Novartis has licensed a new stem cell therapy from Mesoblast, just weeks after the FDA rejected the Australian biotechs pitch for an approval on a separate indication.

The Swiss pharma announced Thursday afternoon it is partnering with Mesoblast $MESO to develop remestemcel-L for the treatment of acute respiratory distress syndrome, including ARDS related to Covid-19. As part of the deal, Novartis will shell out $25 million in upfront cash and take a $25 million stake in the biotech, while offering up to $1.255 billion in potential milestone payments.

Mesoblast investors embraced the news, sending shares up 11% on the Australian stock exchange Friday. The companys stock was also up roughly 17% on the Nasdaq before Fridays opening bell.

The milestone payments are split as such, per Mesoblast: $505 million will be available pre-commercialization, with an additional $750 million set aside for hitting certain sales targets and double-digit royalties.

Remestemcel-L, or Ryoncil, acts as an anti-inflammatory and consists of culture-expanded mesenchymal stem cells derived from a bone marrow donor. Currently, the drug is being evaluated in a Phase III study for Covid-19-related ARDS with 300 patients, and the first cut of data is expected in early 2021.

Should that outcome prove successful, Novartis will launch a Phase III in non-Covid ARDS after the deal closes. The companies highlighted Novartis ability to rapidly scale up cell-based therapies from the clinic to the commercial phase as a motivator for the collaboration.

The drug had been examined in a small compassionate use program for Covid-19 ARDS back in March, which included 12 patients requiring ventilators. Remestemcel-L treatment demonstrated an 83% survival rate in that program and was the basis for the ongoing Phase III.

Thursdays deal comes less than two months after the FDA issued a CRL for remestemcel-L in Mesoblasts pediatric acute graft-versus-host disease program. The rejection, which denied the company an accelerated approval, came after an ODAC adcomm in August voted 9 to 1 in favor of approval as panel members struggled to envision what a pivotal trial might look like.

During both the adcomm and in their CRL, regulators took issue with Mesoblasts study design given that the company submitted its application on the basis of one, single-arm and open-label trial. In the study, Remestemcel-L demonstrated a statistically significant benefit in its primary endpoint against the historical control rate.

But because many parents and pediatricians are reluctant to risk putting children into the placebo arm of a randomized study, Mesoblast argued that key opinion leaders said an additional study was not feasible. The veto came despite the FDA approving a similar drug Incyte and Novartis Jakafi based on one single-arm trial, something for which ODAC members chastised the FDA.

Earlier this week, Mesoblast met with the agency for its Type A meeting, and the company reported in its third quarter earnings that it does not expect the FDA to reverse its decision for accelerated approval. Mesoblast is still waiting to receive final meeting minutes to know whether thats indeed the case. The CRL set back potential approval in GvHD from 2021 to 2024, per analysts.

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Novartis bags Mesoblast's stem cell therapy for ARDS, including in Covid-19, in a deal worth up to $1.2B+ - Endpoints News