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Here’s why beaten down Mesoblast limited is making a comeback

In the last two days the share price of Mesoblast limited (ASX: MSB) has rocketed higher by an incredible 15%. This has come as quite a relief to shareholders who it is fair to say have been having a terrible year. Even after the strong gains this week its share price is still down by around 30% so far in 2016.

The sudden resurgence in the regenerative medicine company’s share price is the result of an announcement revealing positive results from a recent clinical trial for refractory rheumatoid arthritis.

According to its release, the test revealed “that a single intravenous infusion of its proprietary allogeneic Mesenchymal Precursor Cell (MPC) product candidate, MPC-300-IV, was well tolerated and demonstrated a dose-related improvement in clinical symptoms, physical function, and disease activity relative to placebo through the 12 week primary endpoint in its Phase 2 trial in biologic refractory rheumatoid arthritis.”

I have been quite bearish on the company in recent months, but I’ll happily admit that this development is encouragingly positive. There is a major unmet medical need of the biologic refractory rheumatoid arthritis population, according to Dr Allan Gibofsky. If Mesoblast’s cell therapy can fill this gap then not only is it great news for sufferers, but equally so for shareholders.

Management estimates the global market for treatment of rheumatoid arthritis is $15 billion, growing to over $18 billion by 2024. About one-third of patients do not respond to currently available treatments, which certainly gives Mesoblast a potentially lucrative addressable market.

The next step will be for Mesoblast to find a partner to help it move the treatment into the larger phase three trials needed as a prerequisite before the treatment can progress towards regulatory approval.

As positive as this news undoubtedly is, it is of course worth remembering that the trial’s results are anything but a guarantee of success. Personally, I would suggest holding off making an investment until phase three trial results are released further down the line.

Until then I would suggest investors take a closer look at REVA Medical Inc (ASX: RVA) or CSL Limited (ASX: CSL) instead.

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Motley Fool contributor James Mickleboro 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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