Two equal tranches, each expiring 36 months after vesting. Vesting occurs upon reaching the following milestones:
• The first patient is treated with Human Autologous Mesenchymal Prescursor Cells (MPC’s). The milestone was
reached on 31 March 2006 and these options vested accordingly.
• Angioblast Systems, Inc. (associate) receives Investigational New Drug Approval from the US FDA. This was
received on 1 May 2007 and these options vested accordingly.
(b) Three equal tranches, each expiring 36 months after vesting. The vesting dates for tranches 1, 2 and 3 are 30 June
2007, 30 June 2008 and 30 June 2008 respectively, and the exercise prices are $0.65, $1.20 and $1.20 respectively.
There are no performance conditions attached to these options.
(c) One tranche only, with a vesting date equal to grant date, and an exercise period of 36 months. There are no
performance conditions attached to these options.
5. Options granted were approved by shareholders at the Annual General Meeting held 23 November 2006. Options were
issued in three equal tranches, each having a three year life. The first tranche vests 12 months after grant date, the
second tranche 24 months after grant date, and the third tranche 36 months are grant date. All tranches expire 36
months after grant date. There are no performance conditions attached to these options.
6. Options granted were approved by the Remuneration Committee on 14 February 2007. Options granted were in two
equal tranches, the first tranche exercisable in twelve months following grant date, and the second exercisable in 18
months following grant date. Grant dates are equal to commencement of employment/contract and the options have
exercise periods of 12 months. There are no performance conditions attached to these options.
7. Options granted were approved by the Remuneration Committee on 27 July 2007. The options were granted in three
equal tranches vesting on 1 July 2008, 1 July 2009 and 1 July 2010 respectively. All tranches expire on 30 June 2012.
8. Options granted were approved by the Remuneration Committee on 7 July 2008. The options were granted in three equal
tranches vesting on 1 July 2009, 1 July 2010 and 1 July 2011 respectively. All tranches expire on 30 June 2013.
9. Options granted were approved by the Remuneration Committee during January 2009 as per the relevant employment
contract. The options were granted in three equal tranches vesting on 19 January 2010, 19 January 2011 and 19 January
2012 respectively. All tranches expire on 18 January 2014.
(iii) Modifications to terms and conditions
There has been no modification to terms and conditions in either the current or previous financial years.
(b) Fair values of share options
The weighted average fair value of options granted during the year was $0.47 (2008: $0.74). The fair value of all options granted
has been calculated using the Black-Scholes option pricing model. The model requires the Company share price volatility to be
measured. The share price volatility has been measured with reference to the historical share prices of the Company, and also
similar company’s given the Company has only been listed since 16 December 2004. The official measurement of share price
volatility for the options granted on 23 February 2007 was 55%, and for the options granted 23 November 2007 it was 54%.
Given the consistency of the two volatility measurements, both volatility rates have been used for series 8 and 9.
58
18. SHARE-BASED PAYMENTS CONTINUED
(b) Fair values of share options (continued)
The model inputs for the valuations of options approved and issued during the current and previous financial years are
as follows:
Option
series
Share price at
grant date $
Exercise Price
$
Expected share
price volatility
Option
life
Dividend
yield
Risk-free
interest rate
3
4(a)
4(b)
4(c)
5
6(a)
6(b)
6(c)
6(d)
7
8
9
0.505
1.48
1.48
1.48
1.205
1.81
1.35
1.41
1.84
1.91
0.91
0.848
0.65
0.65
0.65 & $1.20
0.60
0.65
2.02
1.52
1.75
1.96
2.13
1.00
0.96
56.57%
128 & 310 days
55.0%
55.0%
55.0%
54.0%
54.0%
54.0%
54.0%
55.0%
55.0%
55.0%
55.0%
3yrs & 3.98yrs
1.35-3.35 yrs
1.1-3.1 yrs
3 yrs
18 & 24 months
18 & 24 months
18 & 24 months
18 & 24 months
0%
0%
0%
0%
0%
0%
0%
0%
5.085%
5.18%
5.18%
5.18%
5.725%
6.39%
6.39% & 6.46%
6.27% & 6.39%
0% 6.39%, 6.45% & 6.46%
5 years
5 years
5 years
0%
0%
0%
6.25%
6.50%
3.27%
The closing share market price of an ordinary share of Mesoblast Limited on the Australian Stock Exchange at 30 June 2009
was $0.83 (30 June 2008: $0.91).
