I think that every portfolio should have some exposure to the healthcare industry, including 1 or 2 small-caps that make up less than 5% of the total portfolio’s value. Emerging ASX biotech companies such as Opthea Ltd (ASX: OPT) and Polynovo Ltd (ASX: PNV) could be possible inclusions.
Mesoblast Limited (ASX: MSB) has been gaining a lot of investor attention over the past few weeks. A raft of announcements regarding the FDA’s position on the company’s hero-drug candidate has led the Mesoblast share price on a wild ride.
Choosing a medical business that can develop a drug from lab to commercialisation without hiccups is akin to finding the holy grail.
As healthcare shares can be hit or miss, here is why I believe Mesoblast should be on everyone’s watchlist.
What does Mesoblast do?
The biotech company is a world leader in developing regenerative medicines for inflammatory diseases such as advanced heart failure, chronic back pain and graft versus host disease (GvHD).
Mesoblast has leveraged its cell therapy technology to establish a broad portfolio of commercial products and late-stage product candidates.
The applications for its products provide an exciting potential pipeline for future sales.
What’s been fuelling the Mesoblast share price?
Early last week, a report came through from the US Food and Drug Administration (FDA) raising questions on the effectiveness of Mesoblast’s product candidate remestemcel-L. The Mesoblast share price tanked on the news to hit a low of $2.98 on the day.
The following morning, the Oncologic Drugs Advisory Committee of the FDA had a meeting and voted 8 to 2 in favour supporting the efficiency of remestemcel-L in children with steroid-refractory acute graft versus the host disease. Indeed a quick turnaround from the FDA’s prior decision.
The positive announcement saw the Mesoblast share price surge to as much as 57% at one stage, reaching as much as $5.30.
Yesterday, the Mesoblast share price hit a multi-year high of $5.37, before finishing the day at $5.20 – a gain of 5.91%. Today it has lost a little of those gains, down 1.15% to $5.14 per share.
The FDA will now decide on the formal approval for remestemcel-L on 30 September.
Mesoblast’s balance sheet
In its most recent quarterly activity report, the company advised cash on hand was at US$129.3 million and its total operating activities was US$19.6 million. A capital raise was completed in May this year for US$90 million to institutional investors at $3.20 per share.
Mesoblast is expected to release its preliminary report on 28 August.
Foolish takeaway
Mesoblast has an opportunity for potentially huge revenue should the FDA approve its drug next month. The company has plans to launch in the United States to capture the world’s largest healthcare market.
I think that the Mesoblast share price will stabilise in the near-term pending its prelim results and the outcome of its remestemcel-L drug from the FDA. It would be best to wait on the side lines for now and add Mesoblast to your watchlist.
Looking Mesoblast’s market capitalisation (at the time of writing) of $3 billion, I would say it’s fairly valued.
I will be keeping a close eye on the Mesoblast share price over the next few weeks before making an investment decision.
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Aaron Teboneras owns shares of CSL Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. and POLYNOVO FPO. 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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