The Mesoblast Limited (ASX: MSB) share price was crunched by as much as 10% this morning after the company successfully completed a $75 million capital raising.
About Mesoblast
Mesoblast is a world leader in the development of allogeneic (off-the-shelf) cellular medicines. The company has leveraged its proprietary cell therapy technology platform to establish a broad portfolio of commercial products and late-stage product candidates. Mesoblast has facilities in Melbourne, New York, Singapore and Texas and is listed on both the ASX and the Nasdaq in the U.S (NASDAQ: MESO).
What’s Happened?
In an ASX announcement this morning, Mesoblast said it had successfully completed an institutional share placement, raising $75 million in the process.
The placement will result in the issuance of an additional 37.5 million shares at a price of $2.00 per share, which represents a 7% discount to the last closing price.
As expected, the Mesoblast share price fell at the open this morning, moving closer to the issue price of $2. The share price briefly fell to a low of $1.92 earlier today, before recovering somewhat to be trading at $2.00 at the time of writing.
The proceeds of Mesoblast’s capital raising will predominantly be used to build product inventory, as well as a US sales force in preparation for the potential launch of remestemcel-L, a treatment relating to aGVHD (acute graft versus host disease). Proceeds will also be used to complete Phase 3 trials for chronic low back pain and advanced heart failure.
Management Commentary
Commenting on the institutional capital raising, CEO Dr Silviu Itescu said: “We are very pleased with the significant broadening of our institutional register and the strong continued support from our existing shareholders, with demand exceeding the funds raised. Mesoblast is well funded to execute the commercial strategy for potential launch of its first allogeneic cell therapy in the United States.”
What Now?
Mesoblast’s share price went nuts last month after announcing a strategic partnership with a German pharmaceutical business. The company appears to have promising potential but while it’s easy to get swept up by a great story, it’s important that we, as investors, take a commonsense approach when investing in small growth companies.
Despite its obvious potential, Mesoblast is not yet profitable and there is no clear indication that it will be in the near future. As a result, I think its current market capitalisation of just under $1 billion is a bit of a stretch.
My preference would be to find companies with proven products that have already crossed the line of profitability, and with an ability to scale quickly. This might mean that you miss the initial share price appreciation, but it may also strip out a lot of the execution risk.
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Disclosure: At the time of writing, the author of this article has no financial interest in any of the companies mentioned.