(c) Reconciliation of outstanding share options
Share options over ordinary shares
Balance at beginning of financial year
Granted during the year
Exercised during the year
Expired or forfeited during the year
Balance at end of financial year
Unvested at end of financial year
Exercisable at end of financial year
2009
2008
Number of
options
Weighted average
exercise price $
Number of
options
Weighted average
exercise price $
9,316,667
2,976,000
(1,900,667)
(520,000)
9,872,000
4,396,000
5,476,000
1.06
1.00
0.62
1.73
1.09
1.40
0.85
7,956,667
2,480,000
(1,040,000)
(80,000)
9,316,667
2,680,000
6,636,667
0.69
2.13
0.67
1.89
1.06
2.05
1.51
59
18. SHARE-BASED PAYMENTS CONTINUED
(d) Share options exercised during the year
Option series
Number exercised
Exercise date(s)
Share price at
exercise date
2009
1
2(a)
2(b)
2(c)
3
4(a)
4(b)
4(c)
2008
2(c)
4(b)
4(c)
1
1
200,000
550,000
150,000
80,000
700,000
34,000
166,667
20,000
1,900,667
80,000
300,000
60,000
200,000
400,000
1,040,000
11 August 2008
16 December 2008
16 December 2008
30 June 2009
3 September 2008
3 April 2009
30 June 2009
23 February 2009
10 October 2007
10 October 2007
10 October 2007
13 December 2007
20 December 2007
$1.16
$0.80
$0.80
$0.83
$1.23
$0.75
$0.83
$0.79
$1.50
$1.50
$1.50
$1.28
$1.27
19. KEY MANAGEMENT PERSONNEL COMPENSATION
(a) Details of key management personnel
The directors and other members of key management personnel of the Company during the current and prior years were:
Effective Date
Name
Position
Brian Jamieson
Non-executive Chairman (A)
Byron McAllister
Non-executive Director
Donal O’Dwyer
Non-executive Director
Michael Spooner
Non-executive Director (A);
Executive Chairman (R)
Silviu Itescu
Executive Director
Company Secretary
Chief Financial Officer (R);
Vice President of Operations (A)
Chief Financial Officer (A);
Financial Controller (R)
Kevin Hollingsworth
Suzanne Lipe
Jenni Pilcher
Roger Brown
Paul Rennie
Jim Ryaby
Donna Skerrett
(A) Appointed to this position;
(R) Resigned from this position
60
Vice President of Regulatory Affairs (A)
19 January 09
Special Projects Consultant (A)
Chief Operating Officer (R);
Vice President of Research and Clinical Affairs (A)
Full Year
n/a
Full Year
Head of Regulatory (2008)
Medical Director (2009)
Not included for
reporting purposes
2009
Full year
Full year
Full year
Full year
Full year
Full year
n/a
Full Year
Full Year
n/a
2008
22 November 07
Full year
Full year
8 August 07
8 August 07
Full year
Full year
21 November 07
18 March 08
n/a
21 November 07
n/a
12 May 08
12 May 08
3 March 08
Full year
n/a
19. KEY MANAGEMENT PERSONNEL COMPENSATION CONTINUED
(b) Key management personnel compensation
The aggregate compensation made to directors and other members of key management personnel of the Company is
set out below:
Short-term employee benefits
Post-employment benefits
Share based payments
30 June 2009
$
30 June 2008
$
1,518,357
1,235,755
69,397
383,635
89,629
477,420
1,971,389
1,802,804
Further disclosures regarding key management personnel compensation are contained within the remuneration report.
(c) Key management personnel equity holdings
Options
Balance
at 1 July
No.
Granted as
compens-
ation No.
