The best performer on the S&P/ASX 200 Index (ASX: XJO) on Monday has been the Mesoblast limited (ASX: MSB) share price.
In afternoon trade the biotechnology company’s shares are up a sizeable 11% to $3.54.
At one stage the Mesoblast share price was up as much as 14.5% to $3.65.
Why is the Mesoblast share price surging higher?
Investors appear to have been buying Mesoblast’s shares on Monday on the belief that they were oversold on Friday following the release of a disappointing announcement.
That announcement revealed that the U.S. FDA has not approved its remestemcel-L (RYONCIL) treatment for paediatric patients with steroid-refractory acute graft versus host disease (SR-aGVHD).
This came as a big surprise to the market because in August the Oncologic Drugs Advisory Committee (ODAC) of the FDA voted 9:1 in favour that the available data support the efficacy of remestemcel-L in pediatric patients with SR-aGVHD.
It isn’t often that the FDA goes against the ODAC’s vote, but this is what happened last week.
However, it isn’t the end of the road. The regulatory body has recommended that Mesoblast conduct at least one additional randomised, controlled study in adults or children to provide further evidence of the effectiveness of remestemcel-L for SR-aGVHD.
In addition to this, as there are currently no approved treatments for the life-threatening condition in children under 12, Mesoblast is urgently requesting a Type A meeting with the FDA. This meeting is expected within 30 days and will discuss a potential accelerated approval with a post-approval condition for an additional study.
Judging by the Mesoblast share price performance today, some investors appear optimistic the company will be able to convince the FDA to approve the treatment at this meeting.
Should you buy the dip?
Mesoblast is an exciting company, but I would suggest investors keep their powder dry until a final decision is known.
Until then, I believe there are too many risks and not a sufficient reward for investors.
As a result, I think investors would be better off buying biotech giant CSL Limited (ASX: CSL) at this point.
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More reading
- These were the worst performing shares on the ASX 200 last week
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. 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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