Why Mesoblast limited remains a capital sinkhole

Shares in speculative regenerative medicine business Mesoblast limited (ASX: MSB) are down 9% to $1.26 today after the business posted another quarter of huge cash outflows.

For the quarter ending September 30 2017 the company posted a net cash outflow from operating activities of US$20.35 million (A$26.8 million), with most of the costs attributed to payments for staff and those required to conduct its multiple clinical trials.

In other words Mesoblast burned through A$9 million a month over the last quarter in a familiar pattern for investors that need patience and deep pockets to match.

Of course the company would argue it’s moving closer to a stage in its development where it could potentially commercialise some of its treatments for back pain, chronic heart failure, or Acute Graft Versus Host Disease.

As usual the company boasted of the “paradigm shift” potential of its portfolio of cell-based medicines in treating common human ailments and stated that it is actively seeking commercial partners for its most advanced product candidates.

As at quarter end it had cash on hand of US$62.9 million after raising an additional A$50.7 million from investors over September 2017.

Given the number of capital raisings it has conducted historically and lack of revenues it could consider applying for charity status.

Moreover, the prodigious rates of cash burn are not slowing and debt doesn’t look a realistic option so there’s potential for more capital raisings to come. That’s unless the biotech researcher can actually translate its online presentations into a real world commercialisation of a product to generate some serious revenues.

This company looks to have plenty of downside risk and I’m surprised so many investors continue to pour money into it.

Of course it might turn out to be the next big thing and deliver big returns to investors, although that’s not a bet I’m willing to make.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

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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