Leading the world in regenerative medicine
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Annual Report 2010
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
1
2
6
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70
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 2010.
Mesoblast is now firmly entrenched as a world
leader in the commercialisation of biologic products.
Mesoblast is achieving global recognition
as it continues to meet key milestones, gaining
support from major new international investors.
We continue to appreciate the ongoing loyalty and
support of all our retail, institutional and
sophisticated investors.
2010 saw Mesoblast achieving considerable
progress in the commercialisation of our off-the-
shelf allogeneic and our patient-specific autologous
suite of products, producing a strong and positive
news flow.
There was overwhelming support for the strategic
acquisition of our United States associate company,
Angioblast Systems Inc., which will deliver the full
potential of our shared platform technology under
one umbrella. With 100 per cent of the intellectual
property covering the commercial use of the
unique and potent Mesenchymal Precursor Cells,
Mesoblast has broadened its product pipeline to
include major clinical opportunities such as heart
disease, oncology, diabetes and eye diseases.
In a year of notable achievements, the approval
by the Australian Therapeutic Goods Administration
for Mesoblast to manufacture and distribute our
first generation patient-specific adult stem products
was a highpoint. We are very proud that this is the
first culture-expanded adult stem cell product that
has received manufacturing approval anywhere in
the world.
We acknowledge the valuable contributions of
the Mesoblast staff and consultants who continue
to deliver excellent outcomes and to constantly
demonstrate their robust commitment to rapidly
delivering a suite of adult stem cell for an increasing
number of applications with unmet clinical needs.
We expect 2011 to be another dynamic year for
Mesoblast and we look forward to sharing our future
achievements with you as we continue to make
profound differences to the quality and extension of
lives for millions of people worldwide.
Mr Brian Jamieson
Mesoblast is now firmly entrenched as a world leader in the
commercialisation of biologic products… through increasing
recognition of the Company’s steady progress towards
commercialisation of its platform adult stem cell technology.
1
Executive Director’s Report
The year 2010 has been pivotal to Mesoblast’s maturation as the world’s leading
regenerative medicine company.
To facilitate our continued growth and expansion of
commercial opportunities we have ensured that the entire
intellectual property for the Mesenchymal Precursor Cell
(MPC) technology platform has been brought together
under one umbrella within Mesoblast. This will enable all
shareholders to participate in 100 per cent of the
commercial benefit from all applications of the MPC
technology.
The acquisition of Angioblast Systems by Mesoblast
provides the enlarged Mesoblast Group with at least five
strategic advantages:
• A larger market capitalization and liquidity which will
increase domestic and international investor interest
and facilitate greater access to capital for our clinical
and other requirements
• The ability to now rationally allocate resources to those
clinical applications that have the highest inherent
commercial value
• By fully controlling the intellectual property to the
platform technology, the Company has enhanced its
ability to negotiate transactions for all potential
applications with key strategic partners without limitation
• Full control of the intellectual property means that the
Company can now roll out a manufacturing strategy for
our commercial products and for a sustainable pipeline
of next generation products
• A robust manufacturing capability ensures that the
Company can maintain clear delineation for each
product, including through formulation changes, to
protect key market advantages such as price premiums.
The enlarged Mesoblast Group now has the commercial
imperative to create a clear portfolio of products with an
appropriately balanced near-term, medium-term and
long-term strategy.
In the near-term Mesoblast will focus on providing high-end
patient’s own, or autologous, therapies approved by the
Australian Therapeutic Goods Administration (TGA) to
individuals with severe fractures and degenerative
conditions. These will be premium priced products filling
an interim need until the Company’s allogeneic, or
“off-the-shelf”, products receive regulatory approvals.
Clearly, maximal value creation will result from successful
execution of a medium-term strategy for commercialisation
of “off-the-shelf” products for a wide range of clinical
conditions with unmet medical needs.
Our allogeneic products reflect our core business strategy
to deliver effective products with low manufacturing cost
of goods and high margins. The allogeneic business
model leverages off technical advantages associated with
Mesoblast’s stem cell platform technology – the ability
of the cells to be greatly expanded and their lack of
immunogenicity when used from one donor to treat
thousands of unrelated people.
Each of our lead “off-the-shelf” products, seen in the
figure on page 4, has its own intellectual property
portfolio, delineated path to regulatory approval, pricing
strategy, and distinct plan for market launch and
penetration. While some products, such as the bone
marrow transplantation, congestive heart failure, and
spinal fusion products, are in late stages of clinical
development, other products such as those for heart
attacks, arthritis, diabetes, eye diseases and degenerative
disc disease are at mid- or early stage.
This makes Mesoblast a company with a robust, multi-
pronged clinical product pipeline which will serve to
underpin the company’s intrinsic growth potential and
protect against the risks sometimes associated with
one-product companies.
Finally, the Company is building a long-term strategy
which will facilitate sustainable future product
development to maintain a global leadership position
in regenerative medicine. This strategy is predicated on
a robust manufacturing strategy which will enable new
product concepts to be generated and optimised, and
cutting-edge R&D working with best-of-breed scientific
groups and leveraging on Mesoblast’s own intellectual
property advantages.
2
This long-term strategy has been significantly enhanced
through the recently enacted United States Patient
Protection and Affordable Care Act. Under the Act,
a biologic innovator may receive a further 12 years of
market exclusivity from the date of approval of any
subsequent biologic product which has a structure that
has been modified to result in a change in safety, purity,
or potency of the reference biologic. Consequently, this
Act will serve to facilitate exclusive United States market
protection to Mesoblast’s next-generation biologic
products developed under a successful long-term R&D
strategy.
Major Clinical Highlights
TGA Approval…A World-First for Commercialization
of Stem Cell Products
A major achievement during the past year was obtaining
approval from the Therapeutic Goods Administration
(TGA) to manufacture and distribute our patient-specific
adult stem products throughout Australia. This represents
the first regulatory approval anywhere in the world for a
culture-expanded adult stem cell product.
Early adoption of our stem cell products manufactured
under TGA approval will facilitate accrual of clinical
outcome data for use by Mesoblast in subsequent
international filings for product registrations, and establish
a clear path for our allogeneic cell products that are
derived from an unrelated universal donor.
The company will initially target major bone repair
markets, including long bone fractures after trauma,
stress fractures following sporting injury, and vertebral
fractures due to osteoporosis. As many of the fractures
suffered by elite athletes can have a significant impact
on loss of playing time or may even be career threatening,
Mesoblast will initially seek to provide its stem cell
products and services to professional sporting clubs.
“Off-the-Shelf” Product Pipeline
Bone Marrow Transplantation
Over 60,000 patients annually receive a bone marrow
transplant following high dose chemotherapy for blood
cancers. The Company’s lead product in this field has the
potential to significantly improve transplant survival,
expand the pool of donors, and consequently increase
the number of transplants currently being performed for
patients with life-threatening conditions. These important
outcomes mean that the product has the potential to
receive fast-track marketing approval in the United States,
and consequently to generate early and significant
revenues for the Company.
In July, the Company reported that in the first 25 patients
transplanted with MPC-expanded hematopoietic
progenitors from cord blood, 80 per cent successfully
achieved the key composite endpoint at 100 days of
survival with sustained engraftment of both neutrophils
and platelets. This is significantly higher than the rate of
38 per cent for this composite endpoint achieved after
transplantation with non-expanded cord blood in the
United States registry of 300 patients collected by the
Center for International Blood and Marrow Transplant
Research. To date, only four patients (16 per cent)
receiving expanded cord blood have developed severe
graft-versus-host disease. On the basis of these results,
Mesoblast has had discussions with the FDA regarding
progressing this application into Phase 3.
3
Lead Products
Preclinical
Phase I
Phase II
Phase III
IND Clearance
FDA Approval
Bone Marrow Transplantation
Congestive Heart Failure
Spinal Fusion
Knee Osteoarthritis
Long Bone Fracture Repair
Acute Myocardial Infarction
Intervertebral Disc Repair
Eye Disease (AMD)
Diabetes
Building on the clinical success of Mesoblast’s proprietary
cell product for expansion of cord blood, the Company
will now address new markets where expansion of
hematopoietic stem cells can make a meaningful impact
on clinical outcomes, including diseases such as multiple
myeloma. The new uses of Mesoblast’s proprietary
“off-the-shelf” cell product for bone marrow transplantation
will continue to be developed under the existing FDA
orphan drug designation for expanding hematopoietic
stem and progenitor cell numbers in patients with
hematologic malignancies, such as multiple myeloma.
Congestive Heart Failure
This represents a massive commercial market opportunity
for Mesoblast, with over 6 million people affected with the
disease and 600,000 new patients annually in the United
States alone. This disease is the number one cause of
repeat hospitalisations and mortality in the Western world.
Mesoblast’s lead product for congestive heart failure,
Revascor™, continues to produce positive results in the
Phase 2 trial conducted at multiple centers across the
United States.
All 60 patients in the trial have been recruited, and there
have been no cell-related safety issues. Interim analyses
have demonstrated significant improvement in heart
muscle function, as measured by ejection fraction, in
patients receiving the lowest dose of MPCs and this
improvement was sustained for at least six months.
Further results are expected shortly, particularly with
respect to quality of life parameters, hospitalization
episodes, and survival endpoints.
Spinal Fusion
The Company is currently evaluating the effectiveness
and safety of NeoFuse™ for minimally invasive spinal
fusion surgery of the cervical and lumbar spine in
60 patients randomized to receive either NeoFuse™ or
standard therapy across two international Phase 2 trials
cleared by the United States Food and Drug
Administration (FDA). Over 500,000 patients annually
undergo spinal fusion surgery in the United States alone.
Interim results from the first seventeen patients enrolled
in Mesoblast’s posterior lumbar interbody fusion trial
revealed no cell-related safety issues, and in particular
there was no evidence of ectopic bone formation or nerve
root compression as have been reported to occur with
alternative biologic therapies. At three months of follow-
up, CT scans showed that approximately 90 per cent
of patients implanted with NeoFuse™ had achieved
successful bone bridging. Mean pain reduction scores
of more than 20 per cent compared with baseline were
achieved.
If the end-points of pain reduction and successful fusion
are maintained throughout this trial, Mesoblast would
proceed with plans for a Phase 3/pivotal trial since these
are the outcome improvements expected by a regulatory
body for registration of a minimally invasive lumbar fusion
product.
Diabetes
Diabetes afflicts 230 million people in the western world.
In December 2009, we announced positive preclinical
results using the platform stem cell technology for the
treatment of diabetes.
4
The Year Ahead
Mesoblast will continue to progress the late-stage
commercialization of our lead products for bone marrow
transplantation, congestive heart failure, and spinal
fusion, as well as the diabetes, eye disease, disc disease,
and arthritis clinical programs.
We expect that 2011 will see Mesoblast products entering
Phase 3/pivotal trials, with a number of other products
showing strong clinical promise in Phase 2 trials.
Our clinical results will underpin partnering activities and
investor support.