Exercised
No.
Net
change
other
No.
Balance at
30 June
No.
Total
vested
30 June
No.
Vested
and exer-
cisable
No.
Unvested
No.
2009
Brian Jamieson
Byron McAllister
Donal O’Dwyer
-
150,000
300,000
Michael Spooner
1,100,000
Silviu Itescu
-
Kevin Hollingsworth
200,000
-
-
-
-
-
-
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
2008
Brian Jamieson
Byron McAllister
Donal O’Dwyer
Silviu Itescu
Kevin Hollingsworth
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
-
-
240,000
180,000
160,000
240,000
250,000
150,000
-
-
150,000
300,000
-
-
-
240,000
-
-
-
-
-
200,000
-
60,000
100,000
-
-
250,000
-
Michael Spooner
1,100,000
Donna Skerrett
300,000
200,000
-
(150,000)
(150,000)
(1,100,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(60,000)
340,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
67,000
67,000
133,000
-
-
-
-
-
-
150,000
150,000
150,000
-
-
200,000
240,000
180,000
400,000
240,000
-
-
-
-
-
-
-
-
-
33,000
83,000
33,000
83,000
-
-
-
-
-
-
-
-
-
240,000
180,000
307,000
317,000
240,000
-
-
150,000
150,000
150,000
300,000
250,000
250,000
50,000
1,100,000
1,100,000
1,100,000
-
200,000
-
160,000
250,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
200,000
-
160,000
250,000
-
500,000
300,000
300,000
200,000
61
19. KEY MANAGEMENT PERSONNEL COMPENSATION CONTINUED
c) Key management personnel equity holdings continued
Shareholdings
Fully paid ordinary shares held by directors and key management personnel or their personally related parties
(as defined by AASB 124):
Balance
at 1 July
No.
Granted as
compensation
No.
Received on
exercise of
options
No.
Net change
other
No.
2009
Brian Jamieson (i)
Byron McAllister
Donal O’Dwyer (ii)
Michael Spooner (iii)
200,000
-
273,850
839,255
Silviu Itescu
37,120,000
Kevin Hollingsworth
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
2008
Brian Jamieson (i)
Byron McAllister
Donal O’Dwyer (ii)
Michael Spooner (iii)
Silviu Itescu
Kevin Hollingsworth
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
Donna Skerret
-
-
-
6,000
-
-
-
-
273,850
839,255
37,120,000
-
-
6,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
150,000
150,000
1,100,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
110,000
(108,685)
5,000
(790,000)
5,000
-
-
-
-
-
-
200,000
-
-
-
-
-
-
-
-
-
-
Balance at
30 June
No.
310,000
41,315
428,850
1,149,255
37,125,000
-
-
-
6,000
-
-
200,000
-
273,850
839,255
37,120,000
-
-
6,000
-
-
-
(i) Brian Jamieson’s shareholding includes 275,000 (2008:125,000) shares held by a related party as defined by the accounting
standard AASB124 Related Party Disclosures.
(ii) Donal O’Dwyer’s shareholding includes 278,950 (2008:273,850) shares held by a related party as defined by the accounting
standard AASB124 Related Party Disclosures.
(iii) Michael Spooner’s shareholding includes 48,455 (2008:839,355) shares held by a related party as defined by AASB124
Related Party Disclosures.
62
20. RELATED PARTY TRANSACTIONS
(a) Equity interests in related parties
Details of interests in associates are disclosed in note 10 to the financial statements.
