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http://www.theaustralian.com.au/business/opinion/mesoblast-422-retains-manufacturing-rights-in-cephalon-deal/story-e6frg9lo-1225967595363

Mesoblast ($4.22) retains manufacturing rights in Cephalon deal

* Tim Boreham
* From: The Australian
* December 08, 2010 12:43PM


REGULATORY milestones could become millstones for Mesoblast, but the Cephalon deal is more than heartening for shareholders.

In another year of mediocrity for the biotech sector, stem-cell play Mesoblast has struck a US deal that outshines even that of the dazzling Acrux, which stitched up a testosterone licensing deal with Elli Lilly in March.

In the world's biggest stem-cell deal so far, pharma giant Cephalon has agreed to acquire a 19.99 per cent stake in Mesoblast at $4.35 a share, a whopping 45 per cent premium to Mesoblast's 30-day average price.

But the real big-ticket news is that Mesoblast receives an upfront fee of $US130 million ($132.3m) and ?up to? $US1.7 billion of milestone payments.

And there's more: Cephalon foots the bill for advanced trials, the first cabs off the rank being congestive heart failure and bone-marrow remedies.

Unlike Acrux's single-product focus, this deal involves the right to commercialise a range of specific products based on Mesoblast's adult stem-cell patents. Cephalon's other areas of interest include Parkinsons and Alzheimers disease.

Unusually, Mesoblast retains the manufacturing rights, so it's not a royalty-only deal.

Separately, Mesoblast will continue its own work on bone and cartilage applications (think footballers' dodgy knees and legs), eye diseases, diabetes and inflammatory conditions, and it will have a cash kitty of at least $250m to further this work.

The deal is a triumph for the pick-a-winners at the Pratt Family's Thorney Investments, which took a 10 per cent stake at 50 cents when Mesoblast listed in 2004.

It's also a boon for CEO Silviu Itescu, who holds 23 per cent and has imposed a voluntary 12-month escrow restriction on himself.

On a cautionary note, the milestone payments are based on regulatory milestones that could become millstones if the Food and Drug Administration doesn't play ball.

If all goes well, Mesoblast expects a bone-marrow therapeutic to be on the market by 2013, followed by a congestive heart treatment.

Itescu says the deal has been two years in the making. Mesoblast, he says, was always going to need a well-endowed partner but until now nothing quite stacked up. ?This is a company with multiple-billion dollar revenues every year,? he says.

Analyst Marc Sinatra, who writes notes for Biotech Daily and Lodge Partners, says the deal will ?warm the cockles of every Mesoblast shareholder's heart?.

?Besides the obvious positive signal this deal sends regarding Mesoblast technology, the cash they now hold gives them much greater flexibility in terms of developing the numerous products that remain in their portfolio,? Sinatra says.

?Essentially, they can choose to take these products much further down the commercialisation path, which, in turn, may well mean better deals to come.?