Why Mesoblast Stock Is Blasting Off Today

What happened

Shares of Mesoblast (NASDAQ:MESO) were soaring 19.8% higher as of 11:09 a.m. EST on Friday. The big jump came after the company announced an exclusive license and collaboration deal with Novartis (NYSE:NVS) for Mesoblast’s lead pipeline candidate remestemcel-L. The initial focus of the two companies’ collaboration will target the treatment of acute respiratory distress syndrome (ARDS), a condition where fluid builds up in the lungs. 

So what

There’s a good reason why investors are so excited about Mesoblast’s collaboration with Novartis. The big drugmaker will fork over $50 million upfront, including buying $25 million worth of Mesoblast’s shares. Mesoblast will be eligible to receive up to $505 million in milestones related to ARDS indications. In addition, the biotech could receive post-commercialization milestone payments of up to $750 million along with tiered double-digit royalties on product sales of remestemcel-L if it makes it to market as a treatment for ARDS indications.

Scientist in lab looking through a microscope.

Image source: Getty Images.

It’s important to note, though, that the deal doesn’t affect Mesoblast’s control of remestemcel-L in other indications. The company will retain full rights for the drug in treating graft versus host disease (GVHD). However, Novartis will have an option to distribute remestemcel-L for the GVHD indication outside of Japan.

The timing of this collaboration is very good because of the COVID-19 pandemic. ARDS is the main cause of death associated with COVID-19. Mesoblast’s deal with Novartis will help ensure that remestemcel-L could become quickly available to a wider number of patients if the drug is proven to be safe and effective in treating ARDS.

Now what

Mesoblast has several important announcements on the way that could be significant catalysts for the biotech stock. The company expects to report results before the end of the year from two late-stage studies of remestemcel-L. One of those studies is evaluating the drug as a potential treatment for chronic heart failure while the other focuses on chronic low back pain.

In addition, Mesoblast awaits an FDA decision on accelerated approval for remestemcel-L in treating pediatric patients with acute GVHD who don’t respond to standard steroid therapy. This decision should be handed down no later than Dec. 17, 2020.  

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