If there’s been one stock that has got my TV audience both ecstatic and then cheesed off (to put it politely), it’s Mesoblast. I don’t recall any of my expert buddies recommending it but Julia Lee was a fan until she wasn’t.
Julia was luckier than most because she got in really early so even when it sold off she was probably in the money. From my point of view, I only ever saw this stock as a small ‘punt’ on a very speculative company (as many bio-techs are), which meant I had a crack when the company was sold off after it copped another “do more work” demand from the Federal Drugs Administration (FDA) in the US.
Recently, the SMH’s Emma Koehn wrote a great, long piece on the company, which I’ll summarize, which should help you work out if you want to buy or wave bye-bye to Mesoblast (MSB).
For those who need a chart story, here’s the 5-year one.
Mesoblast (MSB)
It’s peak was in late August when it hit $5.70, but the FDA and some hardly inspiring news stories have clobbered the stock price as low as $1.70. It’s now $2.26 and has gained 27% since June 7.
So can we use the old “where there’s smoke, there’s fire” lesson? Or should we view Mesoblast and its management with suspicion and avoid being exposed to the company?
Here are some vital stats on the company:
- It has been around for 17 years and is a $1.4 billion company after raising $800 million in capital.
- It’s one of the most-shorted stocks on the market.
- Its hot product is a stem cell product called Ryoncil that helps kids with immune responses after bone marrow transplants.
- Has application potential for lung problem sufferers after a battle with the Coronavirus.
- A possible class action looms from investors who argue management mislead the market. This is a real threat for the company.
- In August, Mesoblast’s shares were up 148% for the year and an independent group voted 9 out of 10 that Ryoncil did the job and was worthy of FDA approval.
- The FDA shocked most when it said it wanted more trials and the share price tanked (as the chart above shows), losing 35% in a heartbeat!
For those who remained believers, they would’ve loved this from an expert analyst: “The FDA did something that is very unusual, which is go against a panel that recommended approval. That is something that just about never happens,” said Max Jacobs, an analyst at US firm Edison Group.
Mesoblast went into ‘argument’ mode with the FDA following the rejection and then got some good news. Meanwhile, its share price was negatively affected by concerns that the company had potential cash problems. Then we learnt Novartis came to the rescue with $50 million in upfront cash and investment to jointly commercialise Ryoncil to treat COVID-19 patients in severe respiratory distress.
The company pointed to a long-term offer of potential milestone payments of $US750 million but the deal remains in limbo. At this stage, the COVID test trial has neither the company nor experts doing cartwheels with excitement.
February brought new cashflow concerns. And then along came US orthopaedic medical centre operator SurgCenter Development, which then gave the company $US110 million.
For me, I’m holding, but I’m not doing it with confidence. I like the fact that big operators such as Novartis and SurgCenter have found capital for the company. I also like it that shrewd investor Alex Waislitz holds a 4.7% stake through his Thorney Investments group.
Emma Koehn says latest reports indicate Mesoblast “…now has $US158 million cash on hand and enough money to fund the next 12 months of operations.” That said, history has shown that smarties can get it wrong and do at times cross their fingers and hope when they’re in for a lot of money on a stock, as Alex is.
Koehn gave us the analysts view: “Many analysts are also taking an optimistic view, despite the long road of troubles ahead: consensus estimates have both the ASX-listed shares and US authorised depositary interests rated as ‘buys’, even though some of these are labelled speculative.”
CNNMoney in the US has the following on the Aussie stock that’s also listed on the Nasdaq. “The 5 analysts offering 12-month price forecasts for Mesoblast Ltd have a median target of $US16, with a high estimate of $US23 and a low estimate of $13.93. The median estimate represents a +86.26% increase from the last price of $US8.59.”
I hope these experts are on the money!
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.