@maxybroI disagree with most things you say in relation to valuation, but you make a fair point about Mesoblast having seemingly punitive financing costs at the current time ...which are obviously compounding . I think it is important to put these “non dilutionary” facilities into context ...or may i say an other perspective. Most people on this thread will be familiar with mezzanine finance rates. Similar to a property company having to demolish and rebuild a site, lenders will extract premium interest rates for assets which are work in progress which do not have the immediate security profile needed for conventional lenders to make facilities available during this stage in their development.
The point you seem to be missing is that the two companies making facilities available to Mesoblast are specialist lenders to the sector and have undertaken extensive due diligence of the Company. Take the NovaQuest facility for example. It is on soft loan terms which are subordinated to the senior creditor Hercules....with all the interest only period lasting 4 years.
Indeed interest payments are deferred until the first commercial sale. It is rather ironic that they are so confident in the ability of Ryoncil to obtain FDA approval and generate significant earnings and royalties that they are prepared to
lend on an 8 year term which is only repayable from net sales of Remestemcel-L in the treatment of paediatric patients who are steroid refractory. So, just as development companies pay different tier rates for loans based on your level of security, which should look at the NovaQuest and Hercules as a blended cost of finance because each facility has a different risk profile in terms of security (Hercules has an effective floating share over all the assets and therefore receives a much lower coupon for its more conventional facility.
So lets remember that the share price of Mesoblast was hovering around the A$1.30-$1.50 in the months directly leading up to the announcement of the NovaQuest facility. If the Company had wanted to raise US$50m they would probably have ended up issuing shares near the A$1.10 level which would probably have resulted in A$80m of shares being issued,
which would have diluted the share capital by a further 15%.. But just consider this, the loan maturity on the NovaQuest facility is July 2026 and during that time Mesoblast will have ample time to repay both interest and principal out of sales proceeds from Ryoncil...so despite the very high cost of capital ($75m from Hercules at approx 9.7% and $50m at 15% from NovaQuest giving
a blended rate of approx 11.8% before arrangement fees). But this is of course all a red herring...because
@maxybro it is pretty obvious this will not be the real outcome for three reasons. 1)
There are no redemption penalties on the facilities 2) Once Mesoblast has received BLA approval, or more likely, just on fast tracked submission of the BLA,
they should be able to refinance at substantially lower rates, based on the fact that they would then have an orphan drug with “moated” revenues, protected for the next seven years and mouthwatering label extension opportunities reaching out to the horizon. 3)
Once the BLA is approved, it is a certainty that a European/Global Pharma would licence the product for other territories and be prepared to pay upfront fees which could be used to payback the debt.
So in the event everything runs smoothly, the NovaQuest facility will probably be refinanced just over 2 years from when it originated and we have only had to draw down the facility as required (which suited both parties). Furthermore, the high coupon rate was totally linked to the revenue stream of srGVHD and did not have prior claim or participate in the CLBP or CHF therapies which could be separately ring fenced for exploitation. Don’t forget that NovaQuest has had to take on the risk of higher efficacy being reported by a competitors products ...but probably surmised that the paediatric market for under 12 would be Mesoblasts almost exclusively....but all the same ,even after the phase 3 successful results, NovaQuest still had to allow for the risk of competitors therapies such as Incyte's second generation therapy trials for Itacitinib , or pricing reimbursement pushback etc., in their IRR modelling.
So, in that sense @ecoool2 is once again correct. If you take Dawson James projected revenue forecasts for Ryoncil up until 2026 there is more than enough cash flow to repay all the outstanding debt with the compounded interest and of course there will be leftovers to buy back shares as well.Despite all the above, I have to agree with you about one point maxybro.....Mesoblast may have been able to scrape by without the recent capital raise, but it would have been foolish to do so. In my opinion it would have weakened their negotiating position considerably in agreeing other joint ventures deals with global pharmaceutical in front of clinical trial results. Also, I have not yet met an institutional investor who wants to invest in a Company with only six months cash left on the balance sheet and only milestone related facilities to draw down on. T
he recent capital raise, however frustrating and mildly dilutive was essential good housekeeping. You never know when your auditors will force you into making an impairment in your portfolio and having negative shareholders funds ,despite the non dilutive financing terms, would make the risk profile of the stock unacceptable to most investors.
Moving forward, i believe the BLA approval of Ryoncil will gradually relate the share price on its own. I am sure, the shorters will try to suppress any joy on the day of the completion of BLA filing announcement ...but they will not be around much longer. Post full submission of all modules BLA approvals have historically achieved 92% success rates even before fast track status is taken into account ( where the FDA helps the sponsor pre submission which should in theory aid approval) Ryoncil , post approval, should completely underwrite the valuation and within the first year of launch, other clinical opportunities for this uniquely fully approved mechanism or action ,will result in widespread off label use and substantial upgrades to forecasts in my view.
Lastly, Mesoblast has said that the full read outs for the Revascor trial will be available mid year..........unless of course there is overwhelming efficacy .....i would watch this stock very carefully over the next 2-6 weeks....i would not be at all surprised if we get a bombshell headline number or two. Fasten your seatbelts with your legs crossed....it all depends on when Mesoblast is unblinded and is therefore compelled to make a statement to the market, particularly if mortality rates vary significantly from the control group
You would need to be insane to short the stock right now. Playing for pennies and risking annihilation ! Whatever, turns you on i suppose.Please do your own research and do not rely on the opinions or facts expressed in this post when making any form of investment decision.
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