Mesoblast limited (ASX: MSB) shares are locked in a trading halt today with the regenerative medicine business reportedly seeking to raise another $75 million according to news reports in the Australian Financial Review.
Mesoblast has often been touted as the next blockbuster company on the ASX and has seen its shares swing wildly in value depending on sentiment and the state of its balance sheet.
As at June 30 2019 it had US$50.4 million cash on hand but posted a quarterly cash operating loss of US$19.08 million with just $1.038 million in ‘royalty receipts’ received over the quarter.
So given its cash burn rate we can see why the company needs to raise more capital by the issue of another 37.5 million shares at $2 a share according to the AFR.
Bank debt is not really an option for a business like Mesoblast as no mainstream bankers will lend to a company with its kind of cash-burning track record and few assets to securitise against.
The biotech is making progress in commercialising a number of its regenerative medicine products, but it’s been slow going.
For example if we wind the clock back 6 years to the quarter ending June 30 2013 it posted an operating cash loss of A$13.5 million on no sales.
In fairness it’s now starting to bring in decent royalty revenues on sales milestones via partnerships with big pharma. For example over the past 12 months it has earned around US$30.7 million in ‘milestone receipts’.
However, the capital raising story is now so familiar that the heavily dilution means dreams of a sky high share price are all but gone.
After the latest capital raising it will have over 500 million shares on issue to mean it already has a big market cap around $1.1 billion.
Therefore today’s investors have great expectations in buying a $1 billion biotech business that is still burning through huge amounts of shareholder capital on a regular basis.
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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 Scott Phillips.