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Here’s why the Orthocell Limited share price is soaring today

Shares of junior biotechnology business Orthocell Limited (ASX: OCC) have soared 7.9% higher today after the company issued a positive update in relation to its CelGro study.

Orthocell is by no means a household name, so a quick introduction may be appropriate. Orthocell is a tissue-regenerative biomedical group, providing innovative approaches to the regeneration of tendon, cartilage and soft tissue injuries. Its shares rocketed as high as 99 cents in July 2015, but have since lost almost two-thirds of their value. They’re fetching 34 cents today.

The company reported positive initial safety and tolerability results for its CelGro collagen-based medical device, which was being examined for its use to assist the repair of full thickness tears of the rotator cuff tendon in the shoulder.

Pleasingly, as at the interim review at 42 days post the operation, there were no complications for any of the first three patients to receive CelGro. Of course, it is still very early days but it’s an encouraging outcome for the group nonetheless – especially considering the prevalence of rotator cuff injuries each year as a result of sport or other causes.

While many repairs tend to tear again, the CelGro device is intended to reduce the reoccurrence of injury by “providing a more cell friendly environment to improve tissue healing and quality”, as well as integration and stabilisation of the repair. It hopes to get regulatory registration in Europe in 2016.

Indeed, biotechnology companies are often cause for plenty of excitement and promise, but there are certainly risks involved with investing in the sector. Just look at Mesoblast limited (ASX: MSB). The regenerative medicine business’s shares more than doubled in price within the space of two weeks in February, and then collapsed 42.2% in a single day earlier this week after it lost a key source of funding.

Assuming its various treatment and medical devices succeed, Orthocell’s shares could climb significantly from today’s share price, but they could also plummet if things don’t go according to plan. Investors with a low tolerance for risk would be wise to avoid Orthocell and focus on some of the market’s more stable businesses instead.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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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