The Mesoblast limited (ASX: MSB) share price has rocketed 23% over the past week and 44% over 2017 after the regenerative medicine business revealed its drug for acute Graft Versus Host Disease (aGVHD) has been awarded “fast track” designation status by the U.S. regulator the FDA.
This is undoubtedly positive news for Mesoblast as it needs to move some of its trial drugs closer to commercialisation sooner rather than later given it continues to post huge quarterly cash outflows.
The Melbourne-based stem cell research company stated that “fast track’ designation can shorten the FDA review process from 10 months to 6 months, with the company stating its application for “fast track” status was supported by clinical data from 241 pediatric patients already treated with its drug for aGVHD.
The company now believes that a successful Phase III trial could be sufficient for conditional FDA approval for its drug, which is the Holy Grail for any speculative biotech company looking to start earning big revenues and profits.
The company already has approval for its aGVHD treatment in the pioneering stem cell medicine market of Japan under a partnership with JCR Pharmaceuticals.
Mesoblast also says it’s negotiating with another partner in Mallinckrodt Pharmaceuticals to commercialise aGVHD products outside of China and Japan.
The biotech also has several other regenerative medicine treatments under clinical trial that could be used to treat, inter alia, back pain, chronic heart failure, and common inflammatory disorders or diseases affecting the human body.
However, these trials and the companies general expenses are proving eye-wateringly high with a cash loss of US$25.5 million posted over the quarter ending December 31 2016.
That’s around A$34 million a quarter the company is ripping through with little to show for all its boasts as to the potential of its technology. No wonder investors have lost patience, with the stock down 72% over a past five years that have been long on promise, but short on delivery.
Is Mesoblast finally turning the corner?
It’s hard to know, but my primary concern with this company remains its extravagant costs. Unfortunately, for a speculative biotech company like this debt is not an option, and the need for regular and dilutory cash injections is a major hazard for anyone taking a punt on it today.
As at December 31 2016 it had US$33.9 million cash on its balance sheet, with an additional US$21.7 million due to be received under the terms of a dilutory share placement to Mallinckdrodt Pharmaceuticals.
Today the stock sells for $2.01 and if you believe the story it could be a top performer over the years ahead, although I would suggest watching this story from the sidelines due to the huge losses being incurred and speculative nature of the business.
If you want to speculate on junior healthcare businesses, why not put the odds in your favour by buying ones that already have growing revenues and profits? Two that come to mind are Nanonsonics Ltd (ASX: NAN) and Somnonmed Limited (ASX: SOM). They could both offer superior risk-adjusted returns to Mesoblast in my opinion.
This company’s dividend is almost the stuff of legends. Since it started paying dividends in 2007, it has increased its payout to shareholders every single year, a run that includes 21 consecutive dividend increases.
Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!
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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia owns shares of Nanosonics Limited. 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.