Through clinical, corporate, and strategic developments,
Mesoblast will seek to maintain its leadership position in
commercializing and creating novel regenerative medicine
therapies that impact on survival and quality of life.
In the study, a single dose of the patented human MPCs
injected into mice with diabetes resulted in a significant
increase in blood insulin levels and sustained reduction
in blood glucose levels for the entire three week period
of follow-up. This was due to restoration in the damaged
pancreas of the balance between insulin-producing beta
cells, which reduce blood glucose, and glucagon-
producing alpha cells, which increase blood glucose.
These data clearly demonstrated the potential of using
our unique adult stem cells in the treatment of patients
with diabetes. The Company is now completing safety
and efficacy data in diabetic monkeys in order to progress
its development of an intravenous formulation of
allogeneic MPCs for the treatment of diabetes. Results
of the primate studies are expected shortly, and we
anticipate that these will form the basis for progression
to Phase 2 human clinical trials for this modern epidemic
disease.
Funding
In early 2010, Mesoblast completed a capital raising of up
to AUD 37 million to fund the acquisition of Angioblast and
advance operations, and earlier in the financial year
Angioblast raised AUD 10 million through an equity-based
transaction.
5
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 2010. In order to comply with the provisions of the
Corporations Act 2001, the directors report the following information:
Directors
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 16 of this report.
6
Principal Activities & Strategy
Overview
During 2010 significant progress was made in a
number of clinical applications of the proprietary
Mesenchymal Precursor Cell (MPC) technology
platform which Mesoblast is developing for a range of
bone, cartilage and musculoskeletal conditions. At
present, the Company holds a 38.4% interest, on an
undiluted basis, in Angioblast Systems, Inc. (Angioblast),
an American company also commercializing the same
platform technology for the treatment of cardiovascular
and other diseases.
Key Achievements
Australian Regulatory Approval for Stem Cell
Commercial Manufacture
In July 2010 Mesoblast was successful in obtaining a
license from the Therapeutic Goods Administration (TGA)
to commercially manufacture its range of first generation
autologous, or patient’s own, stem cell products. This
represents the first culture-expanded adult stem cell
therapy that has received manufacturing approval
anywhere in the world and is a strong validation of the
Company’s science, manufacturing, preclinical and
clinical strategies and results.
The Company will focus its Australian commercial
activities using the first generation product on those
areas in critical need of novel therapies where the current
standard of care is not effective and where there is
potential for early revenue generation from a premium-
priced product.
Specifically, Mesoblast’s first generation products may
have unique applicability to long bone fractures after
trauma, stress fractures following sporting injury, and
vertebral fractures due to osteoporosis. The growing need
for treatments of musculoskeletal injuries suffered by elite
sportspeople may represent a particular opportunity for
the Company.
Early adoption of our first generation products will
underscore our position as a world leader in the
commercialisation of adult stem cell therapies. It will also
establish a clear path for our second generation
allogeneic, or “off-the-shelf”, products that are derived
from a universal or unrelated donor.
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. These are
approximately distributed evenly between the lumbar and
cervical spine.
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
Mesoblast’s current Phase 2 trial for minimally-invasive
posterior lumbar interbody fusion is nearing recruitment
completion. The results from this second trial will form the
basis for pivotal trial design in support of Mesoblast’s
activities to commercialise a lumbar spinal fusion product.
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™ generated safe and robust
fusion over a 12-month period. The initial results from this
study support prior preclinical data which have shown
that Mesoblast’s allogeneic cells generate faster fusion in
the lumbar and cervical spine than the autograft
standard-of-care.
7
(b) Cervical Fusion
In May 2010 Mesoblast received clearance from the
United States FDA to begin Phase 2 clinical trials of its
“off-the-shelf” or allogeneic stem cell product NeoFuse™
for fusion of the cervical spine in the neck. As with all of
Mesoblast’s previous Investigational New Drug (IND)
submissions, FDA clearance was obtained within the
minimum 30-day period.
Mesoblast’s Phase 2 cervical fusion clinical program will
compare two doses of NeoFuse™ versus standard-of-
care in 36 patients requiring bony fusion at two or more
levels in the cervical spine. The broader trial is an
extension into the United States of the Australian study
already underway. The trial objectives are to show the
safety and effectiveness of the cells in this application
over a 12-month period.
Cartilage Repair and Regeneration
Mesoblast is developing a range of cartilage repair
products, including one for regeneration of intervertebral
disc and a second for restoration of knee joint lining
cartilage. Both of the lead cartilage products have
completed successful preclinical trials, and a clinical trial
in Australia is currently ongoing for prevention of
generalised cartilage loss after an acute knee injury.
For patients with early stage intervertebral disc disease,
Mesoblast is developing an allogeneic product which can
be injected by a minimally invasive approach into
degenerating discs in the spine of unrelated recipients in
order to repair and regenerate disc cartilage. This is likely
to be a significantly larger market than spinal fusion.
Based on positive results of preclinical trials showing
radiographic and pathologic disc regeneration,
Mesoblast is in the process of completing an IND
submission to the United States FDA to commence
Phase 2 clinical trials in patients with low back pain due
to disc degenerative disease.
Knee osteoarthritis affects as many as 15 million people in
the United States alone, and no approved therapies
currently have any effect on joint cartilage repair or
regeneration. Traumatic knee injuries in healthy active
people are a significant contributor to development of
early knee osteoarthritis.
Our current Phase 2 trial in patients who have undergone
reconstruction of a ruptured Anterior Cruciate Ligament
(ACL) has completed recruitment in the first group of
patients receiving a single injection of either the
Company’s “off-the-shelf” allogeneic stem cells or control,
and an update on interim results will be presented shortly.
Results from this trial are expected to support the
company’s progression to a clinical program in the
United States in patients with established osteoarthritis.
Bone Marrow Transplantation
A groundbreaking Phase I/II trial 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. 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.
8
In the first 25 patients transplanted with MPC-expanded
haematopoietic progenitors from cord blood, 80 per cent
successfully achieved the key composite endpoint at
100 days of survival with sustained engraftment of both
neutrophils and platelets. This is significantly higher than
the rate of 38 per cent for this composite endpoint
achieved after transplantation with non-expanded cord
blood in the United States registry of 300 patients
collected by the Center for International Blood and
Marrow Transplant Research.
On the basis of these results, the Company held a
successful meeting with the FDA to discuss plans for
moving into a Phase 3 trial. Based on this meeting, and in
line with previous guidance, Angioblast remains on track
to file an Investigational New Drug (IND) submission to the
FDA to commence a Phase 3 trial for its bone marrow
transplant product by the end of this year.
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. The company has
completed recruitment of its 60-patient multicenter trial in
the United States, with 6 and 12 month results from all
patients expected shortly.
Results from the first group of patients receiving the
lowest dose of Revascor™ were presented to the
American Heart Association in November 2009. Patients
who received a single injection of Revascor™ into
damaged heart muscle had significantly improved cardiac
function at both three and six months compared with
baseline. At six months, a single dose of Revascor™ was
accompanied by a 22% mean increase in ejection
fraction, whereas controls had an 18% mean decrease in
ejection fraction over the same time period. There were no
cell-related adverse events. The observed improvement
between treated and controlled patients on top of medical
standard of care was over two-fold higher than previously
reported with existing device therapies.
This condition affects an estimated 5 million people
in the United States alone, with 550,000 new cases each
year. Progressive 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. Approval by the FDA of Angioblast’s new
heart failure therapy for commercialisation is likely to
require demonstration in pivotal trials that the technology
significantly reduces both heart failure hospitalization
and mortality.
Diabetes
In December 2009 Angioblast announced that a single
dose of the patented human MPCs injected into mice with
diabetes resulted in a significant increase in blood insulin
levels and sustained reduction in blood glucose levels for
the entire three week period of follow-up. This was due to
restoration in the damaged pancreas of the balance
between insulin-producing beta cells, which reduce blood
glucose, and glucagon-producing alpha cells, which
increase blood glucose.
Diabetes affects 230 million people in the western world,
and its prevalence is increasing at an alarming rate.
Complications from diabetes include heart disease,
chronic kidney failure, blindness, nerve damage, and
lower extremity amputations. Angioblast is in the process
of completing appropriate studies in preparation for
commencement of human trials.
Proposed Acquisition of Angioblast
In order to maximize shareholder benefit across the entire
technology platform, the Board of Directors has
recommended to shareholders to consider a strategic
acquisition of Angioblast. This proposed acquisition
would enable Mesoblast to significantly broaden its
product portfolio based on 100 per cent ownership of
the intellectual property rights underpinning the entire
MPC technology platform. Fundamentally, it would
transform Mesoblast from a biologics company focused
on orthopaedic applications to a global leader in the
regenerative medicine industry. Mesoblast shareholders
would gain full commercial benefits from the breadth
of applications, including cardiac, eye, diabetes
and oncology. An Extraordinary General Meeting
of Mesoblast shareholders to vote on the
proposed acquisition is scheduled to be held on
22 September 2010.
It should be noted that the most advanced clinical
programs using the proprietary “off-the-shelf” MPC
adult stem cells are those conducted by Angioblast in
the United States for congestive heart failure and
bone marrow regeneration. The products for these
conditions are therefore closest to United States Food
and Drug Administration (FDA) regulatory approvals
and represent the nearest term and greatest revenue
generating opportunities.
Bringing the technology platform and assets into one
company would enable us to streamline corporate
operations, strengthen the global leadership team,
rationally allocate resources based on maximal return,
and facilitate commercial partnering discussions. In
particular, a single company with access to 100 per cent
ownership of the technology platform would be greatly
strengthened in its ability to establish strategic
partnerships across a range of product indications.
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 May this year, Mesoblast Limited successfully
completed a capital raising of up to $37 million from
Australian and international institutional and sophisticated
investors. Of this capital raising, $23.8 million was
received in May 2010, with the remainder subject to
shareholder approval at the forthcoming Extraordinary
General Meeting of shareholders to be held on 22nd
September 2010. The capital is being used for ongoing
clinical trial activities, expansion of preclinical
opportunities, and general administrative operations,
and will facilitate the contemplated acquisition of
Angioblast Systems, Inc. (associate). At 30 June 2010,
Mesoblast had cash reserves of $32 million.
Financial Summary
Operating results
The net loss for the year was $14,780,895 (2009:
$12,285,459) 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 $745,286
(2009 $890,708) and is made up of:
30 June
2010
$
30 June
2009
$
Revenue from continuing operations
Government grants
5,500
186,295
Interest revenue
739,786
704,413
745,286
890,708
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 $15,526,181
(2009: $13,176,167) and consist of:
30 June
2010
$
30 June
2009
$
Research and development
7,566,050
7,145,623
Management and
administration
Share of losses of equity
accounted associates
3,566,084
3,174,079
4,394,047
2,856,465
15,526,181
13,176,167
9
Statement of cash flows
Net cash outflow from operations increased marginally
from prior year to $9,657,662 in 2010 (2009: $9,237,576).
