Shares of Mesoblast gained 17% after it announced an exclusive worldwide license and collaboration agreement with Novartis for the development, manufacture and commercialization of Mesoblast’s remestemcel-L. The initial focus is to develop a treatment for acute respiratory distress syndrome (ARDS), which is associated with COVID-19.
As per the terms of the agreement, Mesoblast (MESO) will receive a $50 million upfront payment from Novartis, including $25 million in equity. Additionally, Mesoblast is eligible for pre-commercialization milestone payments of $505 million for ARDS indications, up to $750 million in post-commercialization milestones and tiered double-digit royalties on product sales.
Mesoblast will be responsible for manufacturing the therapy and Novartis will purchase commercial product under the agreed pricing terms, with MESO retaining full rights and economics for remestemcel-L in graft versus host disease.
Remestemcel-L is an investigational therapy that comprises culture-expanded mesenchymal stromal cells (MSCs) derived from the bone marrow of an unrelated donor, and could potentially have immunomodulatory properties to counteract the cytokine storms that are associated with certain inflammatory conditions.
“Our collaboration with Novartis will help ensure that remestemcel-L could become available to the many patients suffering from ARDS, the principal cause of mortality in COVID-19 infection. This agreement is in line with our corporate strategy to collaborate and partner with world-leading major pharma companies in order to maximize market access for our innovative cellular medicines,” Mesoblast’s Dr. Silviu Itescu said.
The therapy is currently progressing through a Phase 3 study in COVID-19 patients with ARDS. Novartis plans to begin a Phase 3 study in non-COVID-19-related ARDS after the license agreement is finalized and the current study is successfully completed. (See MESO stock analysis on TipRanks)
Recently, Maxim analyst Jason McCarthy trimmed the price target from $22 to $18 (53% upside potential) but kept a Buy rating on the stock. Even though the analyst acknowledges the concerns related to its Ryoncil therapy, he argues its $130 million cash position should be sufficient to fund its operations.
The rest of the Street echoes McCarthy’s sentiment. With 5 Buys and a single Hold, MESO gets a Strong Buy consensus rating. At $18.50, the average price target implies 57% upside potential.
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