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Here's Why Mesoblast Is Soaring Today

By Maxx Chatsko – May 13, 2020 at 2:23PM

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The business raised new capital to ready for the next phase of expansion.

What happened

Shares of Mesoblast (MESO 0.34%) rose as much as 27.2% today after the company announced the pricing of an offering of common stock. The stem cell developer will issue up to 43 million shares of common stock at AUD$3.20 apiece on the Australian Securities Exchange (ASX). The business expects to generate gross proceeds of up to AUD$138 million, or roughly $90 million in U.S. dollars. 

Investors were encouraged by signs that the offering drew significant interest. The Sydney Morning Herald reported that Mesoblast had to push back "on demand from both new and existing institutional investors." As of 2 p.m. EDT, the small-cap stock had settled to a 11.9% gain.

Ascending arrows drawn on a chalkboard.

Image source: Getty Images.

So what

The stem cell developer recently reported encouraging early results treating acute respiratory distress syndrome (ARDS), the most devastating symptom of COVID-19, with its allogeneic cell therapy called remestemcel-L. A small study of 12 individuals at a New York City hospital found that 10 individuals on mechanical ventilators who were given the experimental stem cell therapy survived, while nine were removed from mechanical ventilators at a median of 10 days. 

That compares favorably to the current status quo. A study of nearly 2,600 individuals with COVID-19 at New York City hospitals found 88% died when placed on ventilator support. 

Mesoblast moved quickly to put the findings into practice. In early May, the Australian biotech initiated a phase 2/3 clinical trial for treating COVID-19 ARDS. The placebo-controlled study will enroll 300 individuals and track all-cause mortality at the 30-day mark. The company expects enrollment to be completed in three to four months, although an interim analysis could stop the trial earlier if remestemcel-L proves wildly successful.

Either way, the timeline means Mesoblast needs to begin manufacturing batches of the drug now. The proceeds from the stock offering will help to secure supply chains, fund initial production runs, and accelerate the roll-out of the stem cell treatment if the phase 2/3 trial succeeds.

Now what

Stem cell stocks have routinely disappointed investors. Could Mesoblast buck that trend with a huge public health win? Well, it's plausible for the company's mesenchymal stem cells (MSC) to reduce inflammation and improve outcomes in COVID-19 ARDS. Investors should interpret the small 12-patient study with extreme caution, but cell therapies could prove to be a promising treatment option and help to relieve the global health crisis.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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