Mesoblast Ltd (ASX: MSB) shares were catching the eye of investors for all the wrong reasons last week.
On Friday, the biotech company's shares ended the session 57% lower at 47 cents.
This followed news that the US Food and Drug Administration (FDA) had not approved Mesoblast's remestemcel-L therapy for the treatment of paediatric steroid-refractory acute graft versus host disease (SR-aGVHD).
Instead, another clinical trial of this stem cell therapy will be required in adults to provide more supporting data. Though, even then there is no guarantee that this will be enough to sway the US FDA.
What are analysts saying?
The team at Bell Potter, which had previously appeared confident that the therapy would be approved, has been looking over the ruling.
The broker has been very critical of the regulator's decision and the impact it will have on sufferers of SR-aGVHD. It said:
While the drug is sufficiently safe and efficacious to give away via the Expanded Access Program (EAP) in the US and available in Japan, apparently it is not good enough to warrant FDA approval. There are many questions including why the FDA accepted the resubmitted BLA back in January if it was known then that a second phase 3 had not been completed.
The efficacy data suggests there is significant value in Remestemcel and the request for an additional trial in adults is a strong indication that the drug is likely to gain wide uptake if approved. The FDA's decision to withhold this life saving therapy in children (and adults), many of whom are likely to succumb to their illness as a result of this decision is confusing.
Are Mesoblast shares good value?
In response to the decision and the uncertainty in relation to new trial timing and funding, the broker has downgraded Mesoblast's shares to a speculative hold rating (from buy) with a heavily reduced price target of 60 cents (from $2).
While only a hold rating this still implies a potential upside of almost 28% from current levels.
The broker concludes:
There are substantial downgrades to revenues and earnings following this announcement. We reduce our recommendation from Buy to Hold (Speculative) pending further announcement on timing of the new trial and funding decisions. Valuation is reduced to $0.60 from $2.00.
