The Mesoblast Ltd (ASX: MSB) share price has returned from its trading halt and dropped into the red.

At the time of writing, the biotech company's shares are down 9% to $2.55.

Why is the Mesoblast share price sinking today?

The catalyst for today's weakness has been news that Mesoblast has successfully completed a major capital raising.

According to the release, the allogeneic cellular medicines developer for inflammatory diseases has completed a global private placement primarily to its existing major US, UK, and Australian shareholders.

This has seen the high-flying company raise a total of A$260 million (US$160 million) at a price of A$2.50 per new share. This represents a discount of 11% to where the Mesoblast share price last traded.

Unfortunately for retail shareholders, they have been excluded from this capital raising. The company has no plans to launch a share purchase plan (SPP) on this occasion.

Why is the company raising funds?

The release notes that proceeds from the capital raising will be used to fund a number of activities.

The first is the US commercial launch of Ryoncil (remestemcel-L) for steroid-refractory acute graft-versushost disease (SR-aGvHD) in pediatric patients. It was recently approved by the US Food and Drug Administration (FDA), which put a rocket under the Mesoblast share price.

So much so, the price that Mesoblast is raising funds is a premium of 47% to where its shares were trading a month prior to Friday's trading halt.

In addition, the company notes that the funds will be used to support clinical developments. This includes the acceleration of the second Phase 3 study in inflammatory chronic low back pain (CLBP) which is actively recruiting.

Funds will also be put towards the expansion of commercial manufacturing activities in preparation for product uptake and demand, as well as working capital and general corporate purposes.

Commenting on the capital raising, Mesoblast's chief executive, Dr. Silviu Itescu, said:

We appreciate the strong support from our shareholders as we scale-up production and provide to hospitals Ryoncil, the first and only FDA-approved mesenchymal stromal cell therapeutic, to treat children with life-threatening SR-aGvHD.

Huge turnaround

This capital raising marks an incredible turnaround in the fortunes of this biotech stock. A year ago, the Mesoblast share price was in the doldrums and fetching just 28 cents. This gave it a market capitalisation of approximately $300 million.

Fast forward to today and the company has almost raised as much as its market capitalisation from a year ago at a share price almost 10x greater than it was trading at then.