MARC SINATRA’S BIOGUIDE: ANGIOBLAST GETS THE BLOOD PUMPING
June 20th 2010 02:00
Thursday May 13, 2010
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MARC SINATRA’S BIOGUIDE: ANGIOBLAST SYSTEMS
Overview: A successful float, post-float share price performance and an ability to hit milestones has made Mesoblast a very successful Australian biotech. However, the market knows little about its closely-related sister, Angioblast Systems.
In fact, Angioblast is the older of the two companies and owns the intellectual property that both companies are developing. In addition to sharing technology, the companies share certain shareholders, directors and employees. They are about as close to each other as they can be without being a single company.
So, who is Angioblast and what sort of valuation would it attract if it were listed?
Angioblast & Mesoblast: Like Mesoblast, Angioblast is developing a range of tailored, off-the-shelf, adult, stem cell-based products for a range of indications. Angioblast is initially targeting the cardiac and bone marrow transplant markets. Mesoblast, via a licence from Angioblast, is developing the same technology, but for application to bone and joint diseases only.
Directors: Non-executive chairman, Carter Eckert; chief executive officer, Dr Silviu Itescu; non-executive directors, Robert Campbell, Donal O’Dwyer and Michael Esposito.
Angioblast has an excellent board, providing a solid mix of management, commercialization and scientific skills.
Products in Development:
1) Congestive heart failure (CHF): The product, Revascor, is in phase II trials for congestive heart failure and CHF patients fitted with a mechanical heart assist device. Early results have been positive and full results should be released in the not-too-distant future;
2) Cord blood expansion (CBE): Currently in a phase I/II trial, the product is aimed at expanding the number of haematopoietic cells collected from umbilical cord blood. Cord blood is the preferred source of cells for bone marrow transplant, but the low yield of cells limits their usefulness;
3) Myocardial infarction: Presently being studied in a phase II trial, initiated on the back of a successful pre-clinical study in sheep. It is progressing more slowly than expected, although a protocol change should speed up recruitment;
4) Macular degeneration and diabetic retinopathy: Scheduled to enter human trials soon, a 2008 animal study showed the combination of Angioblast’s adult stem cells and Lucentis, a drug for macular degeneration, significantly reduced blood vessel leakage in the eye by 25 percent compared to Lucentis alone;
5) Type II diabetes: Also due to enter human trials soon. The indication is being investigated following a mouse model trial of type II diabetes, which showed mice treated with Angioblast’s stem cells had significantly more insulin-producing cells 21 days after chemical destruction of the pancreas than controls.
Significant Product Markets: Angioblast’s later stage products are aimed at a combination of large and small markets.
Congestive heart failure affects 5.7 million Americans with 550,000 new cases each year. $US6.7 billion is spent each year for drugs and other therapies to treat the disease. Many cases of CHF are the result of the 1.1 million cardiac arrests each year in the US.
The US CBE market is small, with 19,000 bone marrow transplants in 2005, with costs from $US50,000 to $US200,000 each, making transplants a solid orphan indication.
Valuation: Using a standard, risk-adjusted, discounted cash-flow method, I have arrived at a market capitalization valuation for Angioblast between $237 million and $292 million or $113 to $140 a share. While this valuation seems high for an unlisted company, it is hard to argue with it, after performing a series of reality checks.
Osiris Therapeutics, the other major adult stem cell company, has a market capitalization of $250 million, despite numerous trial failures. Mesoblast has a market cap of $280 million owns 33 percent of Angioblast and has product markets distinct from Angioblast.
Angioblast has added significant value after capital raisings. Following a $5.6 million placement to Abbott Laboratories at $84 a share, Angioblast gained orphan status and produced positive preliminary phase I/II results for its CBE product and returned positive preliminary results from its phase II CHF trial, among other achievements.
An August 2009 convertible note issue was followed by positive results from the CBE trial, the low-dose CHF trial and type II diabetes animal data.
Opinion: Angioblast is of equivalent quality to its sister company Mesoblast although it is probably a higher risk - higher return proposition.
Two important factors distinguish Angioblast from Osiris’s disappointing trial results.
First, Angioblast uses a decidedly different, more defined, adult stem cell population.
Second, while Osiris by-passed animal trials and moved straight into human trials, Angioblast has chosen products based on positive animal data, reducing the risk of future trial failures.
Angioblast is also tailoring its products on an indication-by-indication basis, whereas Osiris is a two-products-fits-all company. Again, this also reduces the risk of trial failures, but it also allows for differential pricing of products and prevents cannibalism between Angioblast’s products.
The proposed merger of Angioblast and Mesoblast values Angioblast at $240 million, an acceptable price at the lower end of my $237 to $292 million range.
Marc Sinatra’s Bioguide,
marc@biotechdaily.com.au
* This BioGuide was derived from a research note on Angioblast Systems prepared by Marc Sinatra, under contract, for Lodge Partners Pty Ltd.
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