Why the Mesoblast limited share price crashed today

Credit: Daryl Cauchi

Shares in Mesoblast limited (ASX: MSB) copped a hiding this morning after the company’s capital raising via the NASDAQ failed to impress US investors.

The Melbourne-based biotech hoped to raise US$12 per American depositary share (ADS), but was seemingly forced to accept just US$8 per ADS.

Each ADS is equivalent to five ordinary shares in the company which means that US investors only valued ASX scrip in the company at around $2.24 when you translate US$8 into Australian dollars (approx $11.25) and divide the total by five.

Consequently the local scrip has been marked down a whopping 37% today to just $2.12 as the disastrous consequences of the stateside flop hit the company’s valuation.

The biotech has something of an evangelical following among retail shareholders in particular due to its perceived potential to make them rich by cashing in on the big possibilities of regenerative and stem cell medicine.

However, so far the company has been long on promise and short on delivery, with so many capital raisings it could even consider applying for charity status.

Biotechs in the development stage tend to burn through cash with little in the way of revenues that often makes them a high-risk bet. Another ASX-listed biotech hopeful forced to repeatedly go to the market to raise capital amidst a floundering share price is Ademdus Ltd (ASX: AHZ).

Being a Mesoblast shareholder requires a lot of patience, although the bottom line remains that it continues to be able to raise substantial amounts of capital (approx. US$60 million this time) and if it is able to successfully commercialise some of its products then the share price may reverse course rapidly.

Although, unless you can remember the future it might be worth watching the Mesoblast story from the sidelines until some more concrete developments suggest it is on the path to commercial success.

Especially when there are so many other profit-spinning companies making big gains for their shareholders – such as the business below which is worth knowing about!

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below.

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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