A Tale of Two Stem Cell Platforms, a discussion of Mesoblast and Pluristem
March 7, 2011
By Ray Dirks

I recently attended a investor presentation presented by Mesoblast. It is a fine company. Their technology has been validated by a 130 million dollar upfront payment from Cephalon and an additional equity investment by Cephalon of about 107 million dollars. The deal also involves a possible 1.5 billion dollars in clinical milestones for three indications that Cephalon has licensed and Cephalon will be paying all of the clinical trial costs in these indications.

After the presentation I am more convinced than ever that Pluristem is tremendously undervalued. Mesoblast’s market capitalization is over 1.8 billion dollars compared to Pluristem’s valuation of about 100 million dollars.

The last time I wrote about Pluristem they were a company that had just gotten approval to run a pivotal trial in the indication of Critical Limb Ischemia by both the FDA and EMA. They had one problem, they only had a few million dollars in the bank. Since that time the company has raised over 40 million dollars from warrant exercises and an equity raise, priced at $3.25. Based on their financial position the company is a better value today than it was back in February. They are one of the few biotech companies in the enviable position of having 3 to 4 years of cash.

Mesoblast’s technology platform is all about adult mesenchymal precursor cells. About one out of every 100,000 cells removed from a healthy volunteer’s bone marrow, not a pleasant experience, will be the cell used in their studies and commercialization process. Pluristem gets their mesenchymol like stromal cells from the placenta which is considered a medical waste and very easy to get access to.

Both companies claim that their cells are extremely potent with no immune reactions. The cells also avoid the ethical and safety issues of embryonic stem cells, and are backed by strong intellectual property protection. Both companies have off the shelf products, claim batch to batch consistency and say their cells can be expanded in large numbers without affecting potency. These are terrific assets because this means a low cost of goods with no supply constraints on approval making both technologies perfect for large pharma because they will have drug like properties and high margin products. The mechanism of action of each of the company’s products is immune modulation as opposed to most stem cells that work by cell differentiation. In fact in animal models within sixty days of delivery of cells you can no longer find the cells in the tissue where the cells were delivered. The companies haven’t done this in humans because you can’t take biopsies of these areas in humans.

As I said earlier both companies say their drugs are non-immunogenic. As far as I am concerned Pluristem has done more to prove this. Mesoblast has never given more than one injection to any one individual. In Pluristem’s trial in Critical Limb Ischemia they gave repeat doses from the same placenta two weeks after the initial dose to many of their patients in an effort to exhibit that their cells do not have an immunogenicity issue. So far so good. There were no problems. In fact in their upcoming phase three trial a dose four months after the first injection is part of the protocol and it is believed this should help the efficacy of the stem cell treatment to increase the length of treatment effect.

Mesoblast said in their presentation that if their drug were to receive approval their contract manufacturer, would have to build a bricks and mortar facility in a tax advantaged area like Singapore to produce their product in a commercial scale. This is a concern to me because even if their pivotal trial is acceptable this could be an issue with the FDA. Many drug approvals are held up because of issues with the CMC section of the drug approval process. In this case the FDA might have an issue with the fact that the drug produced for the phase 3 study would be produced at a different manufacturing facility with a different cell bank, than what will be used in the manufacturing of the commercial facility. Pluristem in contrast is doing a very intelligent thing. They are manufacturing their clinical trial batches in the same facility and bioreactor that they will be using for the commercial launch of the drug, if they have a successful clinical trial. This is an incredibly important fact that I do not think most people following the companies have realized.

If you put these things together I think Pluristem has some advantages to Mesoblast but even if you say the products are the same or the differences are immaterial the Pluristem market value comparison to that of Mesoblast just doesn’t make any sense and we should see a rise in Pluristem’s valuation to fill that gap. I also have to believe that because of the simplicity and intellectual property around Pluristem’s manufacturing it will not be long before “big pharma” takes a serious look at Pluristem and one of those companies commits to a similar licensing deal with Pluristem, that Cephalon offered to, and was accepted by Mesoblast.

MSB’s market value is currently approximately $1.8 Billion while PSTI’s market value is approximately $100-120 Million. As PSTI enters clinical trials for the other indications with their proprietary placental-expanded (PLX) cells, and for the reasons I point out in this report, their market value should reasonably approach the market value of MSB. Ergo, my opinion to aggressively accumulate PSTI’s Stock.

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