BIO 2011 biotech profile: Mesoblast

It was the deal that rocked the Australian biotech industry. Some had seen it coming, but few would confess to having predicted the magnitude when US pharma company Cephalon bought up a 19.99 per cent stake in Australian regenerative medicine specialist Mesoblast last December.

The deal saw Cephalon hand over US$220 million for its stake in Mesoblast – a buoyant 45 per cent premium on its 30-day average share price at the time – along with a tidy $130 million upfront.

In return, Cephalon received exclusive worldwide commercialisation rights to Mesoblast’s portfolio and agreed to fund the expensive phase III trials of its flagship products. Meanwhile, Mesoblast retained its manufacturing rights and will receive a significant share of revenue on sales.

But the truly big ticket item was the US$1.7 billion in potential payments to Mesoblast on reaching key milestones contingent on getting Food and Drug Administration approval. Biotechs dream of such deals.

The upshot of the deal – the largest ever in the world of stem cells – was that Mesoblast leapt to being number four in the Australian biotech and medical devices landscape, behind giants CSL, Cochlear and ResMed. The company also made it in to the Standard & Poor’s ASX 200, with a new market cap topping $2 billion.

The sheer scale of the deal was matched only by the audacity of its timing. In a post-GFC year that saw biotechs struggling to keep up with the wider stock market, Mesoblast single handedly transformed investor sentiment in the sector overnight.

The question on many people’s lips was: how did Mesoblast do it? Or more specifically: how did Mesoblast founder, CEO Professor Silviu Itescu manage to pull off one of the biggest biotech deals in recent memory? Part of the explanation might be found in Itescu’s background, which is impressively broad for any biotech chief.

“My background is quite diverse,” says Itescu. “I have a background in serious science, but also as a doctor and a physician with a lot of extensive clinical experience. I’ve also worked with and advised biotech investors and consulted to the pharma industry. I think my 20 years of experience across these areas held me in very good stead.” Evidently it did.

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Itescu started out as a physician, having held a residency at New York’s Bellevue Hospital, but he’s an accomplished scientist, being one of the pioneers of stem cell research in the 1990s and early 2000s.

Following a three year fellowship at New York University in immunology and rheumatology in the ‘90s, he moved down the road to Columbia University to work on the gnarly immunological problems involved with transplantations.

One of the avenues they explored was using regenerative approaches in lieu of transplantations – a move that would help establish his future as a champion of stem cell therapies.

In 2001, not long after moving to Columbia, Itescu cemented his commitment to regenerative medicine by establishing private company Angioblast Systems in the United States, which focused on cardiovascular treatments, and shortly thereafter Mesoblast in Australia, specialising in orthopaedic applications using platform technology developed at the Hanson Institute and the University of Adelaide.

Besides his scientific and clinical background, Itescu is also a dab hand in business, having consulted for various pharmaceutical companies and sitting on the boards of several life sciences companies.

It’s this mix of experience, scientific and business, that has helped Itescu steer Mesoblast – which acquired Angioblast just prior to closing the deal with Cephalon – to its newfound heights. The other key ingredient that inspired the deal was Mesoblast’s technology.

Multipotency

Mesenchymal precursor cells (MPCs) are a multipotent brand of non-hematopoietic stem cell found in bone marrow, which can generate connective tissue such as osteoblasts (bone cells), chondrocytes (cartilage cells) and adipocytes (fat cells) in vitro.

However, the process works a lot better when the MPCs are placed in their natural environment: the human body. The precise signals that trigger differentiation are still somewhat a mystery, but when injected into an appropriate site, the cells reliably begin differentiating and can effectively repair surrounding tissue.

They also aid in the production of blood vessels around the affected site. This is the foundation of the Hanson Institute technology that was spun off by Itescu into Angioblast in 2001 and Mesoblast in 2004.

One of the other remarkable features of MPCs is that they don’t trigger an immune response when they’re derived from a universal donor. No-one really knows how this works, but it does. This means MPCs can be isolated from one individual, cultured into a sizable population and then stored for future use.

The end result is a product that is more like a pharmaceutical than a biological: you have a bank of off-the-shelf MPCs that can be withdrawn and applied to any individual.

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Mesoblast has worked extensively on all the steps in this process, from the identification and isolation of the cells – which occur in very small populations within the bone marrow – to the culturing and manufacturing of commercial quantities of the MPCs, to the specific applications , and has vigorously patent protected every step.

In fact, Itescu is a big believer in the importance of intellectual property protection. “IP is what makes or breaks a company in this industry,” he says. “Either you have patents or you have nothing.”

Itescu sees the Cephalon deal as an endorsement of this notion. “Cephalon is a company that has many lawyers whose sole job is to ensure they have strong patent protection for their own drugs and to prevent competitors from encroaching on their unique space.

Putting their legal team on to evaluating our patents serves as a real validation of the strength of our intellectual property. From that point of view the deal was very important to us.”

The applications of MPCs are remarkably broad, with treatments for cardiovascular disease, orthopaedics, diabetes, cancer and eye disease. In orthopaedics, for example, Mesoblast has shown that a small injection of MPCs into the site of discs damaged by degenerative intervertebral disc disease can result in the repair and regrowth of cartilage, reversing some of the serious effects of the disease, including lower back pain. The US market for this treatment alone was worth upwards of US$19 billion in 2008.

Mesoblast’s target market is those with degenerative intervertebral disc disease but who don’t have sufficiently advanced cases to warrant surgery, which includes the vast majority of sufferers. Another market is for those who do undergo surgery, such as a discectomies, where the treatment with MPCs can aid in recovery and help prevent any further surgery.

The stem cells can also aid in old fashioned bone fractures, helping to regenerate bone and blood vessels and obviating the need for bone grafts, which can be a tricky and painful experience. Mesoblast already has a licence from the Therapeutic Goods Administration to manufacture autologous stem cells for bone repair.

Another major focus is cardiovascular disease, which was previously the remit of Itescu’s other stem cell company, Angioblast, until it was acquired by Mesoblast late last year. The treatments are specifically targeted at congestive heart failure and acute myocardial infarction.

In these cases the MPCs, in the form of Mesoblast’s lead product Revascor, are injected into the affected regions and aid in the regeneration of heart tissue and blood vessels.

The company released interim results from a trial of Revascor for congestive heart failure in January this year which suggested patients receiving the stem cell treatment had significantly less major and severe adverse cardiac events, including heart attacks or cardiac death, following treatment.

This result in treating congestive heart failure, revealed in confidence to Cephalon some months earlier, played a substantial role in helping galvanise the momentous deal. “It’s easy to do a strong deal when you have good results,” says Itescu. Indeed it is.