Mesoblast in potential $1.7bn partnership with Novartis to develop remestemcel-L

Mesoblast will get $68m from Novartis after licensing remestemcel-L to Swiss drug giant
Potential for up to $1.7 billion in payments from Novartis – plus double-digit royalties
Met with the FDA about accelerated approval of remestemcel-L to treat graft-versus-host disease

Mesoblast (ASX:MSB) has licensed its lead drug candidate to Novartis (NYSE:NVS) in a deal that could be worth as much as $1.7 billion plus royalties if remestemcel-L is developed successfully and takes off as a treatment for life-threatening respiratory conditions.

The Swiss multinational will pay Mesoblast $US50 million ($68 million) up-front, half in equity, with Mesoblast set to receive $US505 million ($693 million) if remestemcel-L achieves pre-commercialisation milestones. The Melbourne biotech could receive up to another $US750 million ($1 billion) if the drug is commercialised successfully and hits certain sales targets.

“This agreement is in line with our corporate strategy to collaborate and partner with world-leading major pharma companies in order to maximise market access for our innovative cellular medicines,” Mesoblast chief executive Dr Silviu Itescu said.

The initial focus of the partnership will be developing remestemcel-L as a treatment for acute respiratory distress syndrome (ARDS), including that associated with COVID-19.

“Remestemcel-L has the potential to tame the cytokine storm in ARDS and may offer a lifesaving treatment for those suffering from COVID-19,” the Melbourne company said.

Mesoblast said on Friday that more than 180 Covid patients on ventilators had been enrolled in its phase 3 trial testing using remestemcel-L to improve outcomes. The trial is scheduled to enroll up to 300 patients in the United States.

Novartis will initiate and fund a phase 3 trial in non-COVID-19 related ARDS once the current study is completed, Mesoblast says.

Shortly before noon Mesoblast shares had climbed 15.3 per cent to $3.77 – still well off the $5 range they traded for in September, before the Food and Drug Administration controversially requested another study of using remestemcel-L to treat graft-versus-host disease in children.

Mesoblast said it met with the FDA on Tuesday after requesting an urgent meeting with the US agency, but it appears the review team wasn’t receptive to an accelerated approval pathway for using the stem cell treatment in children with the rare complication from bone marrow transplants. A definitive outcome won’t be known until Mesoblast receives the formal minutes of the meeting.

If the agency doesn’t agree with accelerated approval, Mesoblast says it will request another urgent meeting to initiate a well-established FDA dispute resolution pathway.

Mesoblast will retain full rights for using remestemcel-L for graft-versus-host disease under the deal with Novartis.

Morgans analyst Scott Power told Stockhead in a text message that the agreement was “good news… Novartis a strong partner… good upfront payment together with milestones on success.”