Cephalon to buy 20 percent of Mesoblast in largest-ever stem cell deal

Regenerative medicine specialists, Mesoblast will see US pharmaceutical behemoth Cephalon take a 19.99 percent stake in the company as part of a licensing and joint development deal announced today.

The biggest deal ever announced in the emerging stem cell industry and the largest biotech deal this year involving an Australian company, Cephalon will pay $US220 million for its stake in Mesoblast, valuing the stock at $4.35, an impressive 45 percent premium to the 30-day average. In addition, Cephalon will fork out an additional upfront payment to Mesoblast of $130 million.

But the big news for investors is the agreement for milestone payments, which, provided various treatments gain FDA approval, could be worth as much as $US1.7 billion.

In return Cephalon gets exclusive world-wide rights to commercialise specific products based on Mesoblast’s proprietary adult stem cell technology platform.

The companies said they would collaborate on applying Mesoblast’s technology to developing therapeutic treatments for degenerative conditions of the central nervous and cardiovascular systems, including Parkinson’s disease, Alzheimer’s disease, Congestive Heart Failure and Acute Myocardial Infarction. The alliance also extends to products for augmenting bone marrow transplantation in cancer patients.

Mesoblast said that it has $250 million in the kitty to fund its other programs to develop, manufacture and commercialise its remaining suite of adult stem cell products for bone cartilage applications, diabetes, eye diseases, and inflammatory and immunological conditions.

The company will also take responsibility for running and funding certain Phase IIa clinical trials and commercial supply of the products. Cephalon, however, said that it would take responsibility for conducting and funding of all Phase IIb and III clinical trials and the following commercialisation of the products, the first being for congestive heart failure and bone-marrow remedies. But Mesoblast gets to retain all manufacturing rights, thereby giving itself a strong share of net product sales.

Also part of the deal, Cephalon Chief Operating Officer J. Kevin Buchi will join the Mesoblast Board of Directors, effective immediately.

“This global licensing agreement positions Cephalon as a leader in regenerative medicine while further strengthening our late stage pipeline with another innovative biologic platform,” Buchi said.

“Mesoblast has done an outstanding job of developing Phase II clinical data in congestive heart failure and hematopoietic stem cell transplants, plus preclinical data in acute myocardial infarction. We are excited to have the opportunity to develop potentially the world’s first stem cell therapy for indications that could serve millions of patients globally."

Mesoblast already has a substantial foothold in the US, courtesy of its wholly owned US subsidiary, Angioblast, the full acquisition of which was approved by Mesoblast shareholders last September. The deal gave Mesoblast a market capitalisation of around $600 million, making it Australia’s fourth largest biotech and the world’s biggest dedicated stem cell company.

Mesoblast Chief Executive Professor Silviu Itescu said that Cephalon was the perfect partner to advance its promising portfolio of stem cell technologies.

“Cephalon’s demonstrated strength in late-stage product development and commercialisation, and proven expertise in developing products for neurological diseases make Cephalon an ideal strategic partner for Mesoblast. “We are therefore very pleased to partner with Cephalon in one of the largest biotechnology transactions of the past 12 months and the largest ever in the regenerative medicine sector.”

Cephalon ranks as the world’s 10th largest pharmaceutical company, last year reporting $US2.19 billion in revenue.

Shares in Mesoblast closed up 21.62 percent to $4.05 today, after surging more than 34 percent in early trade.