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.
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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.
