Shares in Mesoblast Limited (ASX: MSB) fell as much as 10% this morning after the company successfully completed a $75 million capital raising.
Who Is Mesoblast?
Mesoblast is a world leader in the development of allogeneic (off-the-shelf) cellular medicines. The company has leveraged its proprietary cell therapy technology platform to establish a broad portfolio of commercial products and late-stage product candidates. Mesoblast has facilities in Melbourne, New York, Singapore and Texas and is listed on both the ASX and the Nasdaq in the U.S.
Capital Raising
For those unfamiliar, the video below explains what a capital raising is:
In an announcement released to the ASX this morning, Mesoblast said it had successfully completed an institutional share placement that has raised $75 million.
The placement will result in the issuance of an additional 37.5 million shares at a price of $2.00 per share. This represents a 7% discount to the last closing price.
As was to be expected, the Mesoblast share price fell this morning moving closer to the issue price of $2. The share price briefly fell to a low of $1.92, before recovering somewhat to be trading at $1.98 at the time of writing.
The proceeds from the capital raising will be primarily used to build inventory, along with a targeted US sales force in preparation for the potential launch of remestemcel-L, a product for the treatment of aGVHD (acute graft versus host disease).
Management Comments
Commenting on the institutional share placement, CEO Dr Silviu Itescu said: “We are very pleased with the significant broadening of our institutional register and the strong continued support from our existing shareholders, with demand exceeding the funds raised. Mesoblast is well funded to execute the commercial strategy for potential launch of its first allogeneic cell therapy in the United States.”
Highly Speculative
Mesoblast looks to be a company with great potential and its share price rocketed last month after announcing a new strategic partnership. Although it’s easy to get swept up by a great story, it’s important that as investors, we take a commonsense approach to investing in small growth companies.
Despite its obvious potential, Mesoblast is not yet profitable and there is no clear indication that it will be in the near future. As a result, I think the current market cap of just under $1 billion is a bit of a stretch.
My preference would be to find companies that have proven products and have already crossed the line of profitability, with an ability to scale up quickly. It might mean that you miss the initial share price appreciation, but it also strips out a lot of the execution risk.
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At the time of publishing, Luke has no financial interest in any companies mentioned.
