Dale Gillham's weekly wrap: Will FDA tick give Mesoblast a boost?


With news the US Food and Drug Administration (FDA) has accepted Mesoblast’s (ASX: MSB) Biologics License Application, a bump in the share price might be on the horizon.

So, is now the moment to take a punt on the prospect of a positive outcome? Or could regulatory scrutiny push this company towards penny stock status, given the critical importance of FDA decisions?

In the biotechnology and pharmaceutical industries, few events are as eagerly awaited as an FDA approval. Understanding the impact of such approvals is crucial when deciding whether to invest.

Securing FDA approval signifies a strong endorsement of a product’s safety and efficacy.

For Mesoblast, this acceptance means the product is one step closer to market entry and revenue generation. The product is Ryoncil, for treating paediatric graft-versus-host disease which is when donor bone marrow or stem cells turn on the recipient.

The exciting prospect for investors is the potential for the share price to surge following approval.

FDA approval still to come

When Clinuvel Pharmaceuticals (ASX: CUV) recently received FDA approval, its share price soared by 60 per cent the next day.

Mesoblast’s stock has been experiencing one of its most bullish runs in recent history, rising over 400 per cent since January.

The positive sentiment around Mesoblast is evident, with buyers betting on a favourable FDA outcome.

What’s even more exciting is that at current levels, near $1, the share price remains well below its all-time high of $9.

However, it’s important to recognise that the recent surge is driven by speculation, as no FDA decision has been made yet.

Prepare for volatility

Potential investors should be prepared for volatility and the possibility of a dramatic drop in the share price if FDA approval is not granted.

Regardless, if the share price can continue to trade higher and break above the July 23 high, this will signify a major milestone and provide a high degree of probability that it will trade much higher in the medium to long term.

The broader Healthcare sector, which has recently displayed strength, provides a supportive environment for Mesoblast.

Therefore, I would encourage investors to monitor the share price closely for clues about Mesoblast’s next move before the important FDA decision.

What are the best & worst-performing sectors this week?

The best-performing sectors include Real Estate, up over two per cent; followed by Consumer Staples and Financials, which are both up over one and a half per cent.

The worst-performing sectors include Information Technology, down more than a per cent; followed by Materials, down over half a per cent; and, Energy, slightly up under half a per cent.

The best-performing stocks in the ASX top 100 include James Hardie Industries (ASX:JHX), which shot up over 10%; followed by Reliance Worldwide Corporation (ASX:RWC), up more than 9%; and, Block Inc (ASX:SQ2), up more than 7%. The worst-performing stocks include Domino’s Pizza Enterprises (ASX:DMP) and Paladin Energy (ASX:PDN), which are both down about 8%, followed by NEXTDC (ASX:NXT), down over 4%.

What’s next for the Australian stock market?

The sellers finally stepped in this week to push the All Ordinaries Index down by more than 1%. I say ‘finally’ because markets don’t climb indefinitely without resistance from sellers, and it’s been almost four weeks since we have seen some meaningful selling on our market.

The importance of this should not be underestimated, as it provides the ability to judge the market’s next move more decisively.

We already know how strong the buyers were in July, so it’s time for the sellers to show what they are made of, as, so far, they have only managed to push prices down by half of what buyers achieved in July, which is a telling sign.

If one party can exert half the effort of the other, what does that indicate about what’s to come next?

Buyers vs Sellers

So if the buyers step in next week, I expect a break to a new all-time high in the coming weeks.

But if selling continues, I anticipate prices could drop to as low as 8,000 points. If this happens, it could provide a rare second opportunity in July to buy stocks at discounted prices.

This is why I always emphasise that patience and preparation are the keys to successful trading.

Knowing that markets and stocks provide multiple opportunities and being patient enough to wait and seize those moments is what separates professionals from the rest.

Therefore, with the potential for new opportunities on the horizon, make sure you are prepared to capitalise on what the market offers next.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%.

He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au

Disclaimer:While Wealth Within holds an Australian Financial Services License (AFSL:226347) the information featured in this program is general in nature and therefore should not be relied upon.

Before making any investment decisions, you should consult a licensed professional who can advise whether your investment decisions are appropriate for you.

The material provided in this article is for information only and should not be treated as investment advice.

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