What happened

Shares of Mesoblast (NASDAQ:MESO) fell as much as 22.3% today as investors decided to lock in gains. The stem-cell stock erupted for a 139% gain on Friday after data from a small study suggested the company's cell therapy might significantly improve outcomes for COVID-19 patients placed on mechanical ventilators. 

The promising early stage results pushed the company's market cap to over $1.6 billion. Mesoblast had been valued at $450 million a few weeks earlier. Today's move suggests investors are taking the biopharma's inexperience and the preliminary nature of the study's data into account. 

As of 3:58 p.m. EDT on Monday, the small-cap stock had settled to a 21.5% loss.

A steadily ascending graph on a chalkboard that suddenly declines.

Image source: Getty Images.

So what

In March and April, Mesoblast conducted a small study at New York City's Mount Sinai Hospital to evaluate if its lead drug candidate, remestemcel-L, could treat acute respiratory distress syndrome (ARDS) in individuals with COVID-19. Doctors administered two doses of the experimental therapy within five days of patients being placed on a mechanical ventilator. The study was conducted using an emergency compassionate-use order and was not considered a clinical trial.

Of the 12 individuals in the study, 10 survived and nine had been removed from ventilators at a median time of 10 days. That represents a survival rate of 83% and indicates 75% of patients improved enough to come off ventilator support relatively quickly. 

All patients had received other experimental drugs, and the study was very small. But investors chose to focus on the remarkable outcome, especially when an observational study of 2,600 COVID-19 patients on ventilator support in New York City hospitals found that 88% died. 

Now what

Mesoblast intends to use the 12-patient study to influence the design of a larger clinical trial studying remestemcel-L in the same patient population, with participation from medical centers across North America. It's plausible that some types of stem cells could help to relieve ARDS in COVID-19 patients, but investors need to remain cautious until the results are replicated in larger populations. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.