Stem cell biotech Mesoblast has had its share price smashed after the company emerged from a trading halt on Friday to reveal its COVID-19 treatment trial was unlikely to meet its primary goal.

Shares in the biotech plunged 41 per cent at the start of trading before recovering some lost ground during the day to close 36 per cent lower at $2.41, shaving its market value by $800 million to $1.4 billion.

Mesoblast chief executive Silviu Itescu. The company was hoping to show its flagship product, remestemcel-L, would help patients with moderate to severe respiratory distress because of coronavirus.Credit:Credit: Arsineh Houspian

In a single-page ASX release, Mesoblast told investors that an independent data safety monitoring board had reviewed interim results from its coronavirus trial. The company was hoping to show its flagship product, remestemcel-L, could help patients with moderate to severe respiratory distress because of coronavirus.

On the same morning that Sydneysiders were thrown into major uncertainty due to a new outbreak of the virus on the northern beaches, Mesoblast noted the trial is not likely to meet the 30-day mortality reduction endpoint for the study.

The company will still complete the study, which had been aiming to recruit 300 patients, using the 223 patients already enrolled.

Chief executive Silviu Itescu insisted the news, while disappointing, was not the end of the road for the project.

He claimed that recruiting patients for the trial, which was run with the US National Institutes of Health, had been tough and that the most recent patients recruited to the trial were older than the earlier recruits.

He argued that as the pandemic wore on, many critically ill patients had also already received a number of experimental treatments and this could have impacted the results.

We have no ability to prevent other experimental drugs to be given to these patients, he said.

Its the second piece of tough news for Mesoblast, which is backed by high-profile investors including billionaire Alex Waislitz, to be released this week, after phase 3 trial results of its heart failure drug caused the stock to plunge at the start of the week. The company released data on Tuesday showing its other key product, Revascor, showed reduction in mortality of up to 60 per cent in heart failure patients.

However, the study missed its primary goal, which was to show that the drug reduced the incidence of trips to hospital for non-fatal heart failure events.

Mesoblast is also continuing to negotiate with the US Food and Drug Administration over approvals for its remestemcel-L product for the treatment of graft-versus-host disease. The product was blocked at the final hurdle this year when US regulators requested more data on the treatments effectiveness prior to giving the green light.

Shares in the company are still above where they started 2020, at $2.05 on January 2. The share price has swung wildly throughout the year, gaining or losing more than 30 per cent of its share price in a number of individual sessions as investors reacted quickly to corporate updates, particularly around COVID-19.

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Shares hit a high of $5.50 at the end of September on optimism for the COVID trial and its research pipeline.

Mesoblast raised $138 million from investors earlier this year in anticipation of scaling up manufacturing capabilities for the COVID-19 project.

It also entered into a partnership with pharmaceuticals giant Novartis for the development of its products for treating COVID-19 and other respiratory diseases, which included a $US50 million ($65.6 million) upfront payment, including $US25 million in equity in the business. Mesoblast reported a $US24.5 million loss for the September quarter.

Mr Itescu said nobody likes to not achieve an endpoint in a research project, but he expected the company to keep working with Novartis to comb through the research data and collaborate on future work on the treatment.

Novartis has partnered with us for many indications [uses of remestemcel-L], he said.

Analysts were reviewing their models for the stock on Friday morning, with Bell Potters team, which had a speculative buy recommendation on the stock, labelling the news very disappointing.

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Emma reports on healthcare companies for The Age and Sydney Morning Herald. She is based in Melbourne.

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Mesoblast shares savaged on poor COVID trial results - Sydney Morning Herald