Summary
Celgene takes 4.5% stake in Mesoblast and options up first rights for 6 months on Mesoblast's phase 3 program on GVHD (acute graft versus host disease), plus other programs.
This is interesting for Mesoblast as TEVA already has a close to 20% stake in Mesoblast and co-partners the Mesoblast phase 3 program on chronic congestive heart failure (class II/III).
Mesoblast stock up 24%, negligible impact on Celgene.
Is this the start of a major expansion in cell-based therapy for Celgene, and does it put Mesoblast in play?
Regenerative medicine is an area of biotech that attracts a lot of heat, but not much that is tangible yet, although there are products emerging in the wound healing space.
Companies like Mesoblast (
OTCPK:MEOBF) (
OTCPK:MBLTY) [ASX:MSB], which has built a substantial IP portfolio and has 5 drugs in phase 3 trials, have had a roller coaster ride. Indeed Mesoblast's share price has been in steady decline since mid-2011, when it traded in the range A$8-10. Last Friday, it closed on the ASX at A$3.21 (market cap, A$1 billion), but today (Monday 13th April), it closed at A$3.99, a 24.3% gain after Celgene (NASDAQ:
CELG) and Mesoblast announced that Celgene is purchasing Mesoblast shares to give it a ~4.5% stake in the company.
Mesoblast is a major player in the adult stem cell space, so if/when this area takes off, its IP portfolio will be valuable. Given the limited 6-month first right of refusal in the Celgene deal, one imagines that Mesoblast is looking for a partner to help fast track FDA approval of its first drug, JR-031, for treating GVHD (acute graft versus host disease), which is filed for approval in Japan, and a path to accelerated approval is already under discussion with the FDA.
Obviously, the Celgene announcement was very good news for Mesoblast, and there are three obvious reasons for the share price increase.
Firstly, it provides a US vehicle (if Celgene takes up the first right of refusal on the project) for its most advanced program, JR-031 for treating acute GVHD (filed for approval in Japan).
Secondly, a group of other Mesoblast programs are included in the first right of refusal, so this is a potential opportunity to fast track other programs.
Thirdly, on the corporate front, Celgene's interest might put some pressure on TEVA (NYSE:
TEVA), which has close to a 20% stake in Mesoblast through its acquisition of Cephalon. TEVA also has a major partnership with Mesoblast on chronic heart disease, with phase 3 trials in progress.
Why is Celgene interested?
Celgene is that rare highly profitable biotech company, but one that gets more than 50% of its revenue from a single drug,
Revlimid, an oral multiple myeloma drug ($4.8 billion of total revenues of $7.6 billion) and also used with other cancer applications. This drug is related to thalidomide, and Celgene is also exploring use of thalidomide in cancer applications.
Celgene's market cap is too high to be justified solely on its current earnings, so the company is still benefiting from the view that there are more big drugs on the way.
Celgene already has a presence in wound repair using cell-derived therapy, with Biovance, a decellularized human placental product for wound management. Celgene developed and manufactures this product and has licensed it to specialized small biotech company Alliqua BioMedical (NASDAQ:[
ALQA]), which has had success in the hospital and veteran areas and is now close to getting
reimbursement for the product in the outpatient market.
So Celgene is not naive about the challenges and opportunities in cell-based products.
With $6.8 billion of cash and net annual profits of ~$2 billion, this purchase by Celgene represents small change to get first refusal rights to an interesting portfolio of both mature assets as well as more prospective projects. It is also a statement of interest in Mesoblast and possibly a warning shot to TEVA that it is not the only party interested in the Mesoblast portfolio.
Conclusion
Celgene is a biotech company that has provided outstanding results for investors over many years. It is already playing in the cell-based therapy space (wound healing) and obviously likes what it has seen. Its investment in Mesoblast gives it a significant stake in a major regenerative medicine/cell based therapy company and also a path to a new portfolio of products.
From Mesoblast's perspective, this is welcome news to reignite interest and perhaps it puts it in play, as TEVA has a significant stake in the company and a major interest in its heart disease program.
Worth paying attention to, from both angles.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks. .........
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