During the year under review the Company issued a
further 14,020,353 shares at $1.70 (2009: 15,018,069
shares at $0.72) to sophisticated investors, providing
approximately $22.6m (net of costs) in cash, and a
further $3m was raised from the exercise of options.
The Company intends to use the funds to support its
phase 2 clinical trials and help facilitate the acquisition
of Angioblast Systems, Inc. which is currently being
proposed to shareholders.
Balance sheet
At 30 June 2010 the Company’s cash position was
$32,049,327 (2009: $16,526,278 ). This increase is due to
the placement of 14m shares to sophisticated investors in
May 2010.
The Company’s policy is to hold its cash and cash
equivalent deposits in “A” rated or better deposits,
spread across multiple institutions.
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 currently owns 38.4% (undiluted) of Angioblast
as at 30 June 2010 (2009: 38.4%). This investment is made
up of the following:
30 June
2010
$
30 June
2009
$
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
18,282,792
(12,948,551)
(8,956,364)
Net Book Value
5,334,241
9,326,468
Mesoblast has currently put to shareholders to vote
on the proposed acquisition of the remaining 61.6%
(undiluted) of Angioblast. Refer to the section titled
“matters subsequent to the end of the financial year”
on page 12 of this report for further commentary on the
proposed acquisition.
Earnings per share
2010
Cents
(10.51)
(10.51)
2009
Cents
(9.89)
(9.89)
Basic losses per share
Diluted losses per share
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 2010
(2009: nil).
Investment in Angioblast Systems, Inc.
Mesoblast owns 38.4% (undiluted) of Angioblast
(refer above).
Angioblast Systems, Inc. is a non-listed biotechnology
company based in New York, 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.
Mesoblast has currently put to shareholders to vote on the
proposed acquisition of the remaining 61.6% (undiluted)
of Angioblast. Refer to the section titled “matters
subsequent to the end of the financial year” on page 12
of this report for further commentary on the proposed
acquisition.
10
Share Options
Shares under option
Unissued ordinary shares of Mesoblast Limited under option at the date of this directors’ report are as follows:
Option
series issued
4(b)
6(d)
7
8
9
10
11
12
Issue date
23 February 2006
1 January 2007
27 July 2007
7 July 2008
19 January 2009
30 November 2009
30 November 2009
26 February 2010
Number of shares
under option
Exercise price
of options
200,000
15,000
2,130,000
2,308,000
240,000
300,000
1,680,000
90,000
6,963,000
$1.20
$1.96
$2.13
$1.00
$0.96
$1.73
$1.58
$2.00
Expiry date
of options
30 June 2011
1 January 2011
30 June 2012
30 June 2013
18 January 2014
30 November 2014
30 November 2014
26 February 2015
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
1
4(a)
4(b)
5
8
29 September 2004
3,920,000
23 February 2006
23 February 2006
23 November 2006
7 July 2008
66,000
350,000
150,000
199,334
4,685,334
$0.55
$0.65
$1.20
$0.65
$1.00
Nil
Nil
Nil
Nil
Nil
11
Significant Changes in the State of Affairs
No significant changes occurred in the state of affairs of
the Company during the financial year other than those
disclosed in the principal activities and strategy section
on pages 7– 9 of this report.
Matters Subsequent to the End of the
Financial Year
On 23rd August 2010, the Company announced to its
shareholders that it will convene an Extraordinary General
Meeting (EGM) for shareholders to be held on 22nd
September 2010. The purpose of the EGM is for the
shareholders to consider, and if thought fit to pass, the
following resolutions:
a)
b)
c)
Approval for the issue of Mesoblast shares to facilitate
the proposed acquisition of Angioblast Systems, Inc.;
Approval for the issue of Mesoblast shares to
purchase Angioblast convertible notes;
Ratification of the prior placement of 14m Mesoblast
shares issued and allotted to sophisticated investors
on 19th May 2010; and
d)
Approval of the issue and allotment of approximately
7m Mesoblast shares to Sophisticated Investors
Each of these resolutions and its impact on the financial
position of the Company is described below:
a) Approval for the proposed acquisition of
Angioblast Systems, Inc.
On 5th May 2010, Mesoblast signed an non-binding
implementation agreement with Angioblast Systems, Inc.
under which both parties would make all best and
reasonable attempts to negotiate in good faith, complete
due diligence, convene necessary shareholders meetings
and ultimately enter into a merger agreement that would
allow for Mesoblast to acquire the remaining shares in
Angioblast that it did not already own. Under the terms of
the implementation agreement, Mesoblast and Angioblast
have agreed that Mesoblast would issue a total of
94,590,000 Mesoblast securities (comprising shares and
options on a like for like basis) to acquire the remaining
67% (on a fully diluted basis) of Angioblast, including the
convertible notes, subject to a number of other terms and
conditions that remain to be agreed.
Additionally, Angioblast security holders who hold
common stock immediately prior to the acquisition may
elect to receive up to 15% of their share entitlement in
cash. This part cash offer has been made available to
Angioblast stock holders so that they may settle any
United States capital gains tax liability incurred as a result
of the transaction. The total cash required to fund this
cash component is not yet known, however should all
available stock holders elect the full 15% entitlement, and
convertible notes be acquired prior to the acquisition per
resolution c) above, at a share price of $1.85 the total cash
required is approximately $20.4m. Correspondingly, at a
share price of $2 the cash required would be $22.0m. If
the convertible notes are not acquired by Mesoblast per
resolution c) above and they therefore convert to
Angioblast common stock holders as a result of the
acquisition, an additional $2.2m (at $1.85 per share) to
$2.4m (at $2 per share) may be required if these
shareholders also elect the 15% cash option in full.
12
Upon both Mesoblast and Angioblast shareholders
approving the acquisition, a merger agreement will then
be negotiated and completed, with the shares and cash
expected to be allotted prior to the end of the year.
Should the acquisition be completed, the Meoblast Group
will then own the entire platform to the MPC technology,
and will have a combined intellectual property value on its
balance sheet of $450m. Other assets and liabilities
acquired include working capital of approximately $3.8m,
a deferred tax liability of $157.5m and a deferred tax asset
of approximately $11.4m. The existing investment in
Angioblast is required to be revalued immediately prior to
acquisition in accordance with IFRS, which will result in a
gain on revaluation in the Meoblast Group accounts of
approximately $129.8m. The total value paid for this
acquisition, using a Mesoblast share price of $1.85, is
approximately $171.4m. After accounting for all of the
above, together with the original $18.2m investment paid
for Angioblast, the Group will record a goodwill amount of
approximately $11.7m on acquisition.
b) Approval for the issue of Mesoblast shares to
purchase Angioblast convertible notes;
In August 2009, Angioblast raised $10.05m by issuing
convertible notes to Australian sophisticated investors
These convertible notes (notes) will convert to common
stock of Angioblast in accordance with the terms and
conditions of the convertible notes if Mesoblast completes
the acquisition mentioned above.
As an alternative and subject to the note holder’s consent,
Mesoblast has agreed to assume the responsibilities of
Angioblast under the notes, and will therefore issue the
note holder with Mesoblast shares upon conversion of the
note. Conversion of the note will automatically occur upon
the Mesoblast shareholders approving this resolution and
the note holder signing a Restriction Agreement,
restricting the disposal or dealing of the Mesoblast shares
for a period of three months after issue.
The number of Mesoblast shares to be issued to each
holder upon conversion of the note will be the calculated
using the same ratio as per the Angioblast acquisition.
The exact number of Mesoblast shares to be issued will
depend on the foreign exchange rate prevailing at the date
of conversion, however if all note holders consent, it is
estimated that 8.05m – 8.45m Mesoblast shares will be
issued to note holders.
As consideration for Mesoblast entering into this
agreement, Mesoblast willreceive the same amount of
Angioblast stock that would otherwise have been issued
by Angioblast to the note holders on conversion of the
notes. This agreement has been made irrespective of
whether the acquisition of Angioblast is completed but is
subject to Mesoblast shareholder approval at the EGM.
c) Ratification of the prior placement of 14m Mesoblast
shares issued and allotted to sophisticated investors on
19th May 2010
This resolution does not impact the financial position of
the Company, other than to give it greater capacity to raise
capital in the future.
d) Approval of the issue and allotment of approximately
7m Mesoblast shares to Sophisticated Investors
As part of the share placement completed in May of this
year (per item c) above), Mesoblast received contractual
commitments from sophisticated investors for the
purchase of approximately 7m shares on the same terms
and conditions as the placement completed on 19th May.
Mesoblast was unable to issue and allot the shares to
these investors at the time of the placement in May 2010
due to ASX Listing Rule restrictions, without
first receiving shareholder approval. This resolution
now seeks the approval from shareholders to issue
these shares resulting in a significant further cash
injection into the Company to be used for its clinical
programs and operations.
Other than those subsequent events described above,
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 2010.
Business Strategy Prospects for Future Years
Our ongoing strategy is to maximise shareholder wealth
through commercialisation of our unique and patented
adult stem cell platform technology. Successful
commercialisation will require rapid completion of existing
and new clinical trial programs, meeting clinically relevant
endpoints, and obtaining regulatory product approvals.
Mesoblast will continue to actively engage commercial
partner organisations as a key part of our ongoing
strategy. The objective of engaging with commercial
partners is to enhance execution outcome through
increased funding and established clinical and
distribution expertise. An integral element in facilitating
our strategic objectives is the proposed acquisition of
Angioblast. Successful integration of the entire
intellectual property into Mesoblast, together with
clinical outcomes that result in regulatory approvals,
and appropriate commercial partnerships, should
result in significant shareholder returns.
Environmental Regulations
Mesoblast’s 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.
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 Corporations 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
2010
$
30 June
2009
$
Taxation services
Corporate tax compliance
25,000
10,000
Employment tax and
withholding advice
-
2,000
Tax structuring advice
71,397
-
Total taxation services
96,397
12,000
Auditor’s Independence Declaration
A copy of the auditor’s independence declaration under
Section 307C in relation to the audit for the year ended
30 June 2010 is included on page 25 of the annual report.
13
Information on Directors
Brian Jamieson, Non-executive Chairman FCA
Shares held:
235,000
Options held: 300,000
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 was recently appointed to the position of
non-executive Chairman of Sigma Pharmaceuticals
Limited, having been a non-executive director since
December 2005. Mr Jamieson is also a non-executive
director of Tatts Group Limited (since May 2005), and
Oz Minerals Limited (since August 2004), all of which are
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:
Options held:
300,000
-
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 consults to a
number of listed and unlisted companies based in
Australia and the US. In 2009 Mr Spooner was appointed
Chairman of BiVACOR a total artificial heart company. He
is also a non-executive director of Hawaii Biotech Inc. a
specialty developer of vaccines. Most recently, Mr
Spooner was a non-executive director of Peplin Inc., a
dermatology focused skin cancer company from 2004
until the company was sold in 2009 for over $300m. Mr
Spooner was Executive Chairman of Hunter Immunology
Limited a respiratory medicine company from 2007 to
2008. Previously, Mr Spooner was the Chairman of
Mesoblast Limited from its initial listing in 2004 until 2007
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 2010 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
15
15
15
15
15
15
15
13
14
15
2
2
2
2
2
2
2
2
2
2
1
1
1
1
1
1
1
1
1
1
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:
Remuneration structure
(a) Non-executive directors fees
The current base fees were reviewed and approved
effective 1 July 2008 and exist for the current year:
Position
Chair
Base Salary
$120,000
$60,000
$40,000
A. Remuneration principles and policies
Non-executive directors
B. Remuneration of key management personnel
Company Secretary
C. Service agreements
D. Share-based compensation
Components of the above remuneration package include
a cash element together with unquoted medium term
options in some cases.
