Why fund managers are split on Mesoblast after its historic FDA approval

Mesoblast's Ryoncil became the first cell-based drug ever approved by the FDA, but fund managers question whether the company can execute a US commercial launch.

31 Jan 2025 · 5 min read

Stem cell therapy developer Mesoblast secured a landmark regulatory win in December 2024 when the FDA approved Ryoncil, its cell-based therapy for severe steroid-refractory acute graft-versus-host disease, a serious and often fatal complication of stem cell transplantation. Blackwattle Investment Partners' December 2024 Monthly Report described it as the first cell-based drug ever approved by the FDA, an approval process that had been drawn-out and complicated, sending shares up 75% that month even though the fund did not hold the stock.

A first-in-category approval, but a market cap that already prices in success

Pengana Capital Group's December 2024 Monthly Report noted the approved indication itself is not large, but opens the door to stem cell therapy in other indications, including adult graft-versus-host disease, acute heart disease and chronic back pain, a broader pipeline opportunity that had already been signalled in May 2024 when the FDA indicated Mesoblast's data was sufficient to file for approval. Tyndall Asset Management's own December 2024 report struck a more cautious note, arguing the market was already fully factoring in the opportunity given a market capitalisation of over $3 billion against revenue of just $5.6 million and losses of $88 million in the prior financial year, leading the fund to hold an underweight position that detracted from performance during the rally.

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.

— Blackwattle Investment Partners, Monthly Report, December 2024

NorthStar Impact Funds' January 2025 Monthly Report detailed how the company funded the next phase: a $260 million capital raise at $2.50 per share to fund the US commercial launch of Ryoncil, accelerate a second Phase 3 study in inflammatory chronic low back pain, and expand commercial manufacturing activities. The manager, which first invested in August 2024 at 99 cents, noted shares ended the placement month 27% above the raise price and up 220% for the financial year to date.

What managers are watching next

Blackwattle Investment Partners' framing of the commercialisation challenge, questioning whether existing management has the skillset needed for a commercial launch rather than a drug development program, points to the key uncertainty for the stock: whether Mesoblast can execute a US commercial rollout as effectively as it navigated the regulatory approval process, or whether, as Blackwattle suggested, the newly de-risked asset proves more valuable in the hands of an acquirer better equipped for commercialisation.