Shares in regenerative medicine business Mesoblast limited (ASX: MSB) have been climbing recently after it announced it has raised $29.4 million by selling an equity stake in itself to global pharmaceutical company Malinckrodt.
Mesoblast will issue 20.04 million shares to Malinckrodt under a 12-month voluntary escrow agreement and in return Malinckrodt has been granted an exclusive period of up to nine months to strike agreements to market and sell Mesoblast’s potential treatments for back pain and acute graft versus host disease.
This deal seems like excellent news for Mesoblast as it continues on its mission to deliver on what some investors consider to be its blockbuster potential. Cellular medicine is often described as the next great frontier in healthcare by treating, modifying, or reversing common diseases via stem cell regeneration that have a large unmet clinical need.
As at September 30 2016, Mesoblast had a cash war chest of $US60.4 million (prior to Malinckrodt’s investment) to funds its multiple clinical trials, although cash outflows for the most recent quarter were $20.8 million, with just $361,000 in cash receipts.
Evidently, while the story and potential is exciting, Mesoblast remains a very high-risk investment as it is burning through cash with several expensive clinical trials it has in progress yet to complete.
If the company can transfer the science of stem cell regenerative medicine into commercial reality it is likely to handsomely reward today’s investors, although given the cash flows I would suggest you keep it on the watch list for now.
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Motley Fool contributor Tom Richardson owns shares of CSL Ltd.
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.