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Mesoblast limited could be about to sink or soar

Shareholders in regenerative medicine business Mesoblast limited (ASX: MSB) remain in the dark this morning after the company requested an extension to its trading halt until June 14.

The group went into a trading halt on June 1 due to ‘material corporate developments with respect to certain assets of the company’ and the subsequent information vacuum has left analysts and pundits guessing as to what may be afoot.

There are a wide range of possibilities both good and bad, but I suspect the news is related to Mesoblast’s partnership with Israeli pharmaceutical giant Teva in trialing a regenerative medicine treatment for chronic heart failure (CHF) that is currently at the initial Phase III stage.

On May 5 Mesoblast released its quarterly report for the period ending March 31 2016 that outlined some risks around the ongoing strategic alliances Mesoblast maintains with commercial partners including Teva and JCR in Japan.

The most recent quarterly report included the update that: “Teva has committed to fund the Phase 3 clinical trial in CHF at least though the first interim analysis, Teva has the right to terminate their agreement with us upon advance to notice us.”

I am guessing the trading suspension is related to Teva’s ongoing commercial commitment to the CHF Phase III trial, although I could be completely wrong in this assumption and investors are welcome to draw their own conclusions from the wide range of possibilities as to what may be behind the trading halt.

However, the near two-week delay in updating the market suggests to me that some unexpected news has come the way of Mesoblast.

If Teva has gotten cold feet the logical inference is that it’s privy to information around the “first interim analysis” of the CHF trial and has decided the trial is not worth throwing more funds at. This would spell bad news for Mesoblast, with its share price likely to head downhill faster than an Austrian skier when it does return to the ASX boards.

There’s also the possibility that good news is coming the way of investors for example if Teva is privy to positive clinical trial data that means it wants to commit further to certain assets of Mesoblast that it is also trialing. This or news of a partnership agreement with another pharmaceutical sponsor is likely to put a rocket under the share price and make Mesoblast one of the hottest stocks on the ASX in 2016.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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