A. Remuneration Principles and Policies
(b) Executive pay
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
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 have been attached to
options awarded to a director during the year. These
conditions are described on page 23. There have not
been any long term performance incentives attached
to any other options granted in the current or the
previous financial year.
17
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
2006
30 June
2007
$1.52
$1.09
255%
$2.02
$0.50
33%
30 June
2008
$0.91
$(1.11)
(55%)
30 June
2009
$0.83
$(0.08)
(8.8%)
30 June
2010
$1.85
$1.02
123%
1,368,039
1,189,907
1,802,804
1,971,389
2,340,036
172%
(13%)
52%
10%
19%
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 2010 reflects an increase in resources
required whilst we continue to build and expand the clinical program of the Company.
The directors note the stock market fell significantly between 2007 and 2009 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 is pleased to note it has continued to raise
capital through-out these times allowing it to keep progressing with the commercialisation of its technology.
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 6), 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
Position
Kevin Hollingsworth
Company Secretary
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
Jim Ryaby
Vice President of Regulatory Affairs
Vice President of Operations
Chief Financial Officer
Special Projects Consultant
Vice President of Research and Clinical Affairs
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
$
Non-monetary
benefits
$
Superannuation
$
Options
& rights
Termination
benefits
$
$
Total
$
options
%
Remuneration
consisting of
remuneration
Performance
based
250,000
100,000
110,092
60,000
55,046
55,046
-
-
-
-
530,184
100,000
275,229
110,092
60,000
55,046
55,046
555,413
249,873
190,000
153,125
221,600
177,182
40,000
-
-
-
-
-
-
47,200
15,000
30,000
25,000
-
-
1,031,780
117,200
140,336
190,000
150,000
160,000
211,339
40,000
891,675
1,561,964
1,447,088
-
-
-
29,583
-
-
29,583
217,200
29,583
-
-
-
-
-
-
-
-
-
-
-
-
39,909
-
-
-
22,078
-
61,987
19,417
-
-
-
22,271
-
41,688
61,987
41,688
14,461
9,908
-
4,954
4,954
34,277
14,231
9,908
-
4,954
4,954
34,047
-
18,450
16,481
-
-
-
34,931
-
17,100
13,500
4,750
-
-
35,350
69,208
69,397
106,130
47%
106,130
14%
13%
-
-
-
-
-
-
-
-
5,983
5,983
87,149
23,800
111,263
53,379
31,733
16,223
323,547
29,333
52,360
90,337
94,882
69,813
40,925
377,650
429,677
383,633
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
364,461
226,130
60,000
60,000
60,000
770,591
289,460
120,000
60,000
65,983
60,000
595,443
424,131
247,250
310,869
299,979
230,993
56,223
1,569,445
189,086
259,460
253,837
289,215
303,423
80,925
1,375,946
2,340,036
1,971,389
-
-
-
-
-
-
-
-
9%
1%
21%
10%
36%
18%
14%
29%
21%
16%
20%
36%
33%
23%
52%
27%
18%
20%
(ii)
%
27%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11%
6%
10%
8%
7%
10%
2%
9%
2%
Name
Directors
2010
Executive directors
Silviu Itescu
Non-executive directors
Brian Jamieson
Byron McAllister
Donal O’Dwyer
Michael Spooner
2009
Executive directors
Silviu Itescu
Non-executive directors
Brian Jamieson
Byron McAllister
Donal O’Dwyer
Michael Spooner
Other Key Management
Personnel*
2010
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
Kevin Hollingsworth
2009
Roger Brown*
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
Kevin Hollingsworth
Total 2010
Total 2009
20
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
$
Non-monetary
benefits
$
Superannuation
$
Options
& rights
$
Termination
benefits
$
Remuneration
consisting of
options
%
Total
$
Performance
based
remuneration
(ii)
%
-
106,130
-
-
-
106,130
-
-
-
5,983
-
5,983
87,149
23,800
111,263
53,379
31,733
16,223
323,547
29,333
52,360
90,337
94,882
69,813
40,925
377,650
429,677
383,633
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
364,461
-
27%
226,130
60,000
60,000
60,000
770,591
289,460
120,000
60,000
65,983
60,000
595,443
424,131
247,250
310,869
299,979
230,993
56,223
1,569,445
189,086
259,460
253,837
289,215
303,423
80,925
1,375,946
2,340,036
1,971,389
47%
-
-
-
-
-
-
-
14%
13%
-
-
-
9%
-
1%
21%
10%
36%
18%
14%
29%
21%
16%
20%
36%
33%
23%
52%
27%
18%
20%
-
-
-
-
-
-
-
11%
6%
10%
8%
-
-
7%
-
-
-
10%
-
-
2%
9%
2%
*
Commenced with the company
on 19 January 2009.
(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
(2009: nil).
(ii)
Performance-based
remuneration includes
all bonuses paid.
21
Name
Directors
2010
Executive directors
Silviu Itescu
Non-executive directors
Brian Jamieson
Byron McAllister
Donal O’Dwyer
Michael Spooner
2009
Executive directors
Silviu Itescu
Non-executive directors
Brian Jamieson
Byron McAllister
Donal O’Dwyer
Michael Spooner
Other Key Management
Kevin Hollingsworth
Personnel*
2010
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
2009
Roger Brown*
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
Total 2010
Total 2009
Kevin Hollingsworth
250,000
100,000
530,184
100,000
110,092
60,000
55,046
55,046
275,229
110,092
60,000
55,046
55,046
555,413
249,873
190,000
153,125
221,600
177,182
40,000
140,336
190,000
150,000
160,000
211,339
40,000
891,675
1,561,964
1,447,088
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
47,200
15,000
30,000
25,000
29,583
29,583
217,200
29,583
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
39,909
22,078
19,417
22,271
41,688
61,987
41,688
14,461
9,908
-
4,954
4,954
34,277
14,231
9,908
4,954
4,954
34,047
18,450
16,481
17,100
13,500
4,750
35,350
69,208
69,397
-
-
-
-
-
-
-
-
1,031,780
117,200
61,987
34,931
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 employment and consulting 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:
Silviu Itescu, Executive Director
• Term of agreement: commencing 1 March 2008
• Salary: $250,000 per annum
• Superannuation: $14,461 per annum
• Termination: no terms have been agreed
• Bonus: eligible to participate in the
Company’s bonus scheme
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: Three months
• 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: 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: $1,200 per day
• Termination: 30 days
• Bonus: eligible to participate in the Company’s
bonus scheme
Roger Brown, Vice President of Regulatory Affairs
• Term of agreement: commencing 19 January 2009
Jim Ryaby, Vice President of Research and Clinical Affairs
• Salary: US$220,000 per annum
• Term of agreement: commencing 3 March 2008
• Other benefits: Dental and health fully covered
• Salary: US$156,000 per annum, 3 days per week
• Termination: Three months
• Other benefits: Dental and health fully covered
• Bonus: eligible to participate in the Company’s
bonus scheme
• Termination: Without notice
• Bonus: eligible to participate in the Company’s
bonus scheme
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(i)
Expiry
date
Exercise
price $
Fair value
(per option) $
Total value of
options granted
at grant date(ii)
2010
Brian Jamieson
30/11/2009
300,000
Various^ 30/11/2014
Roger Brown
30/11/2009
150,000
30/11/2010
30/11/2014
Jenni Pilcher
30/11/2009
240,000
30/11/2010
30/11/2014
Paul Rennie
30/11/2009
180,000
30/11/2010
30/11/2014
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
07/07/2008
150,000
01/07/2009 30/06/2013
Jim Ryaby
07/07/2008
240,000
01/07/2009 30/06/2013
1.73
1.58
1.58
1.58
0.96
1.00
1.00
1.00
1.00
0.70
0.73
0.73
0.73
0.40
0.48
0.48
0.48
0.48
210,000
109,500
175,200
131,400
96,000
86,400
115,200
72,000
115,200
(i)
Each grant of options is divided into three equal tranches (except for Brian Jamieson’s, refer ^ below). 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.
(ii)
The value of options granted during the year is recognised as compensation over the vesting period (from grant date to vesting
date) in accordance with International Financial Reporting Standards.
^ Vesting occurs on the date the following milestones are reached:
• 75,000 options vest on signing of a commercial partnering contract, eg a commercial licence to one of its products;
• 75,000 options vest on receiving IND clearance from the FDA for its first clinical trial for Intervertebral Disc Repair;
• 75,000 options vest on completing patient enrolment for its first clinical trial under IND for Intervertebral Disc Repair;
•
75,000 options vest upon obtaining a licence from the Therapeutics Goods Administration (TGA) for the manufacture of
(this milestone was reached on 21 July 2010).
All share options issued to key management personnel were made in accordance with the provisions of the
executive share option plan and have been approved by the Board. Options issued to directors have been approved
by shareholders. All options issued were issued without monetary 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 (2009: 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.
23
Options held by key management personnel that vested and were exercised during the year:
Donal O’Dwyer
Kevin Hollingsworth
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
Jim Ryaby
Options exercised during the current year
Exercise Price
Exercise Date
Exercise #
Value $ (i)
$0.65
23/11/09
150,000
211,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Number of options
vested during the year
2010
-
67,000
80,000
60,000
2009
50,000
67,000
-
-
113,000
33,000
133,000
163,000
80,000
-
150,000
211,500
533,000
313,000
(i) The value of options exercised as at exercise date with reference to the market share price on the date of sale of the
shares (if sold) or with reference to the 5 day Volume Weighted Average Price (VWAP) if the shares are held (not sold).
Value of options issued to directors and key management personnel
There were no options lapsed during the year as a result of performance milestones not being met. There may have
been options that expired (and therefore were not exercised) however these are not required to be disclosed.
Value of options yet to vest after the end of the current financial year
Year
of Grant
Vested during
the year %
Forfeited during
the year %
Subsequent
financial years in
which options vest
Maximum total
value of grant not
yet expensed $
Brian Jamieson
Kevin Hollingsworth
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
Jim Ryaby
2010
2008
2010
2009
2009
2010
2009
2008
2010
2009
2008
2009
-
33%
-
-
33%
-
33%
34%
-
33%
34%
33%
-
-
-
-
-
-
-
-
-
-
-
2011-13
2011
2011-13
2011-12
2011-12
2011-13
2011-12
2011
2011-13
2011-12
2011
2011-12
101,918
-
64,702
24,000
9,520
103,524
12,693
-
77,643
7,933
-
12,693
The maximum total value of the grant not yet expense also represents the maximum total value of the grant yet to vest.
