Why the Mesoblast limited share price exploded today

Today the Mesoblast limited (ASX: MSB) share price soared almost 10%, compared to a 1.7% rise for the broader S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) benchmark index.

The strong lift in Mesoblast’s share price came after the biotechnology group, which specialises in regenerative medicine, provided a strategic update together with an update on its first-quarter financial results before the market opened this morning.

Mesoblast said it had strengthened its cash position over the last few months. As at 30 September 2015, that figure was $77.8 million, while another $63.5 million was raised as a result of its recent listing on the NASDAQ index in the United States in the time since.

At the same time, the company also implemented what it referred to as “tight fiscal control” that it believes could help reduce approximately 20% to 25% of quarterly operating cash burn when compared to the last two quarters (being quarter four of the 2015 financial year (FY15) and quarter one of FY16).

Indeed, this is important for Mesoblast. Many biotechnology companies burn through significant amounts of cash with very little revenue to show for it as they try to develop their products (which, by the way, typically have no certainty of succeeding). Mesoblast has conducted many capital raisings to top-up its cash balance over the years.

It’s likely that investors were also pleased to see Mesoblast narrow its quarterly loss to $13.2 million, compared to the $15.5 million loss in the prior corresponding period. That came alongside a 7.1% lift in revenues to $7.5 million, compared to the prior corresponding period.

Mesoblast’s shareholders will certainly be relieved after today’s rally. Even at their current price of $1.72, the shares are still trading roughly 50% below their recent level around $3.40 per share.

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Motley Fool contributor Ryan Newman 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 follow Ryan on Twitter @ASXvalueinvest.

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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