A Company can only be valued sensibly when it is a going...

A Company can only be valued sensibly when it is a going concern. I have struggled to understand how Silviu could take this Company so close to the brink financially, as to make the stock almost uninvestable (in my view) before funding The requirement to maintain US$35m cash collateral balance as part of the Oaktree transaction always seemed a very peculiar drawdown structure.I suspect that in order to get key stakeholders on board he has had to finesse a lot of competing interests…i doubt Oaktree would have signed off on any monetisation of royalties without demanding most of the cash generated ! The recent hatchet to operating expenses suggests to me institutions want greater focus and penalties for non performance before allowing the Company to feed from the funding trough once more. The reason i more recently changed my view to hold and cautioned continuously about the balance sheet in recent months is I had no idea what dilution shareholders would suffer if a rabbit could not be pulled out of the hat.
It is easy to criticise Silviu . When a Company receives a CRL, a CEO may invariably try to steady the ship with unrealistic timing expectations of a resolution, whilst it finds itself in a bureaucratic nightmare resolving the problem The FDA would appear to have valid concerns about the potency assay variability…to what degree was the Company culpable ? To what degree was the clinical programme disrupted during this time resulting in delays to key partnering discussions ? The fact that the Company suggests it can account for the anomaly? and rerun the potency data in question, suggests this may be a failure of outsourced materials or equipment ? …maybe a batch of faulty testing kits from the supplier ? Or something else?. Still, quality control of your batch processing is essential in this industry and the FDA were on firm ground to push back on process control …although it is obvious from the long term mortality data, that the FDA has unnecessarily sought to bludgeon this Company into submission on running another trial until Mesoblast finally understood the full nature of the issue . After all, after almost 3 years of post trial post mortem , I suspect the problem has been resolved..but sadly not in time to avoid another fundraise.
The good news is, I believe this may be the turning point. The amount being raised appears to sensibly fund the Company for the best part of 18/24 months while key inflection points are reached. With the coffers replenished Oaktree will no longer be the arbiter of the Companies strategic moves. At the AGM Silviu trotted out the well used phrase, that he was in “advanced discussions” on partnering . I am sure he is…although I suspect many partnering opportunities might be conditional on clearing the regulatory roadblocks set by the FDA. Whether these are resolved in the short term by collating the new potency assay data or stabilising the balance sheet? none of us know…but i personally have every faith in the science….in fact I have never been so impressed by the clinical trial results. I despair at the ineptitude of the FDA . Even if we have to wait for the results of the adult trial in sr aGVHD the market capitalisation is so ridiculous. I am not an expert in Australian right issues , but I would anticipate a little weakness from the immediate dilution and then we shouldfinally start to recover. Let me assure you, the opportunity to make, or lose, serious money in this stock will make the months ahead intriguing. Personally I suspect any partnering deal with a proper player in this sector will bring back much needed credibilty to the stock. It remains one of the most exciting investment opportunities I have ever seen in my lifetime . If the placing and rights is fully underwrtten I will shortly change my sentiment to buy again once the indigestion of additional shares has been absorbed. I believe we are closer to the finish line than ever ! OP



Please do not rely on the facts or opinions expressed in this post. Biotechs are particularly risky until regulatory approval . .