The share price of ASX junior biotechnology company Mesoblast Limited (ASX:MSB) is on the move after the company released its FY20 results to the market Thursday morning. At the time of writing, the Mesoblast share price had risen 3.69% to $5.34.
What's moving the Mesoblast share price?
The Mesoblast share price has been boosted after the company reported a 92% increase in revenues to US$32.2 million, while its loss after tax decreased by 13% year on year to US$77.9 million. Despite posting a loss for the year, the company has a strong balance sheet, with US$129.3 million in cash on hand as at 30 June 2020. Most of this came courtesy of a successful US$90 million institutional capital raise in May.
However, most investors will be focused on the company's FY20 operational highlights and how it is setting itself up to deliver in FY21. Mesoblast has a number of its stem cell treatments in final trial and approval phases, the most exciting of which is its flagship product, Ryoncil.
Ryoncil can be used to treat graft versus host disease (GvHD). GvHD is a potentially life-threatening complication which can occur in cancer patients who have received bone marrow transplants. In some of these cases, the donated 'graft' cells can attack the patient's own body cells.
Earlier this month, the Oncological Drugs Advisory Committee (ODAC), which advises the United States Food and Drug Administration (FDA), voted in favour of the efficacy and safety of Ryoncil for use in children under 12, sending the Mesoblast share price higher. There are currently no FDA-approved treatments for GvHD patients in this age group.
The license application for Ryoncil is now under priority review with the FDA, with the potential for it to be approved by 30 September 2020. Mesoblast is hopeful that it can launch Ryoncil in the US during the December quarter. The company sees this as a significant commercial opportunity.
Another exciting application that could drive the Mesoblast share price is its product's possible treatment of COVID-19 induced acute respiratory distress syndrome (ARDS). A recent pilot study delivered promising results, and a phase 3 clinical trial involving up to 30 leading medical centres across the US could go ahead next quarter, pending a review of safety and efficacy data by the US Data Safety Monitoring Board.
Should you invest?
There are always significant risks involved with investing in a junior healthcare company like Mesoblast. There is still the real possibility Ryoncil won't get the requisite approvals from the FDA, or that the ARDS phase 3 trials won't go head. While early promising results make these outcomes unlikely, they are still possible.
And investors can see the potentially volatile effects of either of these outcomes on the Mesoblast share price. In early August, Mesoblast shares plummeted 37% to just $3.07 in the space of two days, before shooting back up again by almost 70%. These big swings occurred either side of the positive ODAC announcement and show just how heavily the company's valuation rests on these approvals.
Mesoblast is an exciting company which is setting itself up to deliver a potential banner year in FY21. However, given its recent share price performance it might not all be smooth sailing. So, be prepared for some short-term bumps along the way if you do choose to invest in today's Mesoblast share price.
