Mesoblast (ASX:MSB) share price could be facing more pressure in 2021

The Mesoblast limited (ASX: MSB) share price could come under further pressure this year on rumours that it needs a capital injection.

| More on:
falling healthcare asx share price Mesoblast capital raising

Image source: Getty Images

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.

$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.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Brendon Lau owns shares of CSL Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News