BIO 2011 biotech profile: Mesoblast’s vision from the top

Read part I of our profile of Mesoblast.

The deal itself with Cephalon was over two years in the making, says Itescu. Yet Mesoblast wasn’t only in conversation with one pharma company. “We continue to be in discussions with a wide number of pharmaceutical and device players for a variety of applications,” says Itescu.

“We had been having discussions with Cephalon for at least two years prior to the transaction, but in some ways we were more advanced with other companies along the way.”

Yet it was the synergy between Mesoblast’s technology and unique manufacturing capabilities and Cephalon’s marketing abilities, particularly in the United States, that made the two companies such an able fit.

“We were looking for a partner that has the ability to sell and market the product, with strong distribution where we couldn’t do that by ourselves,” says Itescu. “And for all those reasons, particularly in the cardiovascular space, Cephalon was a very good one for a partnership. The importance of a partnership is it has to bring something to us that we can’t do on our own.”

Another key factor in making the deal happen was Cephalon’s late founder and CEO, Frank Baldino. “Frank was a major driver of the transaction with us,” says Itescu. “He led the diligence over the previous couple of years, and he was fully across the technology and the value proposition.”

That doesn’t mean it was all down to Baldino – discussions took place on a number of levels – but Baldino appears to have been a key driver of the deal, especially once the technology was showing positive signs in the clinic.

Sadly, Baldino died late last year shortly after the deal was struck, succumbing to compilations from leukaemia. “He will be sorely missed,” says Itescu. “He was a very highly respected guy.”

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Horizons

One consequence of the deal with Cephalon is that Mesoblast now has very considerable cash reserves. And cash reserves plus a widely applicable technology opens up many options.

“We have a very broad pipeline,” says Itescu. “There are a number of different areas we haven’t yet focused on, particularly our intravenous product for a number of broad indications, areas as diverse as diabetes, and inflammatory and immunologic diseases.

“We’re in the process of making that formulation of cells and getting results across multiple animal studies and models and moving to clinical programmes in those disease states through the course of this year.

“Those areas are areas where we previously didn’t have the funding, but we now do. In addition, moving more programmes into phase III particularly in orthopaedics. We now have the funds to do that as well – to take them right through to the end.”

However, this doesn’t mean Itescu is planning to kick back and relax. While the plan is to focus on the existing pipeline, he intends to keep talking to the industry and keep his eyes open for any other potentially synergistic deals – or even acquisitions.

This is part and parcel of Itescu’s approach. “I think a successful company never feels like it can rest on its laurels. I’m always nervous, and we’ve got to keep hitting our milestones.” He certainly has the incentives – to the tune of US$1.7 billion from Cephalon – to do so.

And the more products that can be pushed as far down the pipeline as possible and proven in a clinical environment, the more potentially lucrative deals will be on offer. “It always serves your interests well to take a product as far as you can independently with your own resources, if you can get them,” he says.

“The earlier you seek a partner the more value you leave on the table and the weaker your leverage in the transaction. The question is: how much guts do you have to back yourself as far as possible. That’s the lesson here.

“Australian companies should leverage their resources, their funding opportunities and their investor base – that’s what Australia has to offer. They should allow themselves to get into a strong enough position to generate phase II results and then negotiate at least a partnership. But not go in too early.”

Clearly, Itescu’s strategy has paid off for Mesoblast’s proposition. And as the deal rocked the market, so too has it drawn greater international attention to aspiring Australian biotechs – in fact, Cephalon is in the process of picking up targeted leukaemia specialists, ChemGenex.

It may be that Mesoblast’s success isn’t only its own, but will provide a boost for the entire sector. Success begets success. And Mesoblast is certainly the most impressive success story of the last few years.