The minimum value of the grant yet to vest is nil on the assumption that if the vesting conditions were not satisfied the
options would not vest.
This report is made in accordance with a resolution of the directors.
Mr Brian Jamieson
Chairman
26 August 2010, 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 2010, 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 2010
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
Mesoblast Limited (the Company) and its Board of Directors (the board)
are committed to implementing and achieving the highest standards of
corporate governance.
• 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.
Day to day management of the Company’s operations
and the implementation of the corporate strategy and
policy initiatives are delegated by the board to the
Managing Executive Director and senior executives.
A performance assessment for the Managing Executive
Director was completed in September 2010. Performance
assessments for other members of Senior Management
will be completed as part of the organisational review on
completion of the acquisition of Angioblast Systems, Inc
later this year. The performance assessment policy is in
the process of being reviewed in the context of the
acquisition, and will be made available on the Company’s
website in due course.
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 2010 year, the Board of Directors comprised
five Directors, being one executive and four non-
executives (including the Chair).
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;
• review, 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;
• ratifying and approving the appointment and removal
of senior executives;
26
The term in office held by each Director in office as
at 30 June 2010 is as follows:
Name
Term as
director
Position held
at 30 June 2010
Brian Jamieson
2 yrs 7 mths
Independent Chairman
Silviu Itescu
6 yrs 1 mths Executive Director
Byron McAllister
5 yrs 9 mths
Independent Director
Donal O’Dwyer
5 yrs 9 mths
Independent Director
Michael Spooner 5 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
judgement. 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:
• Brian Jamieson (Chairman of the board and Chairman
of the Nomination and Remuneration Committee)
• Donal O’Dwyer (Deputy Chairman and Chairman of the
Audit & Risk Committee)
• 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 board
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 their effective performance
in the role of Chair. The Chair is an independent director.
27
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 board
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 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 board 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 associate, investor relations update, market activity
report, and other topical strategic document 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 has been finalized
and is available on the company website.
The Board has completed a formal review of its members
this financial 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
• Description of the procedure for the selection and
appointment of new directors and the re-election
of incumbent directors
• Board’s policy for the nomination and appointment of
directors
• Charter of the remuneration and nomination committee
2.3 Role of the chair and 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
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
website.
Remuneration and Nomination Committee
The Board has established a remuneration and nomination
committee comprising four directors as follows:
Name
Position held during the year
Brian Jamieson
Independent Chairman
Michael Spooner
Member
Byron McAllister
Independent member
Donal O’Dwyer
Independent member
Details of meetings attended are found in the Directors’
Report.
The remuneration and nomination 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
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 and 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.
28
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 behaviour 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 Company
is duly noted and shall be reported to the Board in a
timely manner.
3.3 Website disclosures
A copy of the code and 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.
29
4.3 Formal charter
The audit and risk committee operates under a formal
charter approved by the Board.
The main responsibilities of the audit and risk committee
are to:
• 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.
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 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.
30
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 CFO. 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 2010
Contents
Statement of Comprehensive Income
Statement of Changes in Equity
Balance Sheet
Statement of Cash Flows
Notes to the Financial Statements
Directors’ Declaration
Independent Audit Report
Shareholder Information
Page
34
35
36
37
38
67
68
70
33
Statement of Comprehensive Income
for the year ended 30 June 2010
Revenues from continuing operations
Government grants
Interest revenue
Expenses from continuing operations
Research and development
Management and administration
Share of losses of equity accounted associates
Loss before income tax expense
Income tax
Note
$
2(a)
30 June
2010
$
5,500
739,786
745,286
30 June
2009
186,295
704,413
890,708
(7,566,050)
(3,566,084)
(7,145,623)
(3,174,079)
(4,394,047)
(2,856,465)
(15,526,181)
(13,176,167)
(14,780,895)
(12,285,459)
4
-
-
Loss after related income tax from continuing operations
(14,780,895)
(12,285,459)
Other comprehensive income
Exchange differences on translation of foreign operations
Income tax relating to components of other comprehensive income
Other comprehensive income/(loss) for the period, net of tax
Total comprehensive loss for the period
Losses per share from continuing operations attributable to the
ordinary equity holders of the company:
Basic – cents per share
Diluted – cents per share
401,860
(778,354)
-
-
401,860
(778,354)
(14,379,035)
(13,063,813)
Cents
(10.51)
(10.51)
Cents
(9.89)
(9.89)
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
34
Statement of Changes in Equity
for the year ended 30 June 2010
Issued
Capital
$
Note
Share
Option
Reserve
$
Foreign
Currency
Translation
Reserve
$
Accumulated
Losses
$
Total
$
Balance at 1 July 2008
51,019,083
2,960,017
796,498
(28,559,466)
26,216,132
Total comprehensive loss
for the period
Contributions of equity net
of transaction costs
Fair value of share based
payment
-
13
11,441,153
-
-
-
1,196,490
(778,354)
(12,285,459)
(13,063,813)
-
-
-
-
11,441,153
1,196,490
Balance at 30 June 2009
62,460,236
4,156,507
18,144
(40,844,925)
25,789,962
Balance at 1 July 2009
62,460,236
4,156,507
18,144
(40,844,925)
25,789,962
Total comprehensive loss
for the period
Contributions of equity net
of transaction costs
Fair value of share based
payment
-
13
25,489,080
-
-
-
1,019,253
401,860
(14,780,895)
(14,379,035)
-
-
-
-
25,489,080
1,019,253
Balance at 30 June 2010
87,949,316
5,175,760
420,004
(55,625,820)
37,919,260
The above statement of changes in equity should be read in conjunction with the accompanying notes.
35
Balance Sheet
as at 30 June 2010
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
2010
$
30 June
2009
32,049,327
16,526,278
1,375,679
93,284
305,361
88,533
33,518,290
16,920,172
223,695
5,334,241
438,544
5,996,480
39,514,770
1,595,510
1,595,510
1,595,510
246,137
9,326,428
482,275
10,054,840
26,975,012
1,185,050
1,185,050
1,185,050
37,919,260
25,789,962
13
14
87,949,316
62,460,236
5,595,764
4,174,651
(55,625,820)
(40,844,925)
37,919,260
25,789,962
The above balance sheet should be read in conjunction with the accompanying notes.
36
Statement of Cash Flows
for the year ended 30 June 2010
Cash Flows from Operating Activities
Payments to suppliers and employees (inclusive of goods and services tax)
(9,663,162)
(9,423,871)
Government grants and other income received
5,500
186,295
Net cash used in operating activities
15 (b)
(9,657,662)
(9,237,576)
Note
$
30 June
2010
$
30 June
2009
Cash Flows from Investing Activities
Interest received
Investment in fixed assets
Investment in equity accounted associate
Loan repaid/(advanced) to associate company
Net cash (used)/provided 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 gains/(losses) on the translation of foreign bank accounts
707,689
(87,113)
-
(964,024)
(343,448)
26,798,338
(1,261,256)
25,537,082
15,535,972
16,526,278
(12,923)
650,778
(170,020)
(200,000)
(13,871)
266,887
11,941,443
(548,290)
11,393,153
2,422,464
14,094,219
9,595
Cash and cash equivalents at end of year
15 (a)
32,049,327
16,526,278
The above statement of cash flows should be read in conjunction with the accompanying notes.
37
Notes to the Financial Statements
for the year ended 30 June 2010
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 authoritative
pronouncements of the Australian Accounting Standards Board. The financial report also complies with International Financial
Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
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.
Going concern
For the year ended 30 June 2010, the company incurred an operating loss of $14,780,895 (2009 loss: $12,285,459) as it
continued to further its investment in research and development initiatives. As at year end, the company’s net assets stood at
$37,919,260 (2009: $25,789,962), with available cash of $32,049,327 (2009: $16,526,278).
During the forthcoming financial year ending 30 June 2011, the company will continue to work to further advance both the
development and commercialisation of its core technologies. Based on the forecast cash flows approved by the Board of
Directors, 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.
In making this assessment, the Directors have not only considered the cashflows of Mesoblast on a stand-alone basis, but
have also specifically considered the proposed acquisition of Angioblast, which is subject to shareholder approval at the
forthcoming Extraordinary General Meeting of shareholders to be held on 22nd September 2010, and the impact that
acquisition may have on the cashflows of the Company. In particular the following items have been considered:
cash required to complete the acquisition of Angioblast (approximately $20m and subject to shareholder approval);
net proceeds of approximately $10.7m from the issue and allotment of shares to sophisticated investors
(subject to shareholder approval);
costs pursuant to contracts which may become due and payable upon completion of the acquisition of
Angioblast up to a maximum of approximately US$6.0m;
cash requirements to fund operations of Angioblast for the period up to 31 August 2011;
•
•
•
•
38
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
In addition, a government grant application has recently been made by Angioblast, which if successful could result in a cash
injection of up to US$5m.
Further information relating to the proposed acquisition of Angioblast is disclosed in note 22 to these financial statements.
In view of the directors’ assessment that sufficient cash will be available to fund the company’s operations both on a stand-
alone basis and after consideration of the above, 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.
Financial statement presentation
The company has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January
2009. The revised standard requires the separate presentation of a statement of comprehensive income and a statement of
changes in equity. All non-owner changes in equity must now be presented in the statement of comprehensive income. As a
consequence, the company had to change the presentation of its financial statements. Comparative information has been
re-presented so that it is also in conformity with the revised standard.
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
statement of cash flows, 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 /(loss) 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 statement of comprehensive income, 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 statement of comprehensive income.
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 statement of comprehensive
income, 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 statement of cash flows 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 statement of comprehensive income 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 statement of comprehensive income 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 probable 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 other comprehensive income or equity are also recognised directly in other
comprehensive income or equity, respectively.
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 statement of comprehensive income 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.
Change in accounting policy
The company has adopted AASB 8 Operating Segments from 1 July 2009. AASB 8 replaces AASB 114 Segment Reporting.
The new standard requires a ‘management approach’, under which segment information is presented on the same basis as
that used for internal reporting purposes. There have been no changes in the operating segments identified by the company as
a result of the adoption of AASB 8 Operating Segments, so there is no impact on the number of segments reported or the basis
of organisation of segments for the current or prior year.
(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 statement of
comprehensive income. 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 policies 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
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(v) New and revised accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2010 reporting
periods. The Company’s assessment of the impact of these new standards and interpretations is set out below:
(i)
AASB Interpretation 19 Extinguishing financial liabilities with equity instruments and AASB2009-13 Amendments to
Australian Accounting Standards arising from Interpretation 19 (effective 1 July 2010). AASB Interpretation 19 clarifies the
accounting when an entity renegotiates the terms of its debt with the result that the liability is extinguished by the debtor
issuing its own equity instruments to the creditor (debt for equity swap). It requires a gain or loss to be recognised in
profit and loss which is measured as the difference between the carrying amount of the financial liability and the fair
value of the equity instruments issued. The company will apply the interpretation from 1 July 2010. It is not expected to
have any impact on the company’s financial statements since it is only retrospectively applied from the beginning of the
earliest period presented (1 July 2009) and the company has not entered into any debt for equity swaps since that date.
