Why the Mesoblast limited share price exploded 26% today

The Mesoblast limited (ASX: MSB) share price has continued its incredible run today, surging another 25.5% to $2.76, although it did trade for as much as $3.03 earlier in the session. Shares traded for as little as $1.14 on 12 February, representing a gain of 142% in less than three weeks at its current price.

Source: ASX; six-month share price chart for Mesoblast

Source: ASX; six-month share price chart for Mesoblast

Mesoblast operates in the biotechnology sector and is focused on developing products for regenerative medicine.

In regards to today’s sharp rise in the company’s share price, there were no market releases issued by the group that would explain the rise – at least not as far as I could tell – but the gains could be attributed to recent developments with the group.

Indeed, Mesoblast recently announced positive results for its Phase 2 rheumatoid arthritis trials – a market it believes could be worth $18.4 billion by 2024 – while it also showed that its stem cell treatment was helping children suffering steroid-refractory acute Graft Versus Host Disease (aGVHD) survive bone marrow transplants.

Of course, there are plenty of risks associated with owning shares in biotechnology companies, and they can be extremely volatile even at the best of times; just ask shareholders of Orthocell Ltd (ASX: OCC) or even Sirtex Medical Limited (ASX: SRX).

For starters, the company generates very little revenue yet burns through cash to fund research and development. It has recently cut back on spending which is great, although there is still a chance further capital raisings will be required in the future.

Still, if everything goes according to plan, Mesoblast’s shares could be worth a lot more in the future than they are today. It’s a potentially high-risk/high-reward play and should only be considered by investors with the ability to stomach violent swings in share prices, and those with the patience to stay invested for the long term.

Although the shares have gained 142% in less than three weeks, they’re still sitting nearly 34% below their 52-week high (again highlighting the volatile nature of the shares).

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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