(b) Transactions with other related parties
Accounts receivable from and accounts payable to Angioblast Systems, Inc. as at the end of the financial year are disclosed in
notes 8 and 12 respectively. Both parties may pay invoices in their local currency on behalf of the other party to facilitate timely
payment of suppliers. This results in a loan account between both parties which is settled monthly. The transactions being paid
for are described below:
Amounts paid on behalf of Angioblast, by Mesoblast
50% sharing of research and SAB fees
50% sharing of cell and antibody manufacturing
50% sharing of clinical research organisation costs
50% sharing of intellectual property costs
Research and development (Australia based)
Other
Amounts paid on behalf of Mesoblast, by Angioblast
Research and development (US based)
Employees and consultants (US based)
Other (US based)
30 June
2009
$
$
30 June
2008
125,500
216,391
50,000
183,589
192,470
54,756
822,706
-
774,520
260,682
1,035,202
98,418
118,515
-
157,606
209,802
19,950
604,291
428,299
112,513
57,385
598,197
63
20. RELATED PARTY TRANSACTIONS CONTINUED
(c) Transactions between related parties of the company
Together, Mesoblast and Angioblast have been jointly developing process manufacturing and scale-up of the MPC technology,
as well as pre-clinical and clinical components which were necessary to obtain Investigational New Drug (IND) clearance from
the FDA for orthopaedic and cardiovascular applications (respectively). Both companies have received IND clearance for their
respective applications during the current financial year and are now embarking on phase 2 clinical trials. In order to maximise
economies of scale and expertise in both entities, certain members of key management personnel provide expert services to
both entities. These relationships are outlined below:
Mesoblast key
management personnel
Silviu Itescu
Donal O’Dwyer
Angioblast key
management personnel
Relationship(s) with Angioblast
Nature of transaction(s)(i)
Director, Chief Scientist and Chairman
of the Scientific Advisory Board
Directors fees & contract
for services
Non-executive Director, as Mesoblast
representative
Directors fees & Angioblast
share options
Relationship(s) with Mesoblast
Nature of transaction(s)(i)
Michael Schuster
Consultant
Donna Skerrett
Consultant
Contract for services & Mesoblast
share options (ii)
Contract for services & Mesoblast
share options (ii)
(i) All contracts for services are prepared on normal commercial terms.
(ii) Mesoblast share options held by Angioblast employees are included in the
table disclosed in note 18 to the financial statements.
21. FINANCIAL RISK MANAGEMENT
Financial risks impacting the company fall into three categories:
• Market risk (includes currency, interest rate and price risks)
• Credit risk
• Liquidity risk
A description of each risk, together with the risk as it relates to the company, is presented below.
(a) Market risk
(i) Currency risk
The company has certain clinical, regulatory and manufacturing activities in the United States of America. As a result of these
activities, the company has certain amounts owing to creditors and Angioblast Systems, Inc. and a bank account that are
denominated in US dollars. These balances give rise to a currency risk, which is the risk of the exchange rate moving, in either
direction, and the impact it may have on the company’s financial performance.
The company manages the currency risk by evaluating the trend of the US dollar in comparison to the Australian dollar and
making decisions whether to purchase US dollars in advance for the purposes of settling these liabilities. The company has
a USD bank account for this purpose.
64
21. FINANCIAL RISK MANAGEMENT CONTINUED
(a) Market risk continued
The balances held at the end of the year that give rise to currency risk exposure are presented in the table below,
together with a sensitive analysis which assesses the impact that a change of +/-20% (2008: +/-10%) in the exchange
rate as at 30 June would have had on the company’s reported net losses and/or equity balance. The USD prevailing
as at 30 June 2009 was 0.8048 (2008: 0.9615).
30 June 2009
Balance held
+20%
-20%
USD bank account
Trade payables
Amounts owing to
Angioblast Systems, Inc
US$
Profit/(Loss) AU$
Equity AU$ Profit/(Loss) AU$
Equity AU$
47,439
131,275
(65,746)
(9,824)
(27,185)
13,615
112,968
(23,394)
-
-
-
-
14,736
40,779
(20,423)
55,515
-
-
-
-
30 June 2008
Balance held
+10%
-10%
USD bank account
Trade payables
Amounts owing to
Angioblast Systems, Inc
US$
Profit/(Loss) AU$
Equity AU$ Profit/(Loss) AU$
Equity AU$
47,368
(268,803)
(60,040)
(4,478)
25,816
6,007
(281,475)
27,345
-
-
-
-
4,478
(25,816)
(6,007)
(27,345)
-
-
-
-
(ii) Interest rate risk
The company has exposure to interest rate movements from the interest income it earns on its term deposits and deposits
at call. The interest income derived from these balances can fluctuate due to interest rate changes. This interest rate risk is
managed by spreading our deposits across various maturity periods and by keeping deposits subject to floating interest
rates at a level where they can be used for managing the cash flows of the company. The balances held which derive interest
revenue are described in (c) below. There is no material impact on the company’s net loss and equity if the interest rates were
to be different, by any reasonable amount, as at the end of the financial year. This is because interest is calculated daily and
has largely already been earned at the prescribed bank rates at this point in time.