44
2. REVENUE AND EXPENSES FROM CONTINUING OPERATIONS
(a) Revenue from continuing operations
Commercial Ready government grant
Interest revenue
(a) 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 (gains)/losses
Loss on disposal of plant and equipment
30 June
2010
$
$
30 June
2009
5,500
739,786
745,286
186,295
704,413
890,708
2,990,232
2,414,426
106,656
640,655
3,737,543
100,907
573,308
3,088,641
109,554
43,731
153,285
76,098
43,731
119,829
2,634,338
2,777,798
389,079
378,599
-
(19,629)
-
267,328
623,182
-
111,312
45,783
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
2010
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:
Total segment liabilities
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:
Cardiovascular
Orthopaedic & non-orthopaedic
$
5,500
5,500
$
-
-
Total
$
5,500
5,500
6,827,114
4,394,047
11,221,161
6,788,883
-
-
4,394,047
43,731
455,015
6,347,914
6,802,929
6,788,833
4,394,047
43,731
5,334,241
1,133,773
186,295
186,295
6,197,124
2,856,465
43,731
-
-
1,133,773
186,295
186,295
-
-
-
6,054,560
2,856,465
8,911,025
6,197,124
-
-
2,856,465
43,731
493,609
9,371,220
9,864,829
Carrying value of investments accounted for using the equity method
-
5,334,241
Carrying value of investments accounted for using the equity method
-
9,326,428
Total segment liabilities
575,510
-
9,326,428
575,510
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 statement of
comprehensive income and balance sheet. These reconciling items are not considered by the Company to be an operating
segment as defined in AASB 8 Operating Segments 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 – administration
Cash
Total assets
Total segment liabilities
Trade payables and accruals – administration
Employee entitlements – administration
Payable to Angioblast
Total liabilities
(d) Other segment information
Transactions between segments are carried out at arm’s length.
$
30 June
2010
$
5,500
739,786
745,286
11,221,161
(739,786)
3,280,266
1,019,254
30 June
2009
186,295
704,413
890,708
8,911,025
(704,413)
2,882,357
1,196,490
14,780,895
12,285,459
6,802,929
9,864,829
223,695
153,814
772
207,420
76,813
246,137
121,718
48,945
89,905
77,200
32,049,327
39,514,770
16,526,278
26,975,012
1,133,773
340,046
121,691
-
575,510
570,837
37,014
1,689
1,595,510
1,185,050
47
30 June
2010
$
$
30 June
2009
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 Concessions
FX unrealised gains/(losses)
Amortisation of intangibles
Other sundry items
Current year tax benefit/(expense)
Adjustments for current tax of prior periods
Tax benefit not recognised
Income tax expense attributable to loss before income tax
(b) Amounts that would be recognised directly in equity if bought to account
Share issue expenses for the year
(c) Deferred tax asset not bought to account*
Tax losses
Share issue expenses
Other temporary differences
14,780,895
12,285,459
4,434,269
3,685,638
(305,776)
(1,318,214)
262,500
(3,877)
-
(32,024)
3,036,878
(10,091)
(358,947)
(856,940)
250,000
2,879
(13,119)
(1,500)
2,708,011
-
(3,026,787)
(2,708,011)
-
-
378,376
164,487
11,906,956
521,233
226,494
12,654,683
8,742,479
268,279
122,057
9,132,815
* Deferred tax assets for tax losses carried forward, share issue expenses and other temporary differences have not been brought to account
at 30 June 2010 because the Directors do not consider it probable at this stage of the Company’s program that sufficient taxable income will
become available against which deferred tax assets can be applied to. Any realisation of the benefit of tax losses would also be subject to the
Company satisfying the conditions for utilising bought forward tax losses imposed by existing tax legislation.
5. REMUNERATION OF AUDITORS
(a) PricewaterhouseCoopers – Australia
(i) Audit and other assurance services
Audit and review of financial reports
(ii) Taxation services
Tax structuring advice
Corporate tax compliance
Employment tax and withholding advice
Total taxation services
Total remuneration of PricewaterhouseCoopers Australia
(b) Non-PricewaterhouseCoopers audit firms
(i) Audit and other assurance services
Audit of Commercial Ready Grant reporting
Total remuneration of Non-PricewaterhouseCoopers audit firms
48
93,000
90,000
71,397
25,000
-
96,397
189,397
-
10,000
2,000
12,000
102,000
-
-
4,850
4,850
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
30 June
2010
$
$
30 June
2009
14,780,895
14,780,895
12,285,459
12,285,459
140,571,174
124,217,494
Dilutive potential ordinary shares
-
-
Weighted average number of ordinary shares and potential ordinary
shares used in calculating diluted earnings per share
140,571,174
124,217,494
7. CASH AND CASH EQUIVALENTS
Cash at bank
Deposit at call
Term deposits
Refer note 21 for the company’s exposure to interest rate risk.
8. TRADE AND OTHER RECEIVABLES
Current
Interest receivable
Sundry debtors
Goods and services tax recoverable
Receivable from Angioblast Systems, Inc. (associate)
Loan to Angioblast Systems, Inc. (associate)*
140,371
6,507,246
257,352
1,023,906
25,401,710
15,245,020
32,049,327
16,526,278
153,814
772
207,420
138,220
875,453
121,718
48,946
89,905
44,792
-
1,375,679
305,361
*Loan earns 8% interest per annum. All trade and other receivable balances are within their due dates and none are considered to be
impaired at both 30 June 2010 and 30 June 2009. 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
422,263
87,112
(14,520)
494,855
(176,126)
(109,554)
14,520
(271,160)
223,695
299,802
170,021
(47,560)
422,263
(101,805)
(76,098)
1,777
(176,126)
246,137
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 and other non-orthopaedic indications
Ownership Interest
30 June
2010
%
38.4
30 June
2009
%
38.4
(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
2010
$
30 June
2009
$
5,334,241
9,326,428
9,326,428
12,761,247
-
200,000
(4,394,047)
(2,856,465)
401,860
5,334,241
(778,354)
9,326,428
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:
Summarised 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
4,305,155
12,723,047
(8,417,892)
(3,232,471)
1,820,388
1,225,046
595,342
228,611
554,985
248,026
(11,997,815)
(6,992,987)
(4,394,047)
(2,856,465)
-
-
(4,394,047)
(2,856,465)
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
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
30 June
2010
$
$
30 June
2009
690,000
690,000
-
-
690,000
690,000
(207,725)
(43,731)
-
(251,456)
438,544
(163,994)
(43,731)
-
(207,725)
482,275
(i) Intellectual property expenses are included in research and development expense in the statement of comprehensive income.
12. TRADE AND OTHER PAYABLES
Current
Trade payables
Employee benefits
Payable to Angioblast Systems, Inc. (associate)
1,071,532
1,042,335
156,416
367,562
61,023
81,692
1,595,510
1,185,050
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 2010
No.
30 June 2010
$
30 June 2009
No.
30 June 2009
$
(a) Movements in issued capital during the year
Fully paid ordinary shares
Balance at beginning of financial year
136,174,869
62,460,236
119,256,133
51,019,083
Shares issued at $1.70 19 May 2010
14,020,353
23,834,601
-
Shares issued at $0.72 01 April 2009
Transaction costs arising on issue of shares
Issue of shares under employee share
option plan (note 18)
-
-
-
15,018,069
(1,261,255)
-
4,685,334
2,915,734
1,900,667
Balance at end of financial year
154,880,556
87,949,316
136,174,869
-
10,813,009
(548,290)
1,176,434
62,460,236
(b) Options over ordinary shares
Balance at end of financial year
Amounts unvested at end of financial year
6,963,000
4,574,000
9,872,000
4,396,000
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.
(c) Capital risk management
The company’s objective when managing capital is to safeguard its ability to continue as a going concern, so that it can
continue to provide returns for shareholders and benefits for other stakeholders.
52
14. RESERVES
(a) Reconciliation of reserves
Share based payments reserve
Foreign currency translation reserve
(b) Nature and purpose of reserves
30 June
2010
$
$
30 June
2009
5,175,760
420,004
5,595,764
4,156,507
18,144
4,174,651
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 continuing operations
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
140,371
6,507,246
257,352
1,023,906
25,401,710
15,245,020
32,049,327
16,526,278
(14,780,895)
(12,285,459)
153,285
-
-
(739,786)
12,923
1,019,254
4,394,047
(122,094)
405,604
119,829
45,783
-
(704,413)
(9,595)
1,196,490
2,856,465
(54,657)
(402,019)
Cash flows used in operations
(9,657,662)
(9,237,576)
53
16. COMMITMENTS FOR EXPENDITURE
The company does not consider it has any commitments for future expenditure outstanding as at 30 June 2010 (2009: nil).
17. CONTINGENT ASSETS AND LIABILITIES
(a) Contingent assets
The company does not consider it has any contingent assets outstanding as at 30 June 2010 (2009: nil).
(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
1,124 days (2009: 772 days) and a range of exercises prices from 96c to $2.13.
(i) The following share-based payment arrangements were in existence during the current and comparative reporting periods:
Series Grant date
Granted
No.
Exercised
No.
Lapsed /
cancelled
No.
