Can a Small New Stem Cell Pact Move the Needle for Celgene?

In biotech, and in other things, size can matter. So how does a $45 million investment get Celgene in a position to where it can move the needle?

Celgene spent $45 million to buy into a company called Mesoblast. The deal is said to give Celgene a first look at the Australian biotech’s stem cell candidate pipeline, which ultimately means that Celgene would be given preferential treatment in any future licensing opportunities.

Celgene had a market cap of $93 billion on last look, and it ended 2014 with more than $7.5 billion in cash and short-term investments on the books. Mesoblast trades in Australia under the MSB local stick ticker. Its shares closed last week at A$3.21, according to Yahoo! Finance pricing data, but shares were up 24% at A$3.99 on Monday after the terms of the deal were shown to be 15.3 million shares at A$3.82 per share.

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What Celgene will get here is a six-month right of first refusal on Mesoblast’s stem cell programs. These were said to be an extension of the acute graft-versus-host disease (GVHD), oncologic diseases, inflammatory bowel diseases and organ transplant rejection.

Mesoblast has said that it has leveraged its proprietary technology platform, based off of mesenchymal lineage adult stem cells, to establish a broad portfolio of late stage product candidates where there are highly unmet medical needs, including cardiovascular conditions, orthopedic disorders, immunologic/inflammatory disorders and oncology/hematology conditions. The lead therapeutic product candidates under investigation include the following:

• MPC-150-IM for chronic congestive heart failure, in partnership with Teva Pharmaceutical Industries
• MPC-06-ID for chronic discogenic low back pain
• MSC-100-IV for acute GVHD
• MPC-300-IV for biologic refractory rheumatoid arthritis and diabetic nephropathy

If this works out, it seems that Celgene may be lining up for a grand payout potential, if the candidates result in actual products down the road. If not, well it has wasted very little in capital.

It turns out that the deal did not even take Mesoblast’s stock price to a 52-week high, as the 52-week range is A$3.17 to A$5.88.

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Keep in mind that Celgene’s 2014 revenue was $7.67 billion. Also, the expected revenues ahead are $9.3 billion in 2015 and $11.3 billion in 2016 (Thomson Reuters consensus numbers). Celgene shares were up eight cents at $117.15 on Monday, its 52-week trading range is $66.85 to $129.06 and it has a consensus price target of about $138.75.

It seems hard to imagine that a $45 million partnership is going to drive the wagon for a company the size of Celgene. Still, we will just have to wait and see what candidates could come from the partnership.