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Why the Mesoblast (ASX:MSB) share price rocketed 17% higher

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The Mesoblast limited (ASX: MSB) share price was a very strong performer on Monday.

The biotech company’s shares finished the day a massive 17.5% higher at $4.28.

Why did the Mesoblast share price rocket higher?

Investors were buying the company’s shares again on Monday in response to a positive announcement at the end of last week.

That announcement revealed that the company has signed a major deal with pharma giant Novartis.

Novartis has signed an exclusive worldwide license and collaboration agreement for the development, manufacture, and commercialisation of Mesoblast’s mesenchymal stromal cell (MSC) product remestemcel-L.

The deal, which is focused on its treatment of COVID-19 Acute Respiratory Distress Syndrome (ARDS), will see Novartis pay US$50 million upfront and then upwards of US$1.25 billion in milestone payments to Mesoblast.

One broker that responded positively to this news was Bell Potter.

What did the broker say?

In a note released on Friday, Bell Potter said it believes this is a “fantastic deal” for Mesoblast and notes that it provides greater certainty in regard to the manufacturing and commercialisation of the product for COVID-19 ARDS.

In addition to this, it feels Novartis brings a lot to the table strategically. This includes expertise in respiratory indications and cellular therapy.

Where is the Mesoblast share price heading?

While the broker advised that it was reviewing its recommendation, as things stand, it has a (speculative) buy rating and $7.00 price target on the company’s shares.

Based on today’s Mesoblast share price, this price target represents 63% upside over the next 12 months.

However, given that its current forecasts don’t include any upfront royalties for COVID-19 ARDS, it notes that this deal represents immediate upside to its estimates. This could mean it bumps its valuation higher upon review.

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Returns as of 6th October 2020

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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