Mesoblast (ASX:MSB) share price crashes 21% after Novartis terminates agreement

Mesoblast shares are crashing today…

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The Mesoblast limited (ASX: MSB) share price has returned from its brief pause and is crashing lower on Tuesday.

In morning trade, the allogeneic cellular medicines developer’s shares are down 21% to a 52-week low of $1.34.

Why is the Mesoblast share price crashing lower?

Investors have been selling off the Mesoblast share price today after it was dealt a massive but not entirely unexpected blow.

According to the release, biotech giant Novartis has chosen to terminate the agreement with Mesoblast relating to using remestemcel-L to treat acute respiratory distress syndrome (ARDS) due to COVID-19.

What happened?

This shouldn’t be a huge surprise to investors given how poorly its trial went last year.

Almost a year to the day, Mesoblast’s trial of remestemcel-L in ventilator-dependent patients with moderate to severe ARDS due to COVID-19 infection was ended early after the Data Safety Monitoring Board concluded that the trial was unlikely to meet the 30-day mortality reduction endpoint at the planned 300 patient enrolment.

This led to the Mesoblast share price crashing 45% on the news. Unfortunately, it has been on a downwards trajectory ever since and its isn’t hard to see why.

Given the state of the company’s balance sheet, this agreement would have been a huge boost.

In November last year, Mesoblast revealed that it could receive a total of US$505 million from Novartis pending achievement of pre-commercialisation milestones for ARDS indications. Furthermore, the company stood to earn additional payments post-commercialisation of up to US$750 million. This was based on achieving certain sales milestones and tiered double-digit royalties on product sales.

That’s ~US$1.2 billion of potential earnings lost with the termination of this agreement.

What now?

Mesoblast advised that it remains highly focused on executing its short term objective to bring remestemcel-L to market for patients with ARDS due to COVID-19.

It notes that the observed mortality reduction with remestemcel-L in patients aged under 65 in the completed COVID ARDS trial, despite having missed the primary endpoint, is considered by Mesoblast to be a sufficiently strong signal to support pursuing an emergency use authorisation (EUA). This is the most direct path to market.

As a result, Mesoblast is preparing to initiate a pivotal Phase 3 trial that may support a COVID ARDS EUA.

Should you invest $1,000 in Mesoblast right now?

Before you consider Mesoblast, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Mesoblast wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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