If you are looking for big potential returns, then Mesoblast Ltd (ASX: MSB) shares could be worth considering.
That's because the team at Bell Potter believes this biotechnology company's shares could more than double in value over the next 12 months.
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What is the broker saying?
Bell Potter notes that the US FDA has approved an additional potency assay for Ryoncil. It was pleased with the news, given its past experience with potency assays. It explains:
Investors familiar with the journey of Ryoncil through the FDA will be painfully aware of the delays to commercialisation, attributable at least in part, to perceived shortcomings in the then potency assays. Potency measurement is complex in a biological asset, particularly where the starting material may differ from batch to batch and with a multifactorial mechanism of action.
MSB had not previously disclosed the development of this assay, however, it collaborated with the FDA on the project. The assay will be part of a quality control matrix for the release of each batch of Ryoncil in conjunction with the existing potency assays for IL-2Ra inhibition and CAP (Cell Adhesion and Proliferation). At its core, Ryoncil is a highly potent anti-inflammatory designed to suppress multiple mechanisms of the immune system response to a bone marrow graft by the host, including the proliferation of host T-cells which form part of the cytokine storm that occurs during severe GvHD.
The broker feels this could be a major de-risking event. It adds:
In practical terms, the assay completes the QA circle and represents a significant derisking event. The company is entirely dependent on a single manufacturing site at Lonza, Singapore for the production of Ryoncil. The new assay pavs the way for MSB to commission a second manufacturing site, most likely in the US. We expect this may commence with a second contract manufacturer. The assay allows the company to further tighten the manufacturing specifications on commercial batches.
The assay will be equally applicable to the manufacture of rexlemestrocel-L. MSB has extensive IP around both Ryoncil and Rexlemestrocel-L (aka Revascor). Ryoncil carries Orphan Drug Designation and long life patents. The development of the new TIBA assay further extends the moat around future revenues.
Should you buy Mesoblast shares?
According to the note, in response to the news, the broker has retained its buy rating and $4.45 price target on Mesoblast shares.
Based on its current share price of $2.16, this implies potential upside of 106% for investors over the next 12 months.
