Mesoblast pummelled as Novartis exits COVID deal

Novartis as opted out of a collaboration with Mesoblast to develop its stem cell-based therapy remestemcel-L as a treatment for COVID-19, prompting a slump in the biotech's share price.

Novartis agreed to pay $25 million upfront for opt-in rights to remestemcel-L just over a year ago and to make a $25 million equity stake in Mesoblast, with up to $1.25 billion in additional payments tied to regulatory and commercial objectives.

According to press reports, Mesoblast never received any of that, and the deal was placed in jeopardy just a few weeks later after a phase 3 trial of remestemcel-L in severe COVID-19 patients was halted early on the grounds it was unlikely to meet its objective of reducing mortality.

The latest revelation continues a troubled spell for Mesoblast, which announced the Novartis alliance shortly after the FDA rejected remestemcel-L – under the Ryoncil brand name – as a treatment for children with graft versus host disease (GvHD).

The US regulator turned down Ryoncil even though it had been recommended for approval by its own expert advisors, and asked for a new clinical trial to provide more evidence of efficacy.

Mesoblast chief executive Silviu Itescu has promised an update on progress with the GvHD programme before the end of the year.

In COVID-19, the drug was being tested in patients with acute respiratory distress (ARDS), which like GvHD is caused by over-stimulation of inflammatory cytokines, which causes the immune system to attack the patient's own body.

Mesoblast said it remains determined to run an additional trial of the drug for COVID-19-related ARDS at the start of 2022, and reckons that the reduction in mortality seen in its first trial – while not statistically significant – is "a sufficiently strong signal to support pursuing an emergency use authorisation."

It said the emergence of the Omicron and other variants suggests that COVID-19 "is likely to remain a serious global problem and to provide a major commercial opportunity for Mesoblast, with a steady state of intensive care unit (ICU) ARDS patients irrespective of vaccines and anti-viral treatments."

Mesoblast said it was sitting on cash reserves of $116 million at the end of September, having spent just under $23 million in the prior three-month period. It has made cumulative loses of almost $650 million since being founded in 2004.