Balance
No. 2010
Balance
No. 2009
Earliest
Vesting date
Expiry
date
Exercise
price
$
Fair
value
$
29/09/04
29/09/04
26/10/04
16/12/04
16/12/04
16/12/04
16/12/04
16/12/04
16/12/04
25/08/05
25/08/05
23/02/06
23/02/06
23/02/06
23/02/06
23/02/06
23/02/06
23/02/06
23/02/06
23/02/06
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
27/07/07
07/07/08
19/01/09
30/11/09
30/11/09
30/11/09
30/11/09
30/11/09
26/02/10
26/02/10
26/02/10
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
10
10
10
10
11
12(a)
12(b)
12(c)
Balance at
30 June 2010
Balance at
30 June 2009
2,160,000
2,160,000
400,000
550,000
75,000
75,000
80,000
80,000
80,000
350,000
350,000
150,000
150,000
150,000
150,000
150,000
200,000
200,000
200,000
90,000
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
2,480,000
2,736,000
240,000
75,000
75,000
75,000
75,000
1,680,000
30,000
30,000
30,000
15,806,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(50,000)
(50,000)
(10,000)
(10,000)
(10,000)
(10,000)
(15,000)
(45,000)
(30,000)
(25,000)
(30,000)
(30,000)
- 1,960,000
(2,160,000)
- 1,960,000
(2,160,000)
-
-
(400,000)
-
-
(550,000)
-
-
(75,000)
-
-
(75,000)
-
-
(80,000)
-
-
(80,000)
-
-
(80,000)
-
-
(350,000)
-
-
(350,000)
-
-
(150,000)
66,000
-
(150,000)
-
-
(150,000)
-
-
(150,000)
150,000
150,000
-
-
-
(200,000)
200,000
-
(200,000)
200,000
50,000
(150,000)
-
-
(90,000)
50,000
-
(50,000)
50,000
-
(50,000)
50,000
-
(50,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15,000
-
-
15,000
15,000
-
-
-
-
-
-
-
- (350,000) 2,130,000 2,330,000
(199,334) (228,666) 2,308,000 2,586,000
240,000
240,000
-
75,000
-
75,000
-
75,000
-
-
75,000
- 1,680,000
30,000
-
30,000
-
30,000
-
(7,949,334) (893,666) 6,963,000
-
-
-
-
-
-
-
-
-
29/09/05
16/12/05
16/12/04
16/12/05
16/12/06
01/05/07
06/09/06
16/12/06
04/07/08
31/12/05
30/06/06
31/03/06
01/05/07
30/06/06
30/06/07
30/06/08
30/06/06
30/06/07
30/06/08
23/02/06
23/11/06
23/11/07
23/11/08
17/03/07
17/03/08
17/05/07
17/05/08
06/12/06
06/06/07
01/07/07
01/01/08
01/01/09
01/01/10
01/08/07
01/02/08
01/07/08
01/07/09
19/01/10
- Milestones*
- Milestones*
- Milestones*
- Milestones*
30/11/10
-
26/02/11
-
26/02/12
-
-
26/02/13
n/a
13,736,000
(3,264,000) (600,000)
n/a 9,872,000
29/09/09
16/12/09
30/12/07
16/12/08
16/12/08
16/12/08
06/09/07
16/12/07
04/07/09
31/12/08
30/06/09
31/03/09
01/05/10
30/06/09
30/06/10
30/06/11
30/06/09
30/06/10
30/06/11
23/02/09
23/11/09
23/11/09
23/11/09
17/03/08
17/03/09
17/05/08
17/05/09
06/12/07
06/06/08
01/07/08
01/01/09
01/01/10
01/01/11
01/08/08
01/02/09
30/06/12
30/06/13
18/01/14
30/11/14
30/11/14
30/11/14
30/11/14
30/11/14
26/02/15
26/02/15
26/02/15
0.29
0.55
0.29
0.55
0.29
0.55
0.29
0.60
0.29
0.60
0.60
0.29
0.60 0.171
0.60 0.229
0.60 0.251
0.19
0.65
0.21
0.65
0.96
0.65
0.96
0.65
0.89
0.65
0.65
1.20
0.75
1.20
0.89
0.65
0.65
1.20
0.75
1.20
0.65
0.92
0.65 0.589
0.65 0.678
0.65 0.718
2.02 0.554
2.02 0.702
1.52 0.404
1.52 0.521
1.75 0.303
1.75 0.380
1.96 0.512
1.96 0.601
1.96 0.749
1.96 0.873
1.96 0.512
1.96 0.601
0.74
2.13
0.48
1.00
0.40
0.96
0.70
1.73
0.70
1.73
0.70
1.73
0.70
1.73
0.73
1.58
0.92
2.00
0.92
2.00
0.92
2.00
*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.
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.
57
18. SHARE-BASED PAYMENTS CONTINUED
(a) Existing share-based payment arrangements (continued)
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.
10. Options granted to the Chairman were approved by shareholders at the Annual General Meeting held on 30 November
2009. The options were granted in four equal tranches vesting on the achievement of certain milestones as follows:
• Date on which Mesoblast signs a commercial partnering contract, eg a commercial licence to one of its products.
• Date on which Mesoblast receives IND clearance from the FDA for its first clinical trial for Intervertebral Disc Repair
• Date on which Mesoblast completes patient enrolment for its first clinical trial under IND for Intervertebral Disc Repair
• Date on which Mesoblast obtains a licence from the Therapeutics Goods Administration (TGA) for the manufacture
All four tranches expire on 30 November 2014.
11. Options granted to employees and consultants were approved by the Board of Directors on 30 November 2009. The
options were granted in three equal tranches vesting on 30 November 2010, 30 November 2011 and 30 November 2012.
All tranches expire on 30 November 2014.
12. Options granted were approved by the Board of Directors during February 2010 as per the relevant employment
contract. The options were granted in three equal tranches vesting on 26 February 2011, 26 February 2012 and
26 February 2013 respectively. All tranches expire on 26 February 2015.
(iii) Modifications to terms and conditions
There has been no modification to terms and conditions in either the current or previous financial years.
58
18. SHARE-BASED PAYMENTS CONTINUED
(b) Fair values of share options
The weighted average fair value of options granted during the year was $0.73 (2009: $0.47). 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 10, 11 and 12.
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
10
11
12
0.505
1.48
1.48
1.48
1.205
1.81
1.35
1.41
1.84
1.91
0.91
0.848
1.44
1.44
1.82
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
1.73
1.58
2.00
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%
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
5 years
5 years
5 years
5 years
5 years
5 years
0%
0%
0%
0%
0%
0%
0%
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%
6.39%, 6.45%
& 6.46%
6.25%
6.50%
3.27%
5.16%
5.16%
5.10%
The closing share market price of an ordinary share of Mesoblast Limited on the Australian Stock Exchange at 30 June 2010
was $1.85 (30 June 2009: $0.83).
(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
2010
2009
Number of
options
Weighted average
exercise price $
Number of
options
Weighted average
exercise price $
9,872,000
2,070,000
(4,685,334)
(293,666)
6,963,000
4,574,000
2,389,000
1.09
1.62
0.62
1.81
1.54
1.46
1.69
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
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
2010
1(a)
1(b)
4(a)
4(b)
4(b)
4(b)
5
8
8
8
8
8
2009
1
2(a)
2(b)
2(c)
3
4(a)
4(b)
4(c)
2,093,332
1,826,668
66,000
150,000
100,000
100,000
150,000
30,000
60,000
16,000
13,334
80,000
4,685,334
200,000
550,000
150,000
80,000
700,000
34,000
166,667
20,000
1,900,667
29 September 2009
16 December 2009
16 October 2009
23 March 2010
8 June 2010
23 June 2010
23 November 2009
16 October 2009
28 January 2010
8 April 2010
13 April 2010
15 June 2010
11 August 2008
16 December 2008
16 December 2008
30 June 2009
3 September 2008
3 April 2009
30 June 2009
23 February 2009
$1.05
$1.37
$1.00
$2.05
$1.82
$1.82
$1.45
$1.02
$2.10
$2.07
$2.13
$1.86
$1.16
$0.80
$0.80
$0.83
$1.23
$0.75
$0.83
$0.79
19. KEY MANAGEMENT PERSONNEL
(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
Byron McAllister
Non-executive Director
Donal O’Dwyer
Non-executive Director
Michael Spooner
Non-executive Director
Silviu Itescu
Executive Director
Kevin Hollingsworth
Company Secretary
Suzanne Lipe
Jenni Pilcher
Roger Brown
Paul Rennie
Jim Ryaby
Vice President of Operations
Chief Financial Officer
Vice President of Regulatory Affairs (A)
Special Projects Consultant
(A) Appointed to this position; (R) Resigned from this position
60
Vice President of Research and Clinical Affairs
Full Year
2010
Full year
Full year
Full year
Full year
Full year
Full year
Full Year
Full Year
Full year
Full Year
2009
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
19 January 09
Full year
Full year
19. KEY MANAGEMENT PERSONNEL 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 2010
$
30 June 2009
$
1,841,151
1,518,359
69,208
429,677
69,397
383,633
2,340,036
1,971,389
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.
2010
Brian Jamieson
Byron McAllister
-
-
Donal O’Dwyer
150,000
Michael Spooner
Silviu Itescu
-
-
Kevin Hollingsworth
200,000
300,000
-
-
-
-
-
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
2009
Brian Jamieson
Byron McAllister
Donal O’Dwyer
240,000
150,000
180,000
-
340,000
240,000
400,000
180,000
240,000
-
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
-
-
240,000
180,000
160,000
240,000
250,000
150,000
-
240,000
-
-
150,000
-
-
-
-
-
-
-
-
-
(150,000)
(150,000)
(1,100,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Unvested
No.
300,000
-
-
-
-
300,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
200,000
134,000
134,000
66,000
390,000
180,000
80,000
60,000
80,000
60,000
310,000
120,000
580,000
146,000
146,000
434,000
580,000
216,000
216,000
364,000
240,000
80,000
80,000
160,000
-
-
-
-
-
-
150,000
150,000
150,000
-
-
-
-
-
-
-
-
-
67,000
67,000
133,000
-
-
33,000
83,000
-
-
-
33,000
83,000
240,000
180,000
307,000
317,000
-
240,000
61
-
-
200,000
240,000
180,000
(60,000)
340,000
-
-
400,000
240,000
19. KEY MANAGEMENT PERSONNEL 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.
2010
Brian Jamieson (i)
Byron McAllister
Donal O’Dwyer (ii)
Michael Spooner (iii)
Silviu Itescu
Kevin Hollingsworth
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
2009
Brian Jamieson (i)
Byron McAllister
Donal O’Dwyer (ii)
Michael Spooner (iii)
310,000
41,315
428,950
1,148,255
37,125,000
-
-
-
6,000
-
-
200,000
-
273,950
838,255
Silviu Itescu
37,120,000
Kevin Hollingsworth
Roger Brown
Suzanne Lipe
Jenni Pilcher
Paul Rennie
James Ryaby
-
-
-
6,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
150,000
-
-
-
-
-
-
-
-
-
150,000
150,000
1,100,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
110,000
(108,685)
5,000
(790,000)
5,000
-
-
-
-
-
-
Balance at
30 June
No.
310,000
41,315
578,950
1,148,255
37,125,000
-
-
-
6,000
-
-
310,000
41,315
428,950
1,148,255
37,125,000
-
-
-
6,000
-
-
(i) Brian Jamieson’s shareholding includes 275,000 (2009:275,000) 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 (2009:278,950) shares held by a related party as defined by the accounting
standard AASB124 Related Party Disclosures.
(iii) Michael Spooner’s shareholding includes 48,255 (2009:48,255) 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:
30 June 2010
$
30 June 2009
$
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
Employees and consultants (US based)
Other (US based)
38,343
37,621
-
141,555
98,474
124,623
440,616
1,040,002
310,187
1,350,189
125,500
216,391
50,000
183,589
192,470
54,756
822,706
774,520
260,682
1,035,202
No allowance has been made for impaired receivables in relation to the above balances, nor has any expense been recognized
in the year (2009:nil) in respect of any impaired receivables due from related parties. All transactions were made on normal
commercial terms and conditions and at prevailing market rates.