(iii) Price risk
Price risk is the risk that future cashflows derived from financial instruments will be altered as a result of a market price
movement, other than foreign currency rates and interest rates. The company does not consider it has any exposure
to price risk other than those already described above.
65
21. FINANCIAL RISK MANAGEMENT CONTINUED
(b) Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge its obligation and will therefore cause financial
loss to the other party. As the company is non-revenue generating it generally does not have trade receivables. Its receivables
are typically due from the government in the form of GST and government grants, and from its related party. The company
manages the exposure to credit risk by ensuring all amounts due from Angioblast are received monthly and that the balance
is not more than $200,000 at any one time without prior approval of a director. The credit risk to the company is detailed below:
Cash and cash equivalents
Cash and cash equivalents (note 7) – AAA rated
16,526,278
14,094,219
30 June 2009
$
30 June 2008
$
Trade receivables
Receivable from Australian Government (GST)
Receivable from AAA rated bank deposits (interest)
Receivable from related party (Angioblast)
Receivable from other parties (non-rated)
(c) Liquidity risk
89,905
121,718
44,792
48,946
39,195
68,082
16,623
-
Liquidity risk is the risk that the company will not be able to pay its debts as and when they fall due. The company has
had no borrowings to date and the directors ensure that cash on hand is sufficient to meet the commitments of the company
at all times while it is in a loss making phase of research and development. The going concern basis of preparation is further
described in note 1.
All financial liabilities held by the Company at 30 June 2009 and 30 June 2008 are non-interest bearing and mature within
6 months. The total contractual cash flows associated with these liabilities equate to the carrying amount disclosed within
the financial statements.
22. SUBSEQUENT EVENTS
On 25 August 2009 Mesoblast announced that Angioblast Systems, Inc., (a US based associate of Mesoblast), had
successfully raised $10m from new and existing institutional and sophisticated investors. Mesoblast will retain its 38.4% equity
in Angioblast until Angioblast’s next financing event, defined as an Initial Public Offering, a Merger and Acquisition, or a private
equity round of at least $10 million. At that time, Mesoblast may seek to maintain or increase its shareholding.
There are no other subsequent events that the directors consider would have a material impact on the results of the company
for the year ending 30 June 2009.
66
Directors’ Declaration
In accordance with a resolution of directors of Mesoblast Limited,
In the opinion of the directors:
(a) the accompanying financial statements and notes on pages 33 to 66 are in accordance with the Corporations
Regulations 2001 and comply with the accounting standards and give a true and fair view of the company’s
financial position as at 30 June 2009 and of its performance for the year ended on that date.
(b) At the date of this declaration there are reasonable grounds to believe that the company will be able to pay its
debts as and when they become due and payable.
(c) The remuneration disclosures set out on pages 17 to 24 of the director’s report comply with accounting standard
AASB 124 Related Party Disclosures and the Corporations Regulations 2001.
(d) The directors have been given the declarations by the Chief Executive Officer and the Chief Financial Officer
required by Section 295 A.
Signed in accordance with a resolution of the Board of Directors.
