Shares in stem cell company Mesoblast Ltd (ASX:MSB) rose 7% to A$1.51 yesterday after it said that it entered into an equity purchase agreement with US drugmaker Mallinckrodt Pharmaceuticals (NYSE:MNK). Mallinckrodt will buy 20.04 million, or nearly 5%, of Mesoblast’s ordinary shares for A$1.48 apiece.

According to the agreement, Mallinckrodt will have 9 months to finalize commercial and development deals for 2 of Mesoblast’s product candidates – MPC-06-ID for the treatment of chronic low back pain and MSC-100-IV for the treatment of acute graft versus host disease. The commercial and development deals will be made in territories outside of Japan and China.

“We are pleased that Mallinckrodt has chosen to make an investment in Mesoblast,” Mesoblast CEO Silviu Itescu said in prepared remarks. “Mallinckrodt has a track record of success in commercializing medicines for immune-mediated diseases and pain management, and we believe that its major footprint in hospitals addressing acute care needs can be leveraged to realize the full commercial and clinical value of our innovative cellular medicines.”

“This agreement provides Mallinckrodt with a potential opportunity to extend our regenerative medicine pipeline in areas of high unmet patient need,” Mallinckrodt executive VP & chief scientific officer Dr. Steven Romano added. “We see Mesoblast as a leader in developing innovative cell-based medicines and look forward to establishing a fruitful partnership.”

MESO shares have lost 24% this year, taking hits after the company lost a series of US investors. In June this year, Mesoblast lost the support of Teva Pharmaceuticals, which had been backing the company’s phase III clinical trial. The trial is ongoing and is expected to continue until 2017.

After parting ways with Teva, the Australian company tapped into private funds with the help of some of Melbourne’s wealthy families. The group agreed to invest up to $120 million.