Seven months ago Mesoblast Ltd [ASX:MSB] was on a tear.
This high-flying biotech looked like it had the makings of something great. Perhaps even a trajectory similar to that of heavyweight superstar CSL.
Today though, that couldn’t be further from the truth.
The company has come within inches of becoming insolvent. A situation that could have left shareholders high and dry.
And even now despite a much-needed lifeline, the company’s future is uncertain.
Vital cash
Mesoblast has announced the successful completion of a $138 million capital raise. A placement that will see the company issue 60 million shares today, and an option for a further 15 million shares that are eligible for exercise up until March 2028.
And while some of the terms may have some shareholders a little miffed, they can’t really argue against them. This research-intensive business means they burn through cash very quickly, and with hardly any meaningful revenue (US$2.2 million in the last quarter), they were desperate for a top up.
Fortunately, they’ve got it.
But only just.
Earlier in the day this news actually helped lift the MSB share price above its previous close. Putting it briefly in the green for the day — but it didn’t last long.
As of time of writing the MSB share price is down 5.08%. With the reality and future of this cash-strapped company now a huge unknown for all.
So, while they may have bought a little more time for themselves, Mesoblast certainly isn’t out of the woods yet. Granted, CEO Dr Silviu Itescu is still putting on a brave face, as he comments:
‘We are pleased to receive a strategic investment from the principals of SurgCenter Development, one of the largest private operators of ambulatory surgical centers in the US specializing in spine, orthopaedic and total joint procedures.
‘We expect the deep healthcare knowledge and expertise of this investor group will be of great benefit to the company. The network and infrastructure of surgeons and ambulatory centers operated by SurgCenter may provide unique synergies to facilitate development and market access for rexlemestrocel, if approved, in patients with chronic lower back pain.’
Needless to say, it’s an optimistic outlook, but fails to address the pressing financial issues…
Should Mesoblast shareholders be worried?
Like I said, Mesoblast needs to find a way to start making meaningful revenues, and fast.
R&D is great, but investors will only be able to tolerate it for so long. Especially if it continues to be as fruitless as it has been recently.
That’s not to say that Mesoblast can’t turn their fortunes around, it’s just going to be tough.
Therefore, investors will need to weigh up their options carefully. Because despite their decent mid-cap valuation, Mesoblast is still a biotech stock. The kind that carries a whole lot of risk.
However, if you’re looking for tips and tricks to handle these kinds of risky investments, we can help. Our resident trading expert, Murray Dawes, has put together a fantastic guide on how he manages and trades around risk. Helping him extract the best possible returns from even the most volatile of stocks.
Check out the full guide, right here.
Regards,
Ryan Clarkson-Ledward,
For Money Morning
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