Dr Boreham’s Crucible: Can this biotech emerge from Mesoblast’s shadow and ride ‘stem cells 2.0’?

Investors now have three ASX-listed stem cell therapy companies to choose from – and we can thank sector big daddy Mesoblast for inspiring the third.

Tim Boreham is one of Australia's best-known small-cap share analysts and business journalists.

Investors now have three ASX-listed stem cell therapy companies to choose from – and we can thank sector big daddy Mesoblast for inspiring the third.

Hitherto a developer of peptide-based drugs for neuroscientific conditions, NeuroScientific Biopharmaceuticals (ASX:NSB) s is in the process of acquiring Stemsmart, the stem-cell portfolio of the public unlisted Western Australia company Isopogen WA Ltd.

In December, Mesoblast won US Food and Drug Administration (FDA) approval for Ryoncil, its stem cell treatment for paediatric graft versus host disease (GvHD).

Neuroscientific describes this approval as “momentous”, as it was the first FDA assent for a therapy derived from donor bone marrow.

Both the Ryoncil and Stemsmart therapies are based on mesenchymal stromal cells (MSCs). (The other company is Cynata, also working with mesenchymal stem cells but induced pluripotent ones called IPSCs.)

“Stem cell therapy is a cornerstone of modern medicine,” the company says.

“Stem cells have the unique ability to develop into different cell types in the body and are often hailed as the body’s master cells.”

Neuroscientific’s initial focus is on the common auto-immune condition Crohn’s disease.

That makes sense, given Isopogen underwent a phase II trial for that condition that deemed the therapy to be “potent, efficacious and safe.”

About Neuroscientific

To date, the Perth-based Neuroscientific has been developing peptide-based drugs for several neuro-degenerative conditions with high unmet medical demand.

Neuroscientific was founded by former equities analyst Dr Anton Uvarov, on the back of the Emtinb peptide. This asset was developed by the University of Copenhagen and then acquired by the University of Tasmania.

The company listed on July 25, 2018, having raised $6 million at 20 cents apiece.

At the time, Emtinb was most advanced for Alzheimer’s disease, but recently the board decided to focus on glaucoma.

Before founding the company, Uvarov had a two-year stint a biotech analyst at Citigroup.

He has also been on the board of several ASX listed biotechnology companies and non-biotechs, including Blinklab, Actinogen, Sun Biomedical (now Dimerix), Acuvax and Imugene.

The company's portfolio includes Emtinb (initially targeting glaucoma) and Emtinac, Emtinan, and Emtinbn “which have demonstrated similar therapeutic potential as Emtinb”.

As part of the Stemsmart purchase, current Isopogen directors Robert McKenzie and Paul Fry will join the board.

The force behind Stemsmart, Dr Marian Sturm joins as chief scientific adviser.

An inaugural member of the local Therapeutical Goods Administration (TGA) advisory committee on biologics – among other things – Sturm is a leading expert in cell therapies in Australia (particularly in stem cell therapies).

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Uvarov says he had known about Sturm and her work for some time, given they both hail from Perth medical circles.

In 2021, Perth’s East Metropolitan Health Service (EMHS) launched a legal action over ownership of the stem cell intellectual property on which Isopogen was founded.

Sturm was a long-time employee of EMHS’s Royal Perth Hospital.

The technology was developed in 2007 and registered in Sturm’s and Isopogen’s names.

Neuroscientific swooped after Sturm and EMHS last year reached a “mutually acceptable” confidential settlement.

A joint statement said the peace deal provided the basis for an “ongoing relationship” – so let’s call it friends with benefits.

Investors had been excited about Isopogen’s prospects as a “mini Mesoblast” – and an ASX listing seemed on the cards.

But the prolonged and increasingly complex legal spat put paid to that.

“As soon as it was resolved we jumped on the opportunity,” Uvarov says.

About Stemsmart

Neuroscientific describes the Stemsmart cells as having “potent anti-inflammatory and immune-modulatory properties”.

This creates a “multifaceted and complex interaction” with the body’s immune system, dampening inflammation, moderating immune responses and encouraging tissue repair.

“It’s quite an advanced program,” Uvarov says. “Overall, more than 200 patients have gone through this therapy, so we know it’s quite safe and active.”

Derived from adult human donor marrow, mesenchymal stem cells (MSCs) are grown in a culture and then revved up with the patented cell manufacturing process.

To date, patients have received Stemsmart on compassionate grounds for a variety of serious and life-threatening clinical conditions, with “multiple strong positive clinical responses”.

Crohn’s disease

Isopogen undertook a phase II trial of 18 patients with refractory Crohn’s disease.

The results were “promising”, with most patients experiencing clinical improvement and even clinical remission.

The company’s attention has turned to a small, 12-person, phase I trial for fistulating Crohn’s disease under a TGA special access program.

A severe complication of Crohn’s disease, fistulas are abnormal tracts connecting the intestine to another organ or to the external surface of the body.

Fistulating Crohn’s disease is challenging to treat and sustained healing with standard therapies has been limited.

“Nothing disease modifying exists now, so it’s a massive market,” Uvarov says.

“If we do a phase I trial, the next step would be to move to a phase II/III study as a potential step towards a regulatory trial.”

The study will aim for a closure of more than 50% of the fistula openings, or a decrease in fistula discharge of more than 50% in at least four patients.