(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 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 Executive Officer and
Chairman of the Scientific Advisory Board
Non-executive Director, as Mesoblast
representative
Directors fees & contract for services
Directors fees & Angioblast share options
Relationship(s) with Mesoblast
Nature of transaction(s)(i)
Michael Schuster
Consultant – Business Development
Contract for services & Mesoblast share options (ii)
Donna Skerrett
Consultant – Medical Director
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.
63
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 both external creditors and Angioblast Systems, Inc. which are
denominated in US dollars (USD). It also has a USD bank account and an intercompany loan made to Angioblast
denominated in USD. All of these USD 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. The company has not entered into any forward currency contracts for the current
or previous financial year.
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% (2009: +/-20%) 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 2010 was 0.8567 (2009: 0.8048).
30 June 2010
Balance held
+20%
-20%
US$
Profit/(Loss) AU$
Equity AU$ Profit/(Loss) AU$
Equity AU$
USD bank account
Amount due from
Angioblast Systems, Inc
Trade payables & accruals
Amounts owing to
Angioblast Systems, Inc
47,439
868,413
(131,769)
(314,891)
(9,229)
(168,945)
25,635
61,260
469,192
(91,279)
-
-
-
-
-
13,843
253,418
(38,452)
(91,890)
136,919
-
-
-
-
-
30 June 2009
Balance held
+20%
-20%
US$
Profit/(Loss) AU$
Equity AU$ Profit/(Loss) AU$
Equity AU$
USD bank account
Amount owing to
Angioblast Systems, Inc
Trade payables
Amounts owing to
Angioblast Systems, Inc
47,439
36,049
(131,275)
(65,746)
(113,533)
(9,824)
(7,465)
27,185
13,615
23,511
-
-
-
-
-
14,736
11,198
(40,779)
(20,423)
(35,268)
-
-
-
-
-
64
21. FINANCIAL RISK MANAGEMENT CONTINUED
(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.
(b) Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge its obligation and 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 for operational spend are received monthly and that the
balance is not more than $200,000 at any one time without prior approval of a director. In addition, Mesoblast has loaned
Angioblast US$750,000 which accrues interest at a rate of 8% per annum. The credit risk to the company is detailed below:
Cash and cash equivalents
Cash and cash equivalents (note 7) – minimum A rated
Trade receivables
Receivable from Australian Government (GST)
(c) Liquidity risk
30 June 2010
$
30 June 2009
$
32,049,327
16,526,278
207,420
89,905
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 of these financial
statements is further described in note 1.
All financial liabilities held by the Company at 30 June 2010 and 30 June 2009 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 23rd August 2010, the company announced to its shareholders that it will convene an Extraordinary General Meeting (EGM)
for shareholders to be held on 22nd September 2010. The purpose of the EGM is for the shareholders to consider, and if thought
fit to pass, the following resolutions:
a) Approval for the issue of Mesoblast shares to facilitate the proposed acquisition of Angioblast Systems, Inc.;
b) Approval for the issue of Mesoblast shares to purchase Angioblast convertible notes;
c) Ratification of the prior placement of 14m Mesoblast shares issued and allotted to sophisticated investors on 19th May 2010;
and
d) Approval of the issue and allotment of approximately 7m Mesoblast shares to Sophisticated Investors
65
22. SUBSEQUENT EVENTS CONTINUED
Each of these resolutions and its impact on the financial position of the company is described below:
a) Approval for the proposed acquisition of Angioblast Systems, Inc.
On 5th May 2010, Mesoblast signed an non-binding implementation agreement with Angioblast Systems, Inc. under which both parties would
make all best and reasonable attempts to negotiate in good faith, complete due diligence, convene necessary shareholders meetings and
ultimately enter into a merger agreement that would allow for Mesoblast to acquire the remaining shares in Angioblast that it did not already own.
Under the terms of the implementation agreement, Mesoblast and Angioblast have agreed that Mesoblast would issue a total of 94,590,000
Mesoblast securities (comprising shares and options on a like for like basis) to acquire the remaining 67% (on a fully diluted basis) of Angioblast,
including the convertible notes, subject to a number of other terms and conditions that remain to be agreed.
Additionally, Angioblast security holders who hold common stock immediately prior to the acquisition may elect to receive up to 15% of their
share entitlement in cash. This part cash offer has been made available to Angioblast stock holders so that they may settle any United States
capital gains tax liability incurred as a result of the transaction. The total cash required to fund this cash component is not yet known, however
should all available stock holders elect the full 15% entitlement, and convertible notes be acquired prior to the acquisition per item c) above, at a
share price of $1.85 the total cash required is approximately $20.4m. Correspondingly, at a share price of $2 the cash required would be $22.0m.
If the convertible notes are not acquired by Mesoblast per resolution c) above and they therefore convert to Angioblast common stock holders as
a result of the acquisition, an additional $2.2m (at $1.85 per share) to $2.4m (at $2 per share) may be required if these shareholders also elect the
15% cash option in full.
Upon both Mesoblast and Angioblast shareholders approving the acquisition, a merger agreement will then be negotiated and completed, with
the shares and cash expected to be allotted prior to the end of the year.
Should the acquisition be completed, the Group will then own the entire platform to the MPC technology, and will have a combined intellectual
property value on its balance sheet of $450m. Other assets and liabilities acquired include working capital of approximately $3.8m, a deferred tax
liability of $157.5m and a deferred tax asset of approximately $11.4m. The existing investment in Angioblast is required to be revalued immediately
prior to acquisition in accordance with IFRS, which will result in a gain on revaluation in the Group accounts of approximately $129.8m. The total
value paid for this acquisition, using a Mesoblast share price of $1.85, is approximately $171.4m. After accounting for all of the above, together
with the original $18.2m investment paid for Angioblast, the Group will record a goodwill amount of approximately $11.7m on acquisition.
b) Approval for the issue of Mesoblast shares to purchase Angioblast convertible notes;
In August 2009, Angioblast raised $10.05m by issuing convertible notes to Australian sophisticated investors. These convertible notes (notes) will
convert to common stock of Angioblast in accordance with the terms and conditions of the convertible notes if Mesoblast completes the
acquisition mentioned above.
As an alternative and subject to the note holder’s consent, Mesoblast has agreed to assume the responsibilities of Angioblast under the notes,
and will therefore issue the note holder with Mesoblast shares upon conversion of the note. Conversion of the note will automatically occur upon
the Mesoblast shareholders approving this resolution and the note holder signing a Restriction Agreement, restricting the disposal or dealing of
the Mesoblast shares for a period of three months after issue.
The number of Mesoblast shares to be issued to each holder upon conversion of the note will be the calculated using the same ratio as per the
Angioblast acquisition. The exact number of Mesoblast shares to be issued will depend on the foreign exchange rate prevailing at the date of
conversion, however if all note holders consent, it is estimated that 8.05m – 8.45m Mesoblast shares will be issued to note holders.
As consideration for Mesoblast entering into this agreement, Mesoblast will receive the same amount of Angioblast stock that would otherwise
have been issued by Angioblast to the note holders on conversion of the notes. This agreement has been made irrespective of whether the
acquisition of Angioblast is completed but is subject to Mesoblast shareholder approval at the EGM.
c) Ratification of the prior placement of 14m Mesoblast shares issued and allotted to sophisticated investors on 19th May 2010
This resolution does not impact the financial position of the company, other than to give it greater capacity to raise capital in the future.
d) Approval of the issue and allotment of approximately 7m Mesoblast shares to Sophisticated Investors
As part of the share placement completed in May of this year (per item c) above), Mesoblast received further contractual commitments from
sophisticated investors for the purchase of approximately 7m shares on the same terms and conditions as the placement completed on 19th
May. Mesoblast was unable to issue and allot the shares to these investors at the time of the placement in May 2010 due to ASX Listing Rule
restrictions, without first receiving shareholder approval. This resolution now seeks the approval from shareholders to issue these shares
resulting in a significant further cash injection into the company to be used for its clinical programs and operations.
Other than those subsequent events described above, 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 2010.
66
Directors’ Declaration
In accordance with a resolution of directors of Mesoblast Limited,
In the directors’ opinion:
(a)
the financial statements and notes set out on pages 34 to 66 are in accordance with the Corporations Act 2001, including:
(i)
Complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional
reporting requirements, and
(ii) Giving a true and fair view of the entity’s financial position as at 30 June 2010 and of its performance for the financial
year ended on that date, and
(b) There are reasonable grounds to believe that the company will be able to pay its debts as and when they become due
and payable, and
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued
by the International Accounting Standards Board.
The directors have been given the declarations by the chief executive officer and chief financial officer required by section
295A of the Corporations Act 2001.
This declaration is made in accordance with a resolution of the directors.
Mr Brian Jamieson
Director
26 August 2010, 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 2010, the statement of comprehensive income, statement of changes
in equity and statement of cash flows 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 the financial statements comply 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
accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant
Anton Linschoten
Anton Linschoten
ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable
Partner
Partner
assurance whether the financial report is free from material misstatement.
PricewaterhouseCoopers
PricewaterhouseCoopers
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.
Melbourne
Melbourne
28 August 2008
28 August 2008
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 2010 and of its performance for
no contraventions of any applicable code of professional conduct in relation to the audit.
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 company’s 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 2010. 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 2010, complies with
section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
Anton Linschoten
Partner
Melbourne
26 August 2010
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 30 September 2010 are:
Shareholder
Silviu Itescu
Thorney Holdings Pty Ltd
Number of ordinary shares held
37,125,000
13,500,000
B. NUMBER OF HOLDERS OF EQUITY SECURITIES AND VOTING RIGHTS
Number of holders
Ordinary shares (i)
Share options (ii)
2,698
24
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
568
1,039
448
566
77
2,698
56
-
-
-
3
21
24
70
D. TWENTY LARGEST HOLDERS OF QUOTED SECURITIES
The names of the 20 largest shareholders of each class of equity security as at 30 September 2010 are listed below:
Rank
Investor 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
Prof Silviu Itescu
Thorney Investments
Aviva Investors
Independent Asset Mgt
Newton Investment Mgt
M&G Investment Mgt
Telstra Super
Northcape Capital
Mr George Muchnicki
British Airways Pension Investment Mgt
Dalit
Walker Corporation
Kinetic Investment Partners
SG Hiscock & Co
Coupland Cardiff Asset Mgt
Medvet Science
Credit Suisse
Boyer Allan Investment Mgt
Watermark Fund Mgt
Mr Michael Spooner
37,125,000
13,500,000
7,353,767
7,273,106
5,800,000
5,576,751
4,529,460
3,961,994
3,705,031
3,543,581
3,540,000
3,100,000
2,910,240
2,654,198
2,365,494
1,953,000
1,479,000
1,317,785
1,273,704
1,109,000
23.49%
8.54%
4.65%
4.60%
3.67%
3.53%
2.87%
2.51%
2.34%
2.24%
2.24%
1.96%
1.84%
1.68%
1.50%
1.24%
0.94%
0.83%
0.81%
0.70%
114,071,111
72.18%
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
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
1
2
6
25
26
33
67
68
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Leading the world in regenerative medicine
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Annual Report 2010