Interview: Mesoblast's Cephalon deal was late CEO's vision
By Bill Berkrot
NEW YORK | Wed Mar 2, 2011 6:19pm EST
NEW YORK (Reuters) - As Australia's Mesoblast Ltd (MSB.AX) works to bring the promise of stem cell therapy to a wide variety of illnesses and injuries, it is also advancing the vision of late Cephalon Inc (CEPH.O) CEO Frank Baldino.
Cephalon in December not only signed a major partnership deal with Mesoblast for a variety of potential therapies in cardiovascular and neurological areas, but it purchased a 20 percent stake in the company.
Cephalon founder and long-time Chief Executive Officer Baldino died in December at age 57 from complications associated with leukemia and was replaced by Chief Operating Officer Kevin Buchi. But it was Baldino who had set his sights on Mesoblast long before going on medical leave last August.
"Clearly Frank Baldino had been the driver of the original approach, so this was very much Frank's vision and baby and Kevin carried that forward," Graeme Kaufman, Mesoblast's senior vice president for finance and corporate strategy, told Reuters in an interview at the New York Stem Cell Summit on Tuesday.
"It's very sad indeed to lose one of those (industry) pioneers, but the whole negotiation went very smoothly and seamlessly," Kaufman said.
"I think for Cephalon this was a terrific deal because it gives them access to the whole new field of stem cell therapy, and I think they understand that it's kind of the next big thing," Kaufman said.
"It's a huge boost in general for cell-based therapies because it's really a substantial pharma company saying we think this field is really important," he added.
Many large pharmaceutical and biotechnology companies are linking up with tiny stem cell companies in hopes of getting a piece of what could be the next wave of innovative medical breakthroughs that their own labs have been unable to produce.
In December 2009, Athersys Inc (ATHX.O) got a huge vote of confidence when it signed a deal with Pfizer Inc (PFE.N), the world's largest pharmaceutical company.
Osiris Therapeutics Inc (OSIR.O), which looks to be on the verge of becoming the first stem cell company to turn therapeutic theory into an approved and marketed product, has a long-standing partnership with Genzyme Corp (GENZ.O).
Osiris Chief Executive Randal Mills joked at the Stem Cell Summit that he is "frantically learning French" now that his partner's new master will be Paris-based Sanofi-Aventis (SASY.PA).
"Osiris for us has been a good model. They've been through the regulatory pathway and it always helps to have somebody trailblazing," said Kaufman, who began his career as a biochemist for Australia's CSL Ltd (CSL.AX) before running CSL manufacturing and later becoming its chief financial officer.
"So I moved out to the dark side of finance," he quipped.
Mesoblast's finances, with the help of Cephalon, are in far better shape than those of many of its rivals.
Its market capitalization is about $1.5 billion. A chart at the Summit showed the combined market cap of 21 U.S. stem cell companies to be less than $2.5 billion
Mesoblast is hoping to complete midstage trials in heart failure patients by the middle of this year with an eye toward starting pivotal Phase III trials early next year.
Under that timeline Mesoblast and Cephalon could have a stem cell-based heart failure treatment on the market by 2015, Kaufman said.
"Our cash will keep us going for a long while," he said. "But we'll be investing heavily in diabetes, investing heavily in intervertebral disc repair. But now we have the resources to take those through ourselves," said Kaufman, explaining that Cephalon is responsible for funding expensive Phase III trials in the areas for which it has partnered.
"That frees us up entirely from the cardiovascular studies and the neurologic studies," he said.
The company works with adult stem cells derived from bone marrow known as mesenchymal precursor cells. Because they do not trigger an immune response, cells from one donor can be greatly expanded to treat many patients, giving Mesoblast potential therapies that could be sold like off the shelf medicines.
Mesoblast is discussing potential partnerships for other areas of therapy, but feels under no pressure to make a deal.
"We would probably still say that orthopedic will be a partnering opportunity, but we may not do that as soon as we otherwise would because we have the wherewithal to take it forward," Kaufman said.
The company will look for partners that can help Mesoblast expand global reach in marketing and distribution.
"That's what we did with Cephalon and it's probably what we'd look for in orthopedics," Kaufman explained.
"We're talking with all of the leaders in the orthopedic space. We could do a deal today if we wanted to."
(Reporting by Bill Berkrot, editing by Gerald E. McCormick)
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(Comparison Note: a similar stem cell regenerative company, Pluristem, NASDAQ:PSTI has a current Market Cap of less than 100 million)
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