Addressable markets

Over the next 24 months, the company envisages expanding its stem cells trial from Crohn’s disease, to other inflammatory and immune-based disorders including lung disorders and acute kidney transplant rejection.

Uvarov says Isopogen has 140 doses frozen and ready for use in further clinical studies.

Several patients have received the therapy on compassionate grounds, including both children and adult with graft versus host disease (GvHD).

The company cites a US$13.8 billion addressable market for Crohn’s disease and a US$640 million opportunity for GvHD by 2026.

There’s a projected US$7.2 billion market for organ transplant immune-suppressants by 2030 - the majority for renal – and a forecast US$33 billion market for lung disorders by 2023.

Legacy program lives on

And let’s not forget about Neuroscientific’s pre-clinical legacy program.

Emtinb targets Alzheimer’s disease and advanced glaucoma.

In 2023, Neuroscientific decided development should focus on the latter as a therapy administered locally, via intravitreal injection.

Uvarov says the company moved to stem cells because the legacy program was not moving as fast as investors would have liked. And an Alzheimer’s program would have required a much bigger trial.

In June last year, the company met with the US Food and Drug Administration for a pre-investigational drug approval powwow, with the agency guiding on the pre-clinical studies required to progress Emtinb to a first-in-human trial.

Based on this counsel, the company plans a pharmaco-kinetics rabbit study, by which Emtinb is intravitreally administered.

In parallel, the company plans a 13-week study of “ocular tolerance, systemic toxicity and pharmacokinetic following repeated intravitreal administration in pigmented rabbits”.

Given there’s shortage of animals for medical research as suppliers withdraw from the market, it’s a case of when the company can obtain the specially bred bunnies.

“It’s harder to do animal studies because of regulatory pressure,” Uvarov says.

“Regulators want to move from pre-clinical animal studies to cell-based research using animal organoids.”

Organoids are three-dimensional structures that mimic the architecture and function of human organs and tissues.

Finances and performance

Neuroscientific must obtain the separate assent from all Isopogen holders, although Sturm is by far the biggest holder.

The company has snared 51.4% of Isopogen holders and is confident of the remaining minority holders coming on board.

Under the scrip deal, Isopogen holders receive 85,714,286 shares, deemed to be worth 3.5 cents.

At today’s values the deal is worth a tad over $4 million.

Isopogen holders also receive 57,142,857 performance shares convertible to ordinary shares, subject to the aforementioned milestones.

These must be achieved within three years of a shareholder meeting to approve the performance shares, scheduled for mid-June.

All the issued shares will be escrowed for 12 months.

Currently underway, the $3.5 million capital raising is by way of a placement of 100 million shares, at 3.5 cents a share.

Post-raising, the company will have cash of $7.5 million.

Of the funds raised, just over $2 million is expected to be used for Stemsmart-related stuff.

A further $835,000 is earmarked for the Emtinb program.

Over the last 12 months Neuroscientific shares have ranged between 3.3 cents (early January this year) and 5.5 cents (early May 2024).

The stock peaked at 50 cents in mid-September 2021.

The tightly held register is dominated by the Clough family office, of Clough Engineering fame. Clients of Westar Capital account for much of the remainder.

Dr Boreham’s diagnosis

Uvarov says Isopogen’s stem cells could be “even more potent” than Mesoblast’s cells, although they work more by way of immune modulation rather than regeneration.

“Our cells … have more growth factors they excrete when you culture them,” he says.

He says the FDA’s approval of Mesoblast’s Ryoncil “paves the way for renewed enthusiasm and global investment in clinical research of MSC therapies”.

It’s not just the company that’s hyper-enthused: the International Society for Cell and Gene Therapy dubs the Ryoncil approval as “a pivotal moment in the history of medicine shaping the future of therapeutics”.

Uvarov adds that after years of being untrendy, stem cells again were the hot topic at JP Morgan’s global biotech gabfest in January.

“We are at the beginning of stem cells 2.0,” he says.

Given Mesoblast is worth around $2.3 billion and Neuroscientific is valued at not much more than its cash backing, Neuroscientific will be walking in the shadow of a giant.

“When Mesoblast was at a similar stage they had a market cap of several hundred million dollars,” Uvarov says.

How soon the company emerges from this penumbra depends on the pace of its trials and – ultimately – its first port of call of initial TGA approval.

“It’s complex and tricky so we are taking it slow,” Uvarov says.

At a glance:

ASX Code: NSB

Share price: 4.8 cents

Shares on issue: 144,604,870 *

* Increases to 333,176,299 shares post-Isopogen WA acquisition and placement

Market cap: $6.9 million

Chief executive officer: Dr Anton Uvarov (founder)

Board: Chris Ntoumenopoulos (chair), Dr Tony Keating, Clarke Barlow, Uvarov, Dr Linda Friedland

Financials (March quarter 2025): revenue nil, cash burn $182,000, cash of $4.3 million (ahead of $3.5 million capital raising).

Major identifiable pre-acquisition shareholders: McRae Technology Pty Ltd/McRae Investment (Clough family office) 30-40%, Lehav Pty Ltd (VHL Family Account) 2%, ECU Holdings 1.77%

Disclosure: Dr Boreham is not a qualified medical practitioner and does not possess a doctorate of any sort. He, too, walks in the shadow of giants and is taking it slow.

Originally published as Dr Boreham’s Crucible: Can this biotech emerge from Mesoblast’s shadow and ride ‘stem cells 2.0’?