After an ugly few months for Australian biotech, Mesoblast, intrigue is building during what may become pivotal 6 weeks. 


Most followers will be aware that top line results of the company’s phase 3 trial into chronic lower back pain (CLBP) is well overdue. The original date for the release of the data was slated for “mid-year”. For clarification, that was supposed to be mid-year 2020, not 2021. 

Repeated delays in this trial have done little to calm the nerves of shareholders but the results should be only days away.  

Despite CLBP being important to Mesoblast, there may be higher stakes in play with the disappointing results of the company’s other trials which were recently released. 


All Mesoblast shareholders will be aware of the partnership with Swiss giant, Novartis which is awaiting closure. 

Since the original deal was struck in November 2020, there has been a number of significant events which may change the scope of the deal. Notably: 

  • December 15th saw Mesoblast release its much-anticipated results for their phase 3 trial into chronic heart failure. Disappointingly, REVASCOR failed to meet its primary endpoint. In spite of the failure in the primary, there was still signs of life in the secondary endpoints where a 60% reduction in mortality was demonstrated across a number of measures. 

  • On December 18th Mesoblast announced its potentially pandemic busting treatment into COVID-19 ARDS, remestemcelL, would not meet its primary endpoint.  It was this treatment that was central to the deal with Novartis 

  • Novartis reported on December 18th that it’s treatment into heart failure, Entresto, received a positive, 12-1 vote by the US FDA’s CRDAC (drug advisory committee).  The massive, 4800+ patient trial showed a reduction in hospitalizations, though it was far less effective in reducing mortality. 

Those of you that were paying attention may have noticed the apparent synergy between the Novartis and Mesoblast results in heart failure.  

If these synergies appear obvious to us mere mortals, you can bet that Novartis, with its massive resources, will have taken a look. 

Another point worth noting, in most western countries, the number one killer is heart disease. Any new treatment (or treatments ) that have substantial and durable improvement over current treatments are virtually assured to become blockbusters for the companies that own them. 

Done deal?

Mesoblast’s failure to hit its primary endpoint in the C19 ARDS trial has potentially given Novartis grounds to walk away from their deal on remestemcel-l (rem-L). During the next month or two Novartis will be forced to decide whether to stick with the original deal of simply walk away. 

Novartis signing off on the deal will benefit Mesoblast by: 

  • The payment of USD $50M to shore up Mesoblast’s balance sheet. 
  • Novartis picking up the tab for all future rem-L trials into respiratory conditions, including all-cause ARDS 
  • Validation of the science underpinning rem-L by one of the industry leaders 
  • Potential to collaborate on other indications for rem-L, such as Crohn’s colitis. 

Graft versus host disease (GVHD)

Many will be aware that Mesoblast’s product candidate, RYONCIL, used to treat pediatric GVHD, hit a brick wall when the FDA overruled its own ODAC committee to block approval for this much needed treatment. 

Despite the treatment being found to be safe to use, the FDA issued a CRL, or a Complete Response Letter.  Among the concerns raised in the CRL was the lack of a randomized, placebo-controlled trial, and concerns about manufacturing processes. 

In attempting to find a path forward, Mesoblast asked for a meeting with the FDA to discuss a different path for RYONCIL. This path, accelerated approval, was rebuffed by the FDA and the company has announce it intends to appeal that decision early in 2021 

Surprise surprise

Some will be unaware that Novartis also has an interest in GVHD too. 

Currently in the US there is only one treatment available for adult GVHD that is steroid refractory – Jakafi. 

Jakafi has many serious side effects which explains why it is not authorized for use in children in the US. 

Inside the US Jakafi is marketed by Delaware based company, Incyte. Outside of the US the treatment is known as Jakavi and is marketed by Novartis. 

Possible outcomes

Reflect for a moment on Mesoblast’s treatments for CHF, ARDS and GVHD. There is little doubt that these indications are in areas of major focus for Novartis. Without question Novartis will be aware of Mesoblast’s treatments, the real question is – what will they do about it? Let’s examine one possibility.  

Novartis may look at the various treatments offered by Mesoblast and assess that, in the balance of probabilities, some/all of them are likely to fail future phase 3 trials. In this case, Novartis will walk away.  

If Novartis were to walk away from Mesoblast, it’s possible that this could prove fatal to a company, who is already the second most shorted stock on the ASX.  In any case, the market response would be brutal. 

Alternate possibility

After a series of recent failures, Mesoblast has seen its market cap slayed to around $1.5 Billion AUD. It would be naive to assume other companies have not closely run the ruler over Mesoblast recently, especially Novartis. 

With all that has been discussed here about CHF, ARDS and GVHD in mind, there is a case that would suggest that if Novartis are indeed interested in these treatments (let’s not forget CLBP), perhaps it would be more cost effective for Novartis to take over, rather than partner with Mesoblast. 

Think about it. In the recent collaboration announcement Novartis agreed to multiple,  pre and post commercialization milestone payments to Mesoblast that total well north of $1.5 billion AUD. Conditions apply, but as you can see, this figure alone is equal to Mesoblast’s current market cap. 

Obligatory disclaimer

Now just to clarify, not for one minute am I suggesting a takeover is likely, simply that it may make sense when considering the various payments that would be involved if Novartis became interested in an expanded partnership.  


You’d have to be blind Freddy to not realize Mesoblast is burning cash fast, circa $24M USD/qtr as at September 30th 2020. 

The company had a cash balance on the same date of $108M USD* 

Since September 30th there has been another quarter of cash burn, presumably of similar size to the $24M USD spent in the previous quarter and there has been no indication from Mesoblast of significant cost cutting either. 

The Mesoblast board has a duty to act in the best interests of shareholders. The board would be well aware of the cash position and the rate of burn, yet there has been no capital raise. No cutting of costs. Why? 

Naturally, the board would have a far clearer picture of the situation than any of us. Are they working on a deal of some kind? If they are, they must be very confident of it closing because time is ticking and cash is burning.  

I’ll let you draw your own conclusions on that. 



*This number does not include the $50M USD that will be received by Mesoblast on closing the Novartis deal 

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