Up 19% in a month, what's driving Mesoblast shares?

Mesoblast Ltd (ASX: MSB) shares have extended their gains from 2024 and are up more than 19% in the past month of trade.

Zooming out, the stock has rocketed more than 960% in the past 12 months. That's nearly a 10-times return, something legendary fund manager Peter Lynch once coined as a ten-bagger.

Biotech shares are known to be volatile, but investors can be rewarded for this risk, provided it's based on the company's fundamentals rather than speculation. So, let's see what's driving Mesoblast shares.

Why Mesoblast shares are climbing

Mesoblast shares skyrocketed back in December after the US Food and Drug Administration (FDA) approved its Ryoncil (remestemcel-L) label.

According to the company, the treatment is designed to treat children as young as two months suffering from a condition known as 'SR-aGvHD'.

This is a "life-threatening" complication of stem cell transplantation, which has a "poor prognosis".

As reported by my colleague James, Mesoblast shares rallied 30% to a 52-week high on the day of the announcement.

But not all participated in the good fortune. The Blackwattle Small Cap Quality Fund missed the run.

"Mesoblast shares rose 75% in December", the firm said in its December shareholder letter, but were "not held by the fund."

It added that while the FDA approval "increased the value" of Mesoblast, it was passing on the opportunity.

MSB received FDA approval for Ryoncil…This is the first cell-based drug to be approved by the FDA and Mesoblast's approval process has been drawn-out and complicated.

As the company now approaches commercialisation phase of Ryoncil it will require a different management skillset which we are unsure MSB management has.

Nonetheless, gaining FDA approval has increased the value of the business which might evidently be worth more in the hands of others.

Interestingly, Blackwattle said its decision not to own Mesoblast shares in December was one of the fund's "key detractors from performance".

What's next for Mesoblast?

Following the FDA approval, Mesoblast completed a $260 million capital raising, priced at $2.50 per share.

As we reported at the time, this was a 47% premium to its share price just a month earlier.

Management said the funds would support the commercial launch of Ryoncil in the US and further clinical developments.

These include the "acceleration" of the second Phase 3 trial investigating Ryoncil for treating inflammatory chronic low back pain. Phase 3 trials are the final stage for any treatment before it is approved for the US market.

Management also said it would use part of the funds to expand its manufacturing capacity, to meet the expected demand for these therapies if they were approved.

As for broker ratings, the stock is rated a buy from the consensus of analyst estimates, according to CommSec.

The average price target amongst these analysts is $3.79 apiece, as per Tradingview broker data.

This implies a 32% upside potential from Mesoblast's closing price on Tuesday.

Foolish takeout

Mesoblast's FDA approval and commercialisation plans have seen investors pile into the stock en masse this past month.

That said, it looks to be a big year for the company. But this also means a big effort from management to execute the strategy.

Time will tell what eventuates from here, but for further context, Mesoblast shares were trading at 27 cents per share on January 24 last year. They closed on Tuesday at $2.87 apiece.

The post Up 19% in a month, what's driving Mesoblast shares? appeared first on The Motley Fool Australia.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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