Mesoblast shares hammered by US regulatory setback

Biotech Mesoblast shed $1.5bn of its market value after a regulatory hitch for a drug with the potential to treat COVID complications.

Mesoblast CEO Silviu Itescu. Picture: Stuart McEvoy

Shares in biotechnology market darling Mesoblast collapsed to wipe around $1.5 billion from its market capitalisation on Friday after a major US regulatory setback for its remestemcel-L’s application for treating children - a disease that has a similar immune response seen in patients with severe complications from coronavirus.

Mesoblast, long a small-cap favourite for investors playing in the biotech and life sciences sectors including billionaire investor Alex Waislitz, had seen its share price almost triple since January as the market became excited about its remestemcel-L for treatment a drug to treat patients with potentially lethal COVID-19 complications.

Previously the FDA’s advisory committee had voted in favour of the drug’s efficacy 9:1. The vote was on remestemcel-L’s application for treating children with steroid-refractory acute graft versus host disease (aGVHD)

The excitement about what was hoped to be a stamp of approval this week from powerful US gatekeeper the Food and Drug Administration sent Mesoblast shares from $2 in January to over $5 recently, to value the company started by scientist and businessman Silviu Itescu at about $3bn.

But following a setback from the FDA overnight, Mesoblast’s American depositary receipts were down 37 per cent to $US11.79 after hours.

The US regulatory pushback appears to dash any chances of the drug being released by the end of the year.

Mesoblast shares on the ASX also collapsed to be down 45 per cent in morning trade, falling to as low as $2.81 from a previous day’s close of $5.08.

Mesoblast only reentered the ASX 200 in June. Billionaire stock picker Mr Waislitz‘s Thorney Investment Group owns 6 per cent of the company and the high profile investor is a long-time friend of Mesoblast founder Mr Itescu.

Mesoblast backer Alex Waislitz. Picture: Aaron Francis

The Australian-based Mesoblast said in a statement to the ASX the US Food and Drug Administration had issued a “complete response letter”. The agency recommended that Mesoblast conduct at least one additional study in adults and/or children to provide further evidence of effectiveness, Mesoblast said.

While the Oncologic Drugs Advisory Committee (ODAC) of the FDA voted 9:1 that the available data support the efficacy of remestemcel-L in paediatric patients with SR-aGVHD, the FDA recommended that Mesoblast conduct at least one additional randomised, controlled study in adults and/or children to provide further evidence of the effectiveness of remestemcel-L for SR-aGVHD.

As there are currently no approved treatments for this life-threatening condition in children under 12, Mesoblast will urgently request a type A meeting with the FDA, expected within 30 days, to discuss a potential accelerated approval with a post-approval condition for an additional study, the company said.

The FDA also identified a need for further scientific rationale to demonstrate the relationship of potency measurements to the product’s biologic activity.

Assays measuring the potency of remestemcel-L will continue to be refined to provide further scientific rationale for its use in severe inflammatory diseases with high mortality risk, such as SR-aGVHD and COVID-19 ARDS, the Mesoblast statement said.

Mr Itescu stated: “We are working tirelessly to bring remestemcel-L to patients with life threatening inflammatory conditions, including SR-aGVHD and COVID-19 ARDS.”