The Mesoblast limited (ASX: MSB) share price could come under further pressure this year on rumours that it needs a capital injection.
The MSB share price fell 1.3% ahead of the close to $2.23 when the S&P/ASX 200 Index (Index:^AXJO) rallied 0.5%.
Shares in the biotech have been on the nose over the past few months and this won't be a good time to go cap in hand to shareholders.
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$100m cap raise cloud hanging over Mesoblast
But that's exactly what broking firm CLSA is warning is likely to happen as Mesoblast needs to cover a close to $100 million cash shortfall, reported the Australian Financial Review.
CLSA's analyst Hashan De Silva believes that Mesoblast will need to start repaying a US$75 million loan with Hercules Capital in two months.
Mesoblast has reportedly drawn down US$50 million of the debt facility, which attracts an interest rate of 9.45% a year.
Bad time to raise cash
The stock tumbled from peak of $5.50 at the end of September last year when its Ryoncil drug for a-GVHD was rejected for use by US health regulators.
Its clinical trials to treat heart failure and COVID-19 related acute respiratory distress syndrome (ARDS) also flopped last month.
"Without access to significant capital, whether it's from capital raising, or from a third-party partner, or non-dilutive capital, it's very difficult for Mesoblast to continue to fund their clinical trials in the not-too-distant future, in the next 18 months to 24 months," De Silva told the AFR.
Why $100m may not be enough
While Mesoblast latest quarterly reported a cash holding of US$108 million, the company doesn't generate a profit.
De Silva believes that management needs US$75 million ($97 million). But even that may not be enough after Mesoblast's ARDS trial failed to meet its primary endpoint.
This is because the failure puts its partnership with Swiss drug-maker Novartis in question. The deal would see Novartis make a US$50 million upfront payment to Mesoblast. The payment is split 50:50 in cash and cash for equity.
De Silva doesn't know if Mesoblast still qualifies for the payment. If Novartis walks, Mesoblast will need a second capital injection in FY22, according to De Silva's calculation.
Should you buy the MSB share price now?
The broker has a "sell" recommendation on the Mesoblast share price with a 12-month price target of $1.22 a share.
Mesoblast isn't the only ASX biotech to underperform. The CSL Limited (ASX: CSL) share price is also scrapping the bottom of its 12-month trading band.