Mr Brian Jamieson
Director
26 August 2009, Melbourne
67
Independent auditor’s report to the members of
Mesoblast Limited
PricewaterhouseCoopers
PricewaterhouseCoopers
ABN 52 780 433 757
ABN 52 780 433 757
Freshwater Place
Freshwater Place
2 Southbank Boulevard
2 Southbank Boulevard
SOUTHBANK VIC 3006
SOUTHBANK VIC 3006
GPO Box 1331L
GPO Box 1331L
MELBOURNE VIC 3001
MELBOURNE VIC 3001
DX 77
DX 77
Telephone 61 38603 1000
Telephone 61 38603 1000
Facsimile 61 3 8603 1999
Facsimile 61 3 8603 1999
Website:www.pwc.com/au
Website:www.pwc.com/au
Report on the financial report
Auditor’s Independence Declaration
Auditor’s Independence Declaration
We have audited the accompanying financial report of Mesoblast Limited (the company), which comprises the
balance sheet as at 30 June 2009, and the income statement, statement of changes in equity and cash flow
statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes
and the directors’ declaration.
As lead auditor for the audit of Mesoblast Limited for the year ended 30 June 2008, Idec lare that to
As lead auditor for the audit of Mesoblast Limited for the year ended 30 June 2008, Idec lare that to
the best of my knowledge and belief, there have been:
the best of my knowledge and belief, there have been:
Directors’ responsibility for the financial report
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001
The directors of the company are responsible for the preparation and fair presentation of the financial report in
in relation to the audit; and
in relation to the audit; and
accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the
Corporations Act 2001. This responsibility includes establishing and maintaining internal controls relevant to the
b)
no contraventions of any applicable code of professional conduct in relation to the audit.
b)
no contraventions of any applicable code of professional conduct in relation to the audit.
preparation and fair presentation of the financial report that is free from material misstatement, whether due to
fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are
reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard
This declaration is in respect of Mesoblast Limited during the period.
This declaration is in respect of Mesoblast Limited during the period.
AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International
Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes,
complies with International Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
Anton Linschoten
Anton Linschoten
accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant
Partner
Partner
ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable
PricewaterhouseCoopers
PricewaterhouseCoopers
assurance whether the financial report is free from material misstatement.
Melbourne
Melbourne
28 August 2008
28 August 2008
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the
risks of material misstatement of the financial report, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
financial report in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by the directors, as well as evaluating the overall presentation of the financial report.
Our procedures include reading the other information in the Annual Report to determine whether it contains any
material inconsistencies with the financial report.
Our audit did not involve an analysis of the prudence of business decisions made by directors or management.
Liability limited by a scheme approved under Professional Standards Legislation
Liability limited by a scheme approved under Professional Standards Legislation
68
PricewaterhouseCoopers
ABN 52 780 433 757
Freshwater Place
2 Southbank Boulevard
SOUTHBANK VIC 3006
GPO Box 1331L
MELBOURNE VIC 3001
DX 77
Telephone 61 38603 1000
Facsimile 61 3 8603 1999
Website:www.pwc.com/au
Auditor’s Independence Declaration
As lead auditor for the audit of Mesoblast Limited for the year ended 30 June 2008, Idec lare that to
the best of my knowledge and belief, there have been:
no contraventions of the auditor independence requirements of the Corporations Act 2001
in relation to the audit; and
a)
b)
This declaration is in respect of Mesoblast Limited during the period.
Anton Linschoten
Partner
PricewaterhouseCoopers
Melbourne
28 August 2008
Liability limited by a scheme approved under Professional Standards Legislation
Independent auditor’s report to the members of
Mesoblast Limited (continued)
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinions.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
Auditor’s opinion
In our opinion:
(a) the financial report of Mesoblast Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the company’s financial position as at 30 June 2009 and of their performance
no contraventions of any applicable code of professional conduct in relation to the audit.
for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1.
Report on the Remuneration Report
We have audited the Remuneration Report included in sections A to D of the directors’ report for the year ended
30 June 2009. The directors of the company are responsible for the preparation and presentation of the
Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to
express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian
Auditing Standards.
