Why the Mesoblast (ASX:MSB) share price crashed 40% lower in October

The Mesoblast limited (ASX:MSB) share price was out of form and crashed 40% lower in October. Here’s why…

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One of the worst performers on the S&P/ASX 200 Index (ASX: XJO) in October was the Mesoblast limited (ASX: MSB) share price.

The biotechnology company’s shares crashed a massive 39.8% lower over the month. This compares to a 1.9% gain by the benchmark index.

Why did the Mesoblast share price crash lower?

Investors were heading to the exits in their droves last month after its meeting with the United States Food and Drug Administration (FDA) didn’t go to plan.

Mesoblast was seeking approval for the use of RYONCIL (remestemcel-L) in treating paediatric patients with steroid-refractory acute graft versus host disease (SR-aGvHD). There is no approved treatment for pediatric SR-aGVHD.

Expectations were high ahead of the meeting with the FDA. This was because prior to the event, the FDA’s Oncologic Drugs Advisory Committee had voted overwhelmingly (9 to 1) in favour that the available data supports the efficacy of remestemcel-L in paediatric patients with SR-aGvHD.

However, that one detractor appears to have made all the difference. The FDA wasn’t satisfied and has recommended an additional randomised controlled study.

So instead of getting the thumbs up to start commercialising the treatment, Mesoblast is back to square one and will have to undertake another study. This will take both time and of course money.

What now?

Mesoblast has formally requested a Type A meeting with the FDA to discuss a potential accelerated approval of its Biologics License Application for remestemcel-l. This will be with an additional randomised controlled study in patients 12 years and older as a post-approval requirement. It expects this meeting will occur in November.

Mesoblast’s CEO, Dr Silviu Itescu, commented: “We are working tirelessly to bring remestemcel-L to patients with life threatening inflammatory conditions, including SR-aGVHD and COVID-19 ARDS.”

It certainly will be hoping this goes well for both the company’s future and for legal reasons.

Mesoblast was hit with a class action last month from disgruntled shareholders. They allege that management made false or misleading statements to investors and failed to disclose material adverse facts about prior trials of remestemcel-L.

Should you invest?

Although the Mesoblast share price has crashed lower, I would suggest investors stay clear of it until the FDA has made a final decision on remestemcel-L. Until then, I feel the risk/reward on offer with its shares just isn’t sufficient.

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Motley Fool contributor James Mickleboro has no position in any of the 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 Scott Phillips.

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