Industry super fund support boosts Mesoblast stem cell treatment hopes

Mesoblast CEO Silviu Itescu has had encouraging results from stem cell treatment testing. Picture: Stuart McEvoy

As Wall Street falls amid trade war chaos, two significant and exciting developments for the Australian nation have taken place this week.

It’s important they are not obscured by the share market carnage.

The first is that our major source of equity capital, the industry superannuation funds, have reversed their investment policies and decided to invest a small part of their funds in groundbreaking Australian technology.

Secondly, while Australia has been a global centre for the creation of drugs from human cells, via CSL’s success in using white blood cell protein (collected in the US), the industry funds now believe there is a good chance we can follow that up by developing products from bone marrow cells—again collected from adults in the US.

I must emphasis that while Australia is tantalisingly close to this world breakthrough we are not there yet.

But people with a wide range on ailments that can’t be cured by conventional medicines--- including the often fatal side effects of leukaemia treatment, back pain and some heart problems---are hoping the Australian research succeeds.

Industry fund backing for the work is a confirmation that Australia and Melbourne has a real chance to be a global centre for the development of medicines from human body cells to combat ailments that defy conventional medicines.

Of course, Mesoblast has had so many ups and downs over its 15-year history that Australians and the markets are understandably sceptical.

Nevertheless it is now close to actually producing substantial global revenue from its bone marrow cell research.

It’s important to for all Australians to understand the bone marrow story, including how it works, how we got there and what might be the future.

Back around the turn of the century Silviu Itescu was in charge of heart transplants at Columbia Presbyterian hospital in the US and was frustrated at being forced to decide who would live and who would die because there were insufficient hearts.

Early research in mice was showing that hearts could be repaired using stem cells. Itescu returned home to Melbourne and with the backing of his Columbia colleagues and the hospital, plus the enthusiasm for biotechnology stocks at the time, he formed Mesoblast.

Itescu achieved research breakthroughs and a US company called Cephalon backed the research with an equity investment plus a $US1.4 billion cash injection, with lots more to come.

Mesoblast’s share price skyrocketed, capitalising the company at $2.5 billion, but three months later the CEO of Cephalon died and the US company was the subject of takeovers and was subsequently destroyed.

In 2016 Mesoblast regained full ownership of its research but then the ex-Cephalon equity was disposed of badly in 2017 and 2018, trashing the share price.

Projects had to be deferred and some of the research did not test as well as expected. They were hard times but gradually the techniques of extracting bone marrow cells from adult Americans (not embryos) and then multiplying them and applying them to ailments made great progress.

Let me use non-medical language to explain what Mesoblast research is discovering.

The human body has an internal repair mechanism whereby repair cells are generated to overcome problems -- whether it be a faulty heart or the “sponges” that solidify in the spine.

But when this does not work the body often then floods the area with these repair cells and when there are too many, instead of fixing the problem, they make it much worse.

The bone marrow cells’ first function is to remove the excess repair cells and then assist in the repair function.

There is a long list of ailments where this process can theoretically be used.

When the “Cephalon” cash dried up Itescu reduced staff and concentrated on three ailments -the side effects of conventional leukaemia treatment, back pain created by the solidifying of the spongy material between spine discs and, of course, the repair of the heart.

More than 1000 patents were taken out and, where challenges were launched, Mesoblast was successful.

Both the heart and back pain bone marrow cell treatments are in third stage testing in the US. But one treatment---the leukaemia side effect market —has actually made it through the third US testing stage and is waiting US approval. For many patients this is their only hope of survival and there is pressure for early approval.

The spine and heart cures are enormous markets and Mesoblast will need partners, but leukaemia is much smaller and Mesoblast will attempt to go it alone and hopes to build up revenue to $US100 million a year and beyond.

Last month Grünenthal, Europe’s leading pain management company, agreed to support the back pain/spinal bone marrow cell application.

Mesoblast will receive up to $US150 million in upfront and milestone payments prior to product launch. Under the partnership, Grünenthal will have exclusive commercialisation rights to Mesoblast back pain products for Europe and Latin America while Mesoblast retains the US, Japan and China.

I emphasise that the back pain products have not yet completed their third stage testing.

But the upfront Grünenthal payment and the industry fund injection will assist funding the third stage tests of both the heart and back pain projects plus the bringing to market of the leukaemia treatment.

There are now a lot of optimistic reports about Mesoblast but even though 15 years has passed the journey is just beginning---it’s the equivalent of the early stage of CSL.

There are a lot more potential “bone marrow” products in the pipeline.

Mesoblast may still fail but the combination of the Grünenthal deal and the industry fund support shows that Australia is close to leading a major medical breakthrough.

Australian research has been decimated by the Australian Taxation Office.

If our industry funds are prepared to back high technology at an advanced stage then it opens a new era for Australian innovation.