Another setback, another crash in Mesoblast shares – by 55% this morning

Mesoblast shares have crashed again – by 55%. What went wrong this time? In a nutshell, the FDA has told the company it’ll need to conduct another clinical trial for its most advanced stem cell product.

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How this point was reached?

The product in question is Remestemcel-L., being developed for inflammatory diseases, particularly acute graft versus host disease (aGVHD), a potentially life-threatening complication of an allogeneic bone marrow transplant (BMT).

Mesoblast wants to enter the US market, something easier said than done as our experience with Cyclopharm (ASX:CYC) has shown. But Cyclopharm has had a cakewalk compared to Mesoblast – even if only because Cyclopharm is already selling its product in many other markets, while Mesoblast has bled tens of millions of dollars of cash to get it’s product off the ground.

Not just trying to appease the FDA and get the necessary clinical data for aGVHD, but it has also contended with class action law suits and a failed attempt to get it approved in relation to COVID-19 (going so far as to start a trial, enrol over 200 patients only to have the US Data Safety Monitoring Board recommend it be wound up due to interim data not holding up).

Mesoblast shares are down ~90% since 2020 and more than 50% on Friday.

Mesoblast (ASX:MSB) share price, log scale (Source: Tradingview)

What happened today to cause the crash in Mesoblast shares?

The FDA told Mesoblast that it would need more data to support approval for remestemcel-L – this means another clinical trial. And the company plans to undertake one. Obviously, this will require even more cash. And this trial will be tougher to get off the ground because it will need to be in the highest-risk adults with the greatest opportunity.

But most importantly, this setback also drained investor confidence that approval will ever happen because it has been so close, but so far many times before. Also keep in mind that the FDA told the company it should do this back in 2020, but MSB ignored it.

Mesoblast’s IR machine has tried to minimise the impact by telling investors there have been no safety issues and that it now has ‘substantial clarity’ about how to proceed. But seeing is believing for long-suffering investors. This is one of the best examples of the ‘catching a falling knife’ trap that investors can fall into, in our view.

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