ASX junior pharmaceutical company Mesoblast Limited (ASX: MSB) is one of the few companies to have delivered substantial gains to its shareholders during 2020. While big name healthcare shares like Cochlear Limited (ASX: COH) and CSL Limited (ASX: CSL) have struggled throughout the COVID-19 pandemic, the Mesoblast share price has risen over 80% so far this year. It is also up an astounding 263% since bottoming out at $1.02 back in late March.
What’s been driving the Mesoblast share price?
Mesoblast uses stem cell technology to develop treatments for various inflammatory diseases including chronic heart failure and graft versus host disease (GvHD). GvHD is a complication which can occur in cancer patients who have received donor bone marrow or stem cells. It occurs when the donated ‘graft’ cells attack the patient’s own body cells and has the potential to be life-threatening.
Mesoblast’s GvHD treatment has been accepted for priority review by the United States Food and Drug Administration (FDA), with the potential for it to be made available in the US as early as September. The company announced on Tuesday that the Oncologic Drugs Advisory Committee, which advises the FDA, will review Mesoblast’s application in mid-August.
Additionally, one of Mesoblast’s treatments has shown promising results in treating COVID-19 patients suffering from acute respiratory distress syndrome (ARDS). The company is currently conducting a phase 3 trial involving 300 patients across North America in an attempt to prove the treatment’s efficacy.
Meanwhile, trials are also advancing to establish whether Mesoblast’s treatments are effective against advanced heart failure, lower back pain caused by degenerative disc disease and inflammatory lung disease, such as chronic obstructive pulmonary disease.
That seems like a lot of different fronts for the company to be advancing on simultaneously. As such, it’s no wonder Mesoblast has excited the market so much recently. And although some of these trials are still in their early stages, they do illustrate the broad potential of the company’s proprietary medical technology.
Mesoblast is also starting to show its commercial potential. Revenues for the first nine months of FY20 were US $31.5 million, a 113% increase over the same period in FY19. A successful capital raise in May means the company now has close to US $150 million in cash. It plans to put this cash towards launching its GvHD treatment in the US, pending the FDA approval, as well as scaling up manufacturing for its COVID-19 treatment.
Is the Mesoblast share price a buy?
While there is a lot of (justified) excitement around Mesoblast, this must be weighed against the potential risks. There is always the possibility that the FDA will not approve the company’s GvHD treatment for sale in the US, or that its treatment against ARDS will prove ineffective. There seems to be enough positive results coming out of its trials to make either, or both, of those scenarios seem unlikely – but they are still possible.
There is also the more likely potential that, considering the global focus that is directed towards the fight against COVID-19 right now, another treatment will come along that is more popular or effective against the respiratory complications caused by the virus. Mesoblast is only one of many companies from all over the world trying to develop an effective treatment against COVID-19.
However, notwithstanding these caveats, I still believe Mesoblast is an exciting investment and I’m bullish on its growth prospects. Despite a 10% surge in the Mesoblast share price yesterday, the company’s shares are still around 17% off the 52-week high of $4.45 they reached in late April.
With its commercial prospects rapidly improving, now could be a good time to snap up shares in this promising pharmaceutical company.
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Rhys Brock owns shares of Cochlear Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear Ltd. 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 Scott Phillips.