I wouldn't worry too much about shorts driving the price down...

I wouldn't worry too much about shorts driving the price down far at present. The short position has built back up to close to a 12-month high. It is now 5.2% of the issued capital, more than doubling from 2.3% last November.

It is very difficult to borrow stock at present, and cost of borrow is a very expensive 18% pa. This means shorts have to be very nimble and take any profits quickly - they can't afford to hold shorts for long periods at this cost of borrow. So if they manage to make a profit shorting, they'll be buying it back pretty quickly (and thus pushing the price back up again).

Looking further back to late 2015, the total short has only briefly gone above 6% twice, and it would seem to be quite risky to be increasing the total short position much further at present given the 180 day aGvHD results coming out in the next couple of months and also in the September quarter we are due to see the 12-month data read out of the phase 2b trial for end-stage heart failure patients with an LVAD.

More possible good news that would seem to make MSB a tough stock to short over the next 6 months (unless the price skyrockets first, or the shorters are very quick and opportunistic) is that both of these near term trial results are capable of generating accelerated FDA approval:

(a) MSB has indicated aGvHD for children could possibly get accelerated FDA approval within 6 months of the 180 day trial results (possibly with the proviso that more data be generated in a fully randomised adult GvHD trial). Reasons are well known - great results so far, primary endpoint met in phase 3 trial, lives being saved and no alternative treatment exists

(b) Already gained Regenerative Medicine Advanced Therapy (RMAT) designation for its novel MPC therapy in the treatment of heart failure patients with left ventricular systolic dysfunction and a LVAD. The objectives of this Phase 2b trial are to confirm and extend the prior Phase 2 results. The RMAT designation under the 21st Century Cures Act aims to expedite the development of regenerative medicine therapies intended for the treatment of serious diseases and life-threatening conditions. The RMAT designation also offers eligibility for priority review. Once the biologics license application (BLA) for a product is approved, the FDA can require various post-approval confirmatory commitments. Mesoblast is actively pursuing a potential accelerated entry pathway for MPC-150-IM into the cardiovascular market that may be provided by RMAT designation.

Remember that the ability to short is relatively limited - even if the shorts could find the stock borrow to go to the maximum of the past 3 years of 8.4% short (which happened in a period of great uncertainty for MSB, it's capital position and partnering problems, and before we had received trial results meeting FDA primary endpoints), then that is only another 3% of the capital which could potentially be supplied (on a short term expensive borrow). Yet the demand side is unlimited (except by price!).

I've had another look at the price targets of 4 US analysts covering the stock (all updated since last week's 100 day aGvHD release) and the 12-month ADR price targets are $US14, $US16, $US17 and $US23. Average of $US17.50 is 3x the current price of $US5.86! The equivalent 12-month price target for the MSB Australian listed shares is $A4.70. Also note that the later stage indications like rheumatoid arthritis are heavily discounted in these valuations - with a probability of success of 35% or less for these further out products - so plenty of room for upside to these valuations in future years if these indications become more likely to go ahead.

So, I'm not worried about the shorts having anything more than a short-term impact (and which would be likely to be quickly reversed) given the info released so far, and the results likely to come in the next quarter, followed by possible accelerated FDA approvals and therefore possible partnering deals which the company has said it is actively pursuing.

The bigger near-term problem for shareholders is self-doubt and panic or frustration driven by fear and a feeling you aren't in control, or a fear that someone else is going to sell before you do. This is like a primitive "fight or flight" caveman response to coming across an angry sabre-tooth tiger. It is a primal response from the gut - it is not a thinking response based on logic or facts. Remember that you aren't really fighting shorters on this stock, and you aren't fighting the market - you are fighting yourself and your own primal instincts. Moments of doubt occur all the time, and cause us to feel more comfortable just exiting what feels like a dangerous situation. Remember that the market neither knows nor cares that you own MSB - it isn't fighting you - the MSB share price is going to go up and down regardless of what you think or do. It is up to you decide you to assess your own risk appetite and then make a sensible decision on whether to hold (and how much) based on the long term outlook for the company's cash flows. For me, this stock is a standout for having limited downside and multiples of upside - that is what guides my long term decision to hold. Short-term fears of shorters are therefore not relevant - they are a distraction which could cause you to make a short term decision out of panic or frustration - but remember it is even more frustrating to sell out (for "gut" reasons), only to see your prior well reasoned and logical analysis proved correct!