Auditor’s opinion
In our opinion, the Remuneration Report of Mesoblast Limited for the year ended 30 June 2009, complies with
section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Anton Linschoten
Partner
Melbourne
26 August 2009
69
Shareholder Information
A. SUBSTANTIAL SHAREHOLDERS
The company’s Holders of Relevant Interests as notified by ASX Substantial Shareholders and the number of shares in which
they have an interest as disclosed by notices received under Part 6.7 of the Corporation Act 2001 as at 16 October 2009 are:
Shareholder
Number of ordinary shares held
Aviva Investors Australia Limited
(ex: Portfolio Partners Limited)
Silviu Itescu
Thorney Holdings Pty Ltd
8,347,165
37,120,000
13,258,403
B. NUMBER OF HOLDERS OF EQUITY SECURITIES AND VOTING RIGHTS
Number of holders
Ordinary shares (i)
Share options (ii)
2,209
29
The voting rights attaching to each class of equity securities are:
(i) Ordinary shares
On a show of hands, every member present at a meeting, in person or by proxy, shall have one vote and upon a poll each
share shall have one vote.
(ii) Share options
No voting rights.
C. DISTRIBUTION OF EQUITY SECURITIES
Distribution of holders of equity securities as at 16 October 2009
No. of holders
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,000 and over
Number of holders of less than a marketable parcel of shares
Ordinary shares
Share options
392
810
403
521
83
2,209
76
-
-
-
4
25
29
70
D. TWENTY LARGEST HOLDERS OF QUOTED SECURITIES
The names of the 20 largest shareholders of each class of equity security as at 16 October 2009 are listed below:
No.
Name
No. of shares held
% of total shares
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Professor Silviu Itescu
ANZ Nominees Limited
National Nominees Limited
J P Morgan Nominees Australia Limited
UBS Nominees Pty Ltd
J G M Investment Group Pty Ltd
Dalit Pty Ltd
Cogent Nominees Pty Limited
Medvet Science Pty Ltd
RBC Dexia Investor Services Australia Nominees Pty Ltd
Cogent Nominees Pty Limited
RBC Dexia Investor Services Australia Nominees Pty Limited
Equity Trustees Limited
Hsbc Custody Nominees (Australia) Limited
Michael Spooner
Citicorp Nominees Pty Limited
Tigcorp Nominees Pty Ltd
Thorney Holdings Pty Ltd
Hazlaha Investments Limited
Queensland Investment Corporation
36,632,196
16,537,077
11,202,955
10,805,688
4,455,620
3,050,000
3,040,000
2,892,431
2,790,000
2,102,919
2,078,104
1,675,622
1,257,444
1,155,831
1,100,000
985,933
960,000
700,000
637,600
618,082
26.48%
11.95%
8.10%
7.81%
3.22%
2.20%
2.20%
2.09%
2.02%
1.52%
1.50%
1.21%
0.91%
0.84%
0.80%
0.71%
0.69%
0.51%
0.46%
0.45%
104,677,502
75.65%
71
Mesoblast Limited ABN 68 109 431 870
Board of Directors and Company Particulars
DIRECTORS
Brian Jamieson (Chairman)
Silviu Itescu
Byron McAllister
Donal O’Dwyer
Michael Spooner
COMPANY SECRETARY
Kevin Hollingsworth
REGISTERED OFFICE
Level 2
517 Flinders Lane
MELBOURNE VIC 3000
Telephone (03) 9629 5566
Facsimile (03) 9629 5466
COUNTRY OF INCORPORATION
Australia
PRINCIPAL PLACE OF BUSINESS
Level 39
55 Collins Street
MELBOURNE VIC 3000
Telephone (03) 9639 6036
Facsimile (03) 9639 6030
STOCK EXCHANGE LISTING
Australian Stock Exchange
(ASX Code: MSB)
AUDITORS
PricewaterhouseCoopers
Freshwater Place
Level 19, 2 Southbank Boulevard
MELBOURNE VIC 3006
SOLICITORS
Middletons Lawyers
Level 25, Rialto Tower
525 Collins Street
MELBOURNE VIC 3000
BANKERS
National Australia Bank Ltd
221 Drummond Street
CARLTON VIC 3053
SHARE REGISTRY
Link Market Services Limited
Level 4
333 Collins Street
MELBOURNE VIC 3000
WEBSITE
www.mesoblast.com
72