Mesoblast lists at a premium

Trapping and harnessing adult mesenchymal precursor cells (MPCs) - some of the rarest and most valuable cells in the body - is the game of junior biotech Mesoblast (ASX:MSB) - which listed on the ASX today at AUD$0.91, almost double its issue price of $0.50.

Chairman Michael Spooner said it was a terrific start for the company.

Although it was only incorporated in July this year, and has yet to appoint a CEO, Mesoblast has had a dream run to the market, with institutional investors taking up around 75 per cent of the company's $21 million initial public offering. It had a market capitalisation upon issue of $47 million.

The float was underwritten by Lodge partners, whose previous biotech floats for Cellestis and Medical Developments International have been very successful.

Almost half of the money raised is already earmarked to acquire a third of director Silviu Itescu's US-based company, Angioblast, which is developing cardiovascular applications of MPCs.

Mesoblast has an ambitious timeline for its MPC therapeutics - hoping to have IND approval and US trials underway by early 2007.

MSCs appear to have many of the same properties as embryonic stem cells, but avoid their controversial origins. They are able to morph into many different types of cell, including vascular tissue, bone and cartilage, according to the microenvironment in which they are placed. But they fact that they exceedingly rare - making up less than 0.01 per cent of bone marrow cells - has hampered their development.

"They are found in perivascular locations in all parts of the body," said Itescu. "I think the reason we have them is they serve as a reservoir for replenishment of local tissues."

Finding an effective method for harvesting MSCs from the bone marrow has proven one of the biggest hurdles to generating a culture pure enough to create useful products.

Itescus explains that Mesoblast's isolation method - which usaes a monoclonal antibody to bind and isolate MPCs from the bone marrow - provides a pool of stem cells 1000-fold more pure that other methods, including those used by the company's US-based competitor Osiris.

The isolation technique was developed by scientists Stan Gronthos, Andrew Zannettino and Paul Simmons, working at Adelaide's Hanson Institute.

"Angioblast entered into a commercial relationship with the Hanson Institute, and took a license and assignment over the technology," said Itescu. Angioblast was to use the technology to develop cardiovascular therapies, for regeneration of heart muscle and treatment of peripheral artery disease.

"The scientists themselves had concentrated on the orthapaedic applications," said Itescu.

It is the license for these orthopaedic applications which now form the basis of Mesoblast.

"It's an Australian invention and we will keep it in Australia," said Spooner.

A pre-clinical study at the Hanson institute in 12 sheep, in which the sheep's own MPCs were injected around a "nail" spanning a non-union fracture in the sheep's femur, has shown early promise, with the MSC therapy prompting bone regeneration.

According to Mesoblast's supplementary prospectus, a formal freedom-to-operate analysis has not yet been completed on the patent applications - including the identification of telltale surface markers which allow isolating of the MPCs --- although preliminary advice from patent attorneys F B Rice is that competitor's patents do not overlap with Mesoblast's and Angioblast's technology.

Ultimately, Itescu hopes that the stem-cell therapy the companies develop will not need to be tailored using the patient's own cells (autologous cells), but use cells from a universal donor (allogeneic cells) for a one-cell-culture-fits-all product.

MPCs would be unique in this adaptive ability. Normally, if cells from one person are injected into another person, they are rejected by the recipient's immune system.

"Information that has come out in the last couple of years shows that MPCs don't stimulate the immune system -- and potentially can be used as an allogeneic source," said Itescu. "You would never have believed it, but this has now been replicated. "

"This changes the whole business model - bringing it back towards a pharmaceutical style model."

Were the allogeneic model not to work, autologous therapy would be a fall-back, albeit an expensive one which would eat into the profit margins of the therapy.

Itescus said that Mesoblast and Angioblast are both necessary, because the skill sets required for developing products in orthapaedics are different from cardiovascular applications. However the plan is for the companies to undertake joint development for the next 12 months, using an FDA-approved facility to scale up allogeneic stem cells for Phase I clinical trials in Australia. The first human trial is likely to be a pilot orthapaedics study.

Itescus said the company has enough funding for the next 2 years.

At the time of writing, the shares were trading at $0.80.