The dust has settled and I have scoured what commentators and analysts have said in light of MSB’s acquisition of Osiris’s jewel in the crown- Prochymal. Those who see this as a negative for MSB, do so on the premise that ‘picking up an inferior product/ technology from Osiris , whom has little R&D cash remaining’, seem perhaps deficient in logic and wanting in some small lateral thinking.. In my opinion, I propose why this unforeseen acquisition could well be redefining catalyst for MSB and why the timing to acquire was shrewd. It is not every day that someone of MSB’s ilk outlays upto $100m. , so it is worthwhile to spend a little time on the logic. This acquisition runs at a tangent to MSB’s own strategy and the bigger picture, but significant nevertheless. Clearly, the components of the acquisition will be under review as it is Mesoblast’s strategy to focus on large, unmet markets. I do not wish to detract from the main game here, especially given some major announcements pending short term, but this acquisition offers insight into MSB’s ambition and a crucial element in the process from efficacy to being commercial is the manufacturing capability. I therefore offer the following comment.
What does Osiris have that MSB wants ?
•OSIR have the world’s first FDA approved stem cell product- Prochymal, which has been (1) “fast tracked” (2) designated “Orphan Drug Status”, (3) applied to 3 indications currently in Phase 3 clinical trials; acute and steroid refractory graft versus host disease (GvHD) and the bowel condition- Crohn’s disease. Prochymal is already approved for acute GvHD in Canada/ New Zealand (children) and in the US on an expanded basis for children and adults. It is important to understand that Prochymal is manufactured by Lonza , Mesoblast’s manufacturer, and when a deal was struck in July 2008, between Osiris and Lonza, one notes this was the first commercial-scale allogeneic cGMP (cultured Good Manufacturing Practice) manufacturing plant on the planet. Prochymal does have other phase lll trials for ‘small’ indications along with 2 phase ll trials for Type 1 diabetes and AMI . They have also completed enrolment for their Phase l/ll trial for osteoarthritis of the knee and meniscus regeneration under their product Chondrogen. As to whether peripheral, niche indications are pursued are open to review.
…And what does Osiris keep?
•OSIR also has a Biosurgery Unit, in which OSIR has developed technologies to promote natural healing. Grafix, is a 3D extracellular matrix applied to wounds, diabetic foot ulcers and burns. These possibly represent a new standard of care. The matrix combines MSCs and growth factors and also offers protection from infection, scarring and inflammation. OSIR have Ovation, which provides a 3D architecture for wounds. And they are working on Ovation OS, which preserves livings cells to produce a bone repair matrix. To my way of thinking, this landscape is one of considerable breadth and utilization of a stem cell infused matrix does seem to hold considerable potential…. MSB have not to date ventured down this path (publicly). After reading my comment on 3D manufacturing below, just contemplate what it could do for Grafix…and that is a real positive.
…So what is the realisation of choice that confronts Osiris?
•In the pure form, MSCs are the basis of Prochymal and are effectively the generic adult stem cell.. But, the foundation cell on which Mesoblast bases it product is a mesenchymal precursor cell. (precursor = progenitor). MPCs are less mature than MSCs and both derived products are being pursued on an allogeneic basis. The understanding therefore, is that the earlier the cell phase development, the lower the immune response and hence their potency. MSCs represent the near term proposition and MPCs are the next generation programme.
•From Osiris’ perspective, if Prochymal was not the best product around, would I pursue it, especially given the advancement of the MSB product assuming the mantel? … possibly not . If Osiris had the best matrix in the Biosurgery space, given their background of R&D in stem cells, and the fact that it is the key element supporting the matrix, results, and given the markets which it addresses, would we pursue it?… probably yes.
So, from the perspective of OSIR, what was the management thinking about their strategy going forward?
•Perhaps… (1) there was a realization that their share price has had volatility over many years and has not gone anywhere in 5 years.(2) there have been a number of events that have adversely affected them, prompting ad hoc setbacks ( the Sanofi discontinuation, select questionable interim trial data, flawed trial designs etc) (2) I would not take anything away from them with respect to being first out of the blocks with regard to so many developments in the MSC space, but , have they got the most potent cell for the therapeutic landscape on which we move forward? (3) they have spent ~$400m in R&D over the past 20years in MSCs, but today have minimal cash. (4) our blockbuster markets of focus are too broad. There is some merit in each of these points, but, their lead product appears to have been displaced on the basis of a superior product given the advanced technological change that has occurred especially over the past 5 years.
