After surging to a 52-week high of $5.70 by late September, shares in ASX biotechnology company Mesoblast Limited (ASX: MSB) have come crashing back down to earth this month. The company has shed close to 45% of its market cap in the last few weeks, after receiving an underwhelming response from the US Federal Drugs Administration (FDA) concerning its flagship treatment, remestemcel-L, marketed under the brand name RYONCIL. As of Friday afternoon, Mesoblast shares were trading at just $3.11.
The funny thing is that this has all happened before. Back in August, the Mesoblast share price plunged almost 40% after nervous investors sparked a sell-off, fearing a negative outcome from a meeting between Mesoblast and the Oncologic Drugs Advisory Committee (ODAC), an independent panel that advises the FDA. In that instance, the committee voted overwhelmingly that the available data supported the efficacy of RYONCIL in paediatric patients. Once the market learned of the positive outcome, the Mesoblast share price rebounded just as swiftly.
This time around, things haven't worked out so well for Mesoblast. So, what is actually happening here?
Despite the advice from ODAC, the FDA stated that it would like Mesoblast to conduct at least one more study to prove the effectiveness of RYONCIL. This comes as a pretty heavy blow to Mesoblast, as the company had already been making preparations to launch RYONCIL in the US. These plans will now all need to be put on hold while Mesoblast conducts the additional study – this means potentially significant delays and possibly significant investment.
No wonder the market reacted with shock and investors decided to dump their shares.
But it's also bad news for patients. RYONCIL is designed to treat various inflammatory diseases including chronic heart failure and graft versus host disease (GvHD). GvHD is a potentially life-threatening complication that can occur in up to 50% of cancer patients who have received a bone marrow transplant. Currently, there is no approved treatment in the US for GvHD in children under 12.
Mesoblast is now applying for an accelerated approval with the FDA, which could mean RYONCIL would be approved, but under the condition that a further study is conducted. And meanwhile, it is conducting a phase 3 trial using RYONCIL as a treatment for sufferers of acute respiratory distress syndrome (ARDS) brought on by coronavirus.
In a press release, Mesoblast CEO Dr Silviu Itescu said that the company is "working tirelessly to bring remestemcel-L to patients with life-threatening inflammatory conditions, including SR-aGVHD [steroid-refractory acute graft versus host disease] and COVID-19 ARDS."
Where to from here?
I have to admit to being quite bullish on Mesoblast, so it's disappointing that they haven't come away from their meeting with the FDA with a better outcome, particularly after ODAC voted so resoundingly in their favour. However, this does show the extreme volatility that can occur in the share prices of companies like Mesoblast, where a great deal of their commercial viability is dependent on a single event.
That being said, I think Mesoblast is still definitely worth keeping on your watch list as a possible future growth stock. Their technology is cutting edge and they still have significant cash on hand after a capital raise back in May. However, in the meantime, perhaps your money would be better invested in more mature and diversified healthcare companies like ResMed CDI (ASX: RMD) or CSL Limited (ASX: CSL).
