money to be made from stem-cell therapy

Money to be made from stem-cell therapy

TIM BOREHAM THE AUSTRALIAN FEBRUARY 27, 2014 12:00AM


Source: TheAustralian

WITH a $1.89 billion market cap reflecting groaning investor anticipation, the developer of stem-cell therapies is whispering the R-word.

Mesoblast (MSB) $5.97

That's right: revenue. Not a few million from R&D grants and interest on its $250 million cash kitty but first income from its suite of (mainly late-stage) therapies.

By the end of the year Mesoblast should be marketing Prochymal, to treat child cancer patients afflicted with acute graft versus host disease (GvHD).

A complication from bone marrow transplants, GvHD results in mortality rates of up to 90 per cent.

The company already has conditional approval to sell Prochymal in Canada and New Zealand, but prefers to seek US Food and Drug Administration approval under a fast-track application process.

"We want to launch the same product across as many jurisdictions as possible at the same time," says chief executive and founder Sylvio Itescu. "You don't want to have to repeat things because of a requirement from a regulator."

Successful approval of what would be the world's first off-the-shelf stem-cell product will reduce the development risk of the company's entire product suite.

"It's a very important milestone. It raises the potential of short-term revenue and validates the rest of the pipeline, " said Mr Itescu.

Separately, Japanese partner JCR Pharmaceuticals is filing for approval by the end of this quarter, opening the way to royalty income for Mesoblast.

Funded by pharma giant Teva, Mesoblast is conducting a phase-three trial of 1700 patients with congestive heart failure.

Mesoblast will self-fund three other efforts, notably a phase-three trial of sufferers of chronic lower back pain.

Itescu puts the cost of a 300-400 patient trial at $30m, barely a dint in the piggy bank.

Mesoblast is also targeting spinal fusion, Crohn's disease, type-two diabetes, asthma and acute myocardial infarction.

Pointing to billion-dollar US exemplars, he says investors are strongly rewarding so-called "platform" technologies "and even further when they achieve product approvals".

As strongly backed as they have been keenly short sold, Mesoblast shares have been range-bound between $5.50-$6.50 for the past year.

We ascribe a spec buy. The danger is that once biotechs start talking revenues, the blue-sky valuations evaporate and the sober earnings multiples kick in.