•One clear lesson is to ensure one’s cash at bank is healthy.
•In the recent words of the Osiris Chairman, …”With this transaction, we will focus our business on those areas that are of greatest commercial value to Osiris moving forward.”… It is not my task to evaluate the chosen path of OSIR, but it is of particular focus that I evaluate what MSB has added to table.
Two products – what’s the plan?
•Prochymal works; it has been FDA approved for specific indications with caveats. I would suspect that MSB will closely monitor traction, sales and costs whilst letting Prochymal run it’s natural path of commercialism, especially where an indication is more advanced than MSB product. Suffice to say, that if select MSB’s product, caught up, having assessed, for example, comparative efficacy, market acceptance, patient costs, COGS, and a number of broad logistics, MSB may possibly contemplate ‘retirement’ of Prochymal from that indication but in a seamless and commercial fashion. Who am I to say… it’s under review. From my understanding, MSB want economies of scope and economies of scale . All such matters relating to pricing, repeat dosing, reimbursement etc, will have to be weighed up in any assessment. I would like to address manufacturing as it represents the crucial element between the science and commerce.
•Firstly, in 2008, Osiris partnered with Genzyme to manufacture and distribute Prochymal. Genzyme parted with US$130m upfront + upto $1.4bn in royalties and production costs. In February 2011, Sanofi acquired Genzyme for >US$20 billion but the manufacturing deal was terminated with Osiris. Osiris managed to regain rights to Prochymal. Lonza then stepped in to become Prochymal’s manufacturer. Enthusiasm for Prochymal was somewhat dampened with Sanofi’s actions.
•Secondly, I would not hesitate to say that many an analytical discussion has taken and continues to take place between MSB and Lonza. Interestingly, Lonza’s Walkersville site signed a manufacturing agreement and started manufacturing Prochymal for Osiris in 2003. Then in 2008 a phase lll clinical and commercial agreement was added. Note that Lonza manufacture Prochymal using processes that were state of the art mid- 2000’s technology. With regard to the process, after a bone marrow donation, the MSCs are rigourously tested for diseases. Two steps take place. The first is that MSCs are isolated from other ‘matter’ and production of an ‘in-process intermediate’ that is frozen and provides a stopping point in the manufacture, enabling quality control testing. They are grown in culture, permitting large-scale production. Final manufacturing then takes place with the ‘in-process intermediate’ undergoing constant scrutiny. From one donor, up to 10,000 doses are achievable. Product is packaged in plastic blood bags, frozen, stored until needed and transported to hospitals. Back in 2008, Lonza could produce, without robotic help, 10,000 doses p.a. in a pre-designed purpose built room, measuring ~100+sq.m. If demand warranted increased supply, newer automated processes could be applied (scale up) and a replicate room would be added (scale out). What is also significant is that shelf life for Prochymal, real time, is ~6 years, (an FDA imposed timeline requirement) but its constituency could possibly last 30years. Testing takes place for consistency in concentration and Lonza has volumes of data. Frankly, that is the validation. It appears that this process and method of distribution will remain the status quo for the time being. The physicians like the product. This was the first commercial-scale allogeneic cGMP manufacturing plant.
•For MPCs, manufacturing technology has improved strikingly. The key component is the single-use bioreactor. It is akin to a plastic bag with little paddles or a propeller slowly churning which keeps everything in circulation and suspension. From the top, hang probes in oxygen / nitrogen which serves the purpose of being a chamber for analysis of the environment. This second generation bioreactor measures ~1m x 1m and holds 50 litres of product. It is not quite 3D. You can get up to 100,000 doses per room, so in 10 rooms one could achieve 1 million doses. A dose is stored in a vial at ~neg180° degrees F in liquid nitrogen. So those that ask about scale, it is envisaged that this could take place in 18-24 months. What is critical in the process is that COGS could conceivably be reduced by an estimated 30% to 50%. My understanding is that the cost of a dose is dependent on its concentration/ assay. So, if we are talking about COGS per dose of ~$100 at the lower concentration level, of say, < 10mn, and approaching say $2000 for high concentration of 150mn per dose, then it is clearly evident what dramatic cost savings could be in play. (To gauge a visual assessment of a bioreactors, along with operational and design components, check out www.satorius.com. Sartorius Stedim Biotech, provides cutting edge services and equipment for development, quality assurance and production for the biotech industry.)
•Pssst…One senses autologous manufacturing will be prohibitive; you only get to treat one person per batch; the process is costly and considerable analysis goes in to the end product….
•Pluristem has a 3D bioreactor that is capable of manufacturing 150,000 patient doses pa..
•Talk of 3D manufacturing is the rage but still in relative infancy. Yes, you can print with stem cells. Cells have been printed in toroidal patterns and further structures are work in progress. Bioprinting has been able to produce blood vessels, cardiac and lung tissue and nerve cells. How does this work? A bioprinter has 2 jet streams. Hydrogel is added in one to support a cell’s existence; the other contains bioink, which consists of pre-cultivated cells. Simultaneously, the bioink is added into the hydrogel on a layer by layer basis to create tissue. The fused cells incubate and multiply in the a growth medium and the hydrogel is removed. We are not there just yet, but the game plan is clear. For stem cells themselves, they are the integral underlying basis upon which any biomatter is ‘constructed’. So, effectively, they are the precursor to any organ being manufactured.
•Suffice to say that technological know-how with respect to multiple parameters, was not around in the 2008/09 era when compared to that of today. Dose concentrations are continually monitored and increasing dose volumes are a matter of room extension within the manufacturing plant. It actually seems straight forward. It is work in progress but scale up and does not seem problematic.
And so I conclude in asking what does this acquisition bring to the table for Mesoblast?
•Solidifies clear leadership in the global stem cell industry.•Immediate revenue from Prochymal- MSB focus is on the large markets. Aim high- get it right the first time. •Late stage phase lll for Crohn’s disease. •Several phase 2 indications. Broadening indications•Cell lineage differentiation- think product diversification, risk mitigation,’ knowledge’ library; licensing and blocking potential. .•Increased long term patents on MSCs (110) and possible future development;•Clinical data library- from 1500 patients, inclusive of paediatric data; assessments of data for cultured MSCs, safety, efficacy, and repeat dosage . •Manufacturing- assessment to implement change for Prochymal although the process seems likely to remain the same near term; knowledge gained in source of donors, processes involved, technology utilized, ISO/FDA procedures, volume issues, end product logistics; presents a challenge for optimization. •Distribution channels- analysis of the final product; packaging; mode of transport; end-user friendly.•The new level of industry ‘global contacts’ •Access strategy for physicians. •Comparability of extensive MSC data with MPC data. •Experience gained from FDA interface; commercial approval of Prochymal; compliance; procedures; pricing reimbursement, marketing,access pre-launch and launch and product life cycle management..•Synergies- gained from offices, management/ personnel, capital expenditure, manufacturing, •Increased the captive footprint in Japan – through JCR Pharmaceuticals and knowledge gained from their manufacturing and distribution, on top of MSB’s significant presence. Might JCR be interested in acquiring a stake in MSB? •Increased newsflow.
The late stage OSIR indications, (complementary to the existing MSB pipeline), and the near term Prochymal forecast revenues, near term milestone payments owed by Teva, distinct probabilities of ongoing collaborations for a further 3 indications, suggest that the cost price to make this acquisition was rather low versus the benefits gained. The great majority of commentators have stated this.
Frankly my thoughts are along these lines… stem cells have safety; they have efficacy, dosage dependant- they work; MPC have greater potency than MSCs; MSCs have been fast tracked and have been granted Orphan drug status by the FDA; commercial product is on the market for MSCs; The FDA have approved all MPC product for all phase 3 indications; Lonza holds the MSB approach in the highest of esteem; …. If I put this jigsaw puzzle together inclusive now of pieces gained from this acquisition, ought there not be unsurpassed merit to suggest that the FDA expedite commercial approval.?…and perhaps that is what Japan may do ( see my prior notes on possibilities of bringing product to market after Phase ll) and JCR Pharmaceuticals just might be a very handy ally.
…A clever acquisition.
I can only see a tsunami of interest building and it’s heading straight for Mesoblast.
Any feedback welcome.
Kind regards
Alastair.
MSB Price at posting:
$6.02 Sentiment: LT Buy Disclosure: